Introduction: How to Buy Bitcoin, Ethereum, and Litecoin
So, you’re thinking about buying some crypto? Like most people getting started in cryptocurrency, you probably have no idea where to start. What’s the fastest, easiest, and safest way to get started? I wrote this basic guide to help make the transition into buying crypto an easy one and to hopefully help answer some of the questions you may have.
In this guide we will be focusing on three cryptocurrencies: Bitcoin, Ether, and LiteCoin. While there are many more, these are the three that you will be able to purchase using this guide. While the focus of this guide is on how to easily purchase these cryptocurrencies, I will give a brief description of cryptocurrency and each of the three previously mentioned coins. However, I strongly encourage you to do additional research as I think it is always important to know what you’re buying and these very brief descriptions don’t do the complexity and uses of these coins justice.
I tried to make this as basic and simple to follow as possible. A lot of this is probably really obvious, so please bear with me. Likewise, there are better and more secure methods for buying, trading, and storing cryptocurrency for those that have a basic understanding of the space. However, I believe that it can be overwhelming for someone with little to no experience in crypto to be thrown into the deep end.
This guide was originally made for my friends and family interested in getting started in cryptocurrency, but am more than happy if others find it useful!
Note: This is only the first half of my full guide. I am planning on writing up the second half as an additional Instructable, which will contain more information about how to make your account more secure and how to avoid a lot of the extra fees. The full guide is free to read and download at:
Step 1: Cryptocurrency? What's That?
Cryptocurrencies borrow their name from cryptography, or the study of the methods of encrypting information, such as sending a secure private message but also for data security and authentication. Cryptocurrencies, or crypto for short, use many of the technologies, theories, and advancements developed by cryptographers to create a digital money exchange system that is makes censorship and fraud nearly impossible.
Unlike cash, cryptocurrencies are backed by math rather than a promise made by a government or financial institution. The amount of cryptocurrency available is based on math and publicly available, and typically no one person or organization can increase the amount available like governments can with the U.S. Dollar.
Cryptocurrencies use a distributed network that allows for a peer-to-peer (p2p) transaction system, without the need for an additional third party. For this to work, cryptocurrencies use mathematical algorithms and a public ledger for transactions. To validate that every transaction that occurs is legitimate, complex math is used to link each account with a certain amount of the cryptocurrency.
Certain users, also known as miners, dedicate their computing power to solve these complex equations and are usually rewarded with a small amount of the cryptocurrency for doing so. While there have been several attempts made at creating a decentralized currency that relies on cryptographic protocols, the one that really took hold was proposed by an anonymous user or users, under the name “Satoshi Nakamoto” in 2008 known as Bitcoin. Bitcoin remains the most popular and well-known cryptocurrency, but there are now thousands of new cryptocurrencies with different levels of value, popularity, and use cases.
We will be learning how to purchase three of the most popular and well known cryptocurrencies in this guide.
Step 2: Bitcoin, Ethereum, and Litecoin
Bitcoin (BTC) is by far the largest and most well-known cryptocurrency. It is a secure digital currency that can be used to transfer value anywhere in the world using an open ledger on a global decentralized network, also known as a block chain. All transactions that occur are public and verified by this network. Bitcoin is not controlled or issued by any bank or government, but is instead an open network that is managed by its users. The important thing about this is that no one can inflate the currency. It’s main purpose is to be used as an electronic cash system that can be used to make and receive payments without relying on any central institution like a bank or government. Only a total of 21 million bitcoins will ever exist.
Ether (ETH) is also a digital currency not controlled or issued by any bank or government. However, Ether is used for operating smart contracts, or applications, on the Ethereum Network. The Ethereum Network is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. In the Ethereum network, Ether is a crypto token that serves both as a tradable cryptocurrency and can be used by application developers to pay for transactions fees and services. Unlike bitcoin, there is no upper limit to the amount of Ether that will be created.
Litecoin (LTC) is a peer-to-peer internet currency that enables instant, near-zero cost payments to anyone in the world. Like Bitcoin and Ether, it is decentralized and does not run through any central government or institution. However, rather than trying to replace bitcoin, litecoin’s purpose is to complement it with faster transaction times.
Step 3: Coinbase - Account Creation
The easiest method of getting started in cryptocurrency is through Coinbase. Coinbase is an online platform for buying, selling, and transferring Bitcoin, Ether, and Litecoin. They even have an app you can use to buy right from your phone! Coinbase is probably the easiest and safest method for beginners interested in cryptocurrency. Now you may be a little worried about providing and verifying your personal information with Coinbase, let alone providing your bank account and credit card information.As with anything, nothing is 100% secure and so I can’t promise that your information will without a doubt be 100% secured at Coinbase.
However, what I can say is that Coinbase is probably the most legitimate source of purchasing Bitcoin. A little about Coinbase: they are a digital currency startup that has a $1.6 billion dollar evaluation and has raised money from Andreesen Horowitz, the New York Stock Exchange, and more. So, at least in my mind, if these big name Venture Capitalists trust Coinbase with their money and information, then I think that it’s safe enough for me.
To get started, head on over to www.Coinbase.com to create your account on their website.
You can also click or type in my referral link: https://www.coinbase.com/join/5934b7a2546c0e049c0... and if you buy $100 worth of Bitcoin we both get $10 worth of Bitcoin from Coinbase!
If you’re signing up without the referral link, click “Sign Up” on the top right corner and go ahead and fill out the form. If you’re using the referral link, simply fill out the form shown in the attached image.
You’ll want to use an email that you actually use and check often (i.e. not a junk or spam email address you give out for emails you never check). The reason for this is that Coinbase will send you emails if/when money or cryptocurrency is moved into or out of your account, which is a good thing to keep an eye on to make sure someone didn’t get into your account.
After you fill out the form, click Create Account. You should then receive a confirmation email from Coinbase as shown below. Open that email up and click the link, your account should now be set up.
You will then be asked for your cell phone number as a secondary authentication method to protect your wallet. Coinbase will send you a text with another verification code and you enter that back on the site.
Step 4: Coinbase - Adding Payments
Let’s now add some payment methods, so you can buy some cryptocurrency! To add your payment methods, againgo to the Settings tab, click Payment Methods and then click Add Payment Method.
A popup will appear and you will see that there are three payment methods available: PayPal, Account, Bank Account (US), and Credit/Debit Card.
I would strongly recommend linking your Bank Account. With your bank account, you will be able buy crypto and when you sell it you will be able to withdraw the money into your bank account. There is also a higher limit, which means you’re able to buy more per week. However, the potential downside of this is that it takes about 4-5 days to process the payment.
As an example, let’s say you buy one full Bitcoin at $4,000 right now with your Bank Account through CoinBase. What this means is that you have bought it at a price of $4,000, but you can’t transfer it or sell it until after the 4-5 days (Coinbase will email you to let you know when you have access to that Bitcoin). Now, a common question is If it goes up $500 within those 4-5 days, does that mean you now paid $4,500?!? No, you still paid the $4,000 price- you just can’t sell it until after the payment is cleared.
Another option is to link your credit/debit card. This method requires some extra verification and can only be used to buy cryptocurrency and can’t be used to withdraw cash, if you happen to sell any cryptocurrency. While you have lower limits than with a bank account, you have access to sell or trade the crypto the instant you buy it instead of having to wait the 4-5 days. There are more fees associated with this payment method, but we’ll get to that later.
Now you're all set to buy your Bitcoin, Ethereum, and Litecoin!
Step 5: Coinbase- Fees
One thing that I haven’t yet mentioned are the fees. Coinbase has to make money for providing you with an easy way to buy and sell crypto. The way they do that is by charging fees, which they define as “Conversion Fees” for buying and selling. Now before I start describing the fees, I would like to point out while the fees seem like a lot Coinbase does provide a lot of ease, convenience and security that goes on behind the scenes. They also are very transparent with their fees and you will see the amount you are paying and the fees associated. In my opinion, given the volatile nature of the cryptocurrency market, a few percentage points isn’t that big of a deal when you’re dealing with a market that could very easily go up or down 20-30% in an hour.
The following was obtained from Coinbase Pricing and Fees Disclosure at the time of this writing:
"...Unless otherwise disclosed to you at the time of your transaction, the conversion fee you pay is calculated as the greater of:
(a) Minimum fee — a flat fee that applies to conversion transactions under $200, and which is disclosed before you execute the transaction.
(b) Percentage fee — varies by region and payment type, as follows:..."
Where they list the region for the USA as shown in the attached image.
Now what this basically means is that if you buy or sell $200 or less in any one transaction, you will be paying a larger percentage fee than if you buy or sell more than $200. So essentially, one take-away is that is better to buy more cryptocurrency at once than to buy a little at a time if you’re concerned about fees. Now what happens when you buy or sell more than $200? Well based on the method of buying or selling you will be charged according to method you used to buy or sell, as shown in the table above.
For example, if you buy some Bitcoin using your credit card you will be charged a 3.99% fee for the purchase, where if you use a Bank Account you pay a 1.49% fee. This is why, generally it is better using your U.S. Bank Account over your credit card or PayPal.
Another important consideration is that in order for Coinbase to be able to sell you cryptocurrency, they typically use the current market rate of the cryptocurrency plus a spread of up to 50 basis points- most likely to account for market volatility. In other words, you are paying a slight premium over the current market price.
Again while the fees may seem unfair, there is a lot going on behind the scenes. In a market that can double or triple very quickly, a few percentage points in fees should not dissuade you from the ease and convenience of using Coinbase but it is good to be aware that the fees exist.
