How to Buy Bitcoin & Other Cryptocurrencies: A Step-by-Step Guide

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• Cryptocurrencies are digital assets that can be transferred without third parties.
• There are generally three ways to buy crypto: crypto exchanges, brokerages, or payment services.
• Order types greatly influence how much you’ll pay for different cryptocurrencies.

Cryptocurrencies are digital assets that trade on a 24/7 global market. If you’re thinking about adding cryptocurrencies like bitcoin, ethereum, or dogecoin to your investment portfolio, you have several options for doing so. 

“Cryptocurrency is a unit of measure. It is a digital token that can be transferred from one party to another, but not duplicated,” explains Charles Allen, chief executive officer of BTCS, Inc. 

Understanding cryptocurrency basics

What is cryptocurrency?

Cryptocurrencies are digital currencies (digital representations of value) that are secured using cryptography. Interested parties can use them to purchase goods and services. Past that, they enable individuals to make transactions without the interference of third-party intermediaries. 

How does cryptocurrency work? 

Unlike physical fiat currencies (e.g., the U.S. dollar), cryptocurrencies make use of decentralized networks, and their transactions are generally recorded on the blockchain, which is an immutable, decentralized ledger. 

The first known blockchain was rolled out for use with bitcoin, the first digital currency to scale. This blockchain was designed to be immutable (meaning transactions cannot be reversed or deleted) and decentralized (meaning its records are stored on many different computers) in order to safeguard against fraud and also boost transparency. 

Every bitcoin transaction that has taken place in the more than 15 years since the digital currency network has existed has been logged on the network’s blockchain. This feature helps create greater transparency. 

“If I own a bitcoin, I don’t really own anything physical,” Allen says. “I just own a key that allows me to move a record or a unit of measure from one person to another, without a trusted third party.” And that’s really all the cryptocurrency is, he explains. 

So if I own two bitcoins, he adds, I can move it from myself to someone else without a trusted third party in the middle. “And that transaction would be verified by this decentralized network of computers from nodes and miners.”

Why invest in cryptocurrency? 

Investing in cryptocurrencies can potentially deliver substantial returns. The price of bitcoin, for example, has gone from pennies during the first few years of the digital currency’s existence to more than $60,000 per unit at the time of this writing, according to CoinMarketCap figures. 

Another benefit of investing in digital currency is that it can be used to diversify one’s portfolio. The idea behind diversification is including multiple assets (potentially from various asset types) so that if one component of a portfolio falls in value, the other components rise in order to maintain the overall value of the portfolio. 

While investing in cryptocurrency certainly has its benefits, interested parties should keep in mind that these digital assets can experience sharp volatility. Stocks can certainly experience price fluctuations, but the volatility experienced by digital currencies is more intense. 

As a result, individuals who put their money into digital currency face significant downside risk, referring to the risk that the value of their principal could fall in value. 

Past that, digital currencies are a very new asset class, at least compared to other more established asset classes like stocks and real estate. The first units of bitcoin came into existence in 2009, which would mean that this digital asset has been around for 15 years at the time of this writing. 

Different ways to buy crypto 

Cryptocurrency exchanges 

A crypto exchange is a platform dedicated to facilitating the trading of cryptocurrency. Each exchange has its own rules when it comes to the buying, selling, and trading of cryptocurrency. 

The best exchange for you depends on your needs, but beginners should look for exchanges that offer simple web and mobile interfaces, educational resources, and readily available customer support.

It is worth keeping in mind that while there is a large number of such marketplaces, there is a short list of organizations you should consider if you are seeking to use one of the best crypto exchanges out there. 

Depending on the crypto exchange, you can trade one cryptocurrency for another, or exchange fiat money (like the U.S. dollar) for cryptocurrency, or vice versa. Prices are based on daily market rates. 

It should be noted that not every exchange offers every cryptocurrency. But here are several exchanges and brokerages that do:

There are both centralized and decentralized exchanges. The most prominent exchanges, for example Coinbase and Kraken, are centralized, whereas decentralized exchanges are peer-to-peer (P2P) marketplaces where transactions take place directly between users. 

Decentralized exchanges rely on smart contracts, which ensure that transactions take place as long as specific requirements are fulfilled. 

While decentralized exchanges have seen increasing usage over time, centralized exchanges still see far more activity. 

Traditional brokers 

Interested parties can also purchase digital currencies through traditional brokers. Traditional online brokerages that offer cryptocurrencies are few, but more options are becoming available for crypto-oriented traders.

Online brokerages usually don’t offer as many cryptocurrencies as crypto exchanges (nor do they provide interest-earning account perks like staking). 

One example of a broker that offers these digital assets is eToro USA, which offers trading in more than 20 cryptocurrencies. 

Another example is Robinhood, which currently offers no-commission cryptocurrency trades. Users can buy and sell 15 different digital currencies through this platform. 

Interactive Brokers offers digital currency trading, although it only allows investors to trade four cryptocurrencies, specifically bitcoin, ethereum, litecoin and bitcoin cash. This platform offers low commissions for such transactions, which can be as little as 0.12% to 0.18% of the value of the asset traded. 

You should choose a broker if you’re looking to trade a variety of asset types under the same roof. TradeStation offers cryptocurrencies in addition to its selection of stocks, ETFs, options, bonds, and mutual funds.

Payment apps

Several payment apps give their users the ability to purchase cryptocurrencies. These software programs can offer easy access to digital assets. 

In recent years, payment services like PayPal, Cash App, and Venmo, all expanded their accepted payment options, allowing users to buy, sell, or hold cryptocurrencies like bitcoin. Every one of these services has an app that users can access to make transactions. 

Bitcoin ATMs

Bitcoin ATMs provide an easy way for interested parties to buy and sell the digital currency. As of January 1, 2024, there were more than 30,000 of these machines worldwide, according to Statista figures.  

These machines offer users a straightforward way to purchase bitcoin using more…