Buying cryptocurrency can be off-putting to investors interested in putting some skin in the game. These days, mainstream media coverage of the profits and follies to be found in the crypto trading scene, curiosity is at an all-time-high among folks looking to figure out what the future of finance and several other industries is about.
- Most commonly bought on centralized exchanges with fiat currency
- Becoming easier and more common to buy crypto with crypto
- 3rd-party payment services are now introducing crypto asset purchasing services
- Some payment services and exchanges allow purchases with credit cards
The fact remains that while major exchanges like Coinbase, Binance, and FTX have made it as easy as ever to become a cryptocurrency investor, barriers to entry remain relatively high compared to opening a checking account at the bank. So allow us to give you a quick explanation of a few common ways to start buying some cryptocurrency.
You already know that cryptocurrency, most predominantly Bitcoin, can be used as a means of payment for goods and services. In that case, it may seem unusual to think about buying cryptocurrency. Imagine buying cryptocurrency as really buying a crypto asset. These crypto assets can be used as a means of payment or as a representation of value.
Just like acquiring fiat currency from a bank, buying gold at a licensed dealer, or purchasing gift cards at your local shop, there are many reliable places you can buy crypto assets - but they are all online. Cryptocurrency is powered by blockchains running on the Internet, so it stands to reason that the most reliable places to buy crypto assets are on the Internet. We’ll walk you through various methods of buying cryptocurrency through three types of outlets: a centralized exchange (CEX), a decentralized exchange (DEX), and a registered payment service. Between those three outlets, you may buy cryptocurrency with fiat currency, other crypto assets, or with a payment service.
Fiat For Cryptocurrency
The most common way to buy cryptocurrency is to pay fiat currency for it. Simply put, this is where an investor deposits their US Dollars or other government-issued currency to a centralized exchange like Coinbase or Binance, then buys the crypto asset of their choice for fiat. It is also possible to use this method through payment services like PayPal. This method is how most first-time investors acquire their cryptocurrency.
Different CEX accept different fiat currencies. For example, Coinbase accepts USD, GBP, and EUR, while Binance accepts dozens of fiat currencies from around the world. Of course, before depositing fiat, you must make an account on one of these CEX. People residing in certain countries are prohibited from making an account on some CEX, so make sure you are eligible to make an account before trying! After making an account, you will find an option to ‘deposit,’ where you can choose fiat.
As a result of regulations preventing Americans from trading on most global platforms, some large non-US-based CEX have launched USA-based branches. FTX.us and Binance.us are two examples of this. Coinbase is already based in the USA. All CEX will force users to register their accounts with several forms of ID (known as KYC) before depositing fiat.
You must determine how much fiat you will send in to the exchange, then confirm the amount by sending it from your bank account. Most people have no trouble at all with sending fiat from their bank account to a crypto exchange, if their country has no restrictions on it. When the money arrives in the CEX account, traders can buy and sell whatever crypto asset they like on the platform at its fiat value.
As of writing this article, DEX do not support fiat currencies, so DeFi traders usually use 3rd-party payment services or CEX platforms to first onboard their fiat then send it off-platform for trading on DEX.
Cryptocurrency For Cryptocurrency
Buying cryptocurrency with cryptocurrency has become a common way for the masses to acquire cryptocurrency. In fact, on some CEX and on all DEX, traders may only find crypto-for-crypto trading pairs. As of now, no major 3rd-party payment services allow crypto-for-crypto purchases. As those 3rd-party ecosystems expand to support more crypto assets, however, their crypto-only trading pairs may emerge.
Simply put, buying crypto with crypto is where an investor swaps one cryptocurrency for another. Although trading pairs on stablecoins like USDC, USDT, and DAI have been fairly common for a while, stablecoins are not crypto assets in the strictest sense. Commonly performed on DEX, buying crypto with crypto is most often done using ETH as the base for the trading pair. This means that traders will swap their ETH for another crypto and vice versa since the main goal is to accumulate as much ETH as possible.
Buying crypto with crypto on a CEX is done exactly the same way as buying with fiat. Just choose the trading pair that’s best for you!
DeFi On DEX
ETH serves as the most common base because most DeFi trading is done on the Ethereum blockchain. BSC is a very close runner-up to the volume on Ethereum, with stablecoin BUSD and the native BNB as the most common bases. Under this arrangement, traders will swap their ETH, BNB, or any other coin with liquidity on a DEX for another coin. The innovation of multi-hops made this possible, with Uniswap leading the way.
The crypto-for-crypto trading pairs on a CEX are usually limited to BTC, ETH, stablecoins, and exchange native token base pairs. On a DEX, a trader can swap any two coins that have enough liquidity between them. For example, traders can buy MATIC on Binance only with USDT. On Uniswap, however, MATIC can be swapped to or from hundreds of different tokens thanks to multi-hops through ETH.
The process on a DEX is quite different from that on a CEX where your available assets are easy to identify. On a DEX, users must manually indicate the coin to sell and the coin to swap for. Some DEX have a slider to choose a percentage of your holdings to sell, but most require users to type in an exact amount to sell or an exact amount they wish to buy. The opposite value in coins will be filled in automatically based on their current price.
Buying Cryptocurrency With Credit Cards
As of now, buying cryptocurrency with a credit card is not as common a method as the previous two. The main difference with credit card purchases is that it is possible to do this with major 3rd-party payment services like Venmo and PayPal. Access to purchases through major exchanges and traditional payment services has given many access to cryptocurrency who would not otherwise have had it.
CEX such as Coinbase, FTX, Binance, and others allow users to deposit funds into their accounts through credit cards. The process on CEX to deposit this way is very similar to the way in which one would make a purchase on Amazon. Enter your credit number and name, then go through a verification process before the funds appear in your account. Over the years, this procedure has been refined and simplified as exchanges have expanded their inroads to traditional financial services.
It is even easier to buy cryptocurrency through 3rd-party services such as PayPal. Users with a balance on their PayPal account can buy crypto directly on the platform without any new verification needed. As of now, the crypto assets cannot be withdrawn, but that will likely change soon.
Overall, expect the cryptocurrency-buying experience to improve more and more as time goes on. And, as always, buy and trade safely!