In the old days, if someone needed their cash, they would
head down to the bank, fill out a form, stand in a long line, hand the form
over, wait while someone counted the money, then counted it again, before they
tucked the crisp bills into a neat white envelope and handed it over.
And if someone wanted to buy stock back then, the process
likely involved paper forms and maybe even a phone call. While these processes
took plenty of time, they were pretty straightforward and standardized.
The new world of cryptocurrency is a different story.
Want to buy some Bitcoin? How about some Ethereum? What if
you want to convert your Bitcoin into a fun new altcoin you just heard about
that’s based on a forum you spend way too much time on?
It can be a little more complicated and confusing than
writing your account number, the date, and a dollar amount on a form down at
the community bank or calling your broker.
In some cases, you’ll have to engage with a cryptocurrency
exchange platform, you may need a digital wallet and want a basic grounding in
the cryptocurrency landscape — because you won’t have access to a charming
bitcoin teller with a green visor to answer your questions.
That said, there are opportunities where the company or firm
handling the purchase will provide a secure platform, digital wallet and a
learn-as-you-go education in cryptocurrency. However, it’s important to note
that cryptocurrency is volatile and comes with risk.
What’s the deal with cryptocurrency wallets?
Investing.com lists more than 2,800 cryptocurrencies as of
October 2019. There’s a good chance that number has increased by the time you
read this since new cryptocurrencies seem to pop up by the day. Bitcoin and
Ethereum are still two of the most popular cryptocurrencies —Bitcoin being the
first and still holding the highest market cap and value.
But there are coins and crypto projects built out for myriad
weird and interesting niches, like the DogeCoin that started on Reddit,
multiple coins themed around cats and one for buying Burger King Whoppers in
What most of these currencies have in common is that they
have a piece of software — some are online — called a wallet where you can
store your cryptocurrency.
Buyers can set up a wallet before buying their first coin.
That way, they can move their crisp new cryptocurrency off of the exchange when
The official Bitcoin site lists no fewer than 22 wallets
that you could use to store Bitcoin. This is likely a product of Bitcoin’s
place as the first cryptocurrency and still one of the most popular. More
people have been using Bitcoin longer, so it makes sense that there are more
options for wallets.
Many smaller cryptos, like Litecoin, will have their own
wallet and additional wallets you can use from other developers. There are even
hardware wallets if you want to be really secure.
The hardware wallets usually look like a USB stick and can
be more secure because once you remove them from your computer they’re not on
the internet, and they can be built around secure chips and can have
encryption. You can also get mobile apps on most iOS and Android devices as
Your options for choosing a wallet that works for you are
basically those made by the coin developers themselves or those made by a
third-party developer. In some cases, wallets made by the original developers
might need a little more technical know-how and may require more computer
processing power than the third-party applications that seem to be aimed toward
a general audience.
For instance, Bitcoin Core, the wallet application from the
developers of Bitcoin, needs a ton of hard-drive space. If you want to use this
application you’ll need a minimum of 200 GB free on your hard drive. Bitcoin
will take up this space because it’s going to download the entire blockchain.
Basically, your computer will end up having a record of
every Bitcoin transaction that has run across the blockchain. Pretty cool, but
may not be necessary if you’re just looking to purchase some cryptocurrency.
A third-party application might make it a little easier for
most end users who want to buy and trade cryptocurrencies without taking such a
deep dive into the technology under the hood.
These applications often require fewer resources from your
computer, might be a little easier to use, and some of them are mobile apps so
you can take your crypto portfolio on the go.
Crypto exchanges: Like Wall Street on code
Once you’ve found the wallet that could work for you, it
might be time to head to an exchange to get some crypto you can store in it.
After all, what’s the point of having the wallet if you’re not going to use it?
But you might be wondering what an exchange actually is.
An easy way to think about cryptocurrency exchanges is to
imagine the stock market. Instead of trading and selling small bits of
companies in the form of stocks, futures, or bonds, crypto exchanges do the
same thing, but with cryptocurrencies.
Many of these exchanges will show prices of a single
coin/token, usually against the U.S. dollar, and they may have charts that show
the performance of a particular cryptocurrency over time.
If you’ve ever looked at a stock ticker tape or a finance site
with stock prices, you can probably already imagine what a crypto exchange
looks like, except with cryptocurrencies like Bitcoin and Ethereum listed
instead of blue-chip, Fortune 500 companies.
There are three kinds of digital currency exchanges: centralized
exchanges, decentralized exchanges and hybrids. Here’s how they shake out.
Centralized cryptocurrency exchanges
A centralized cryptocurrency exchange is a lot like what it
sounds like: a central platform where cryptos are bought and exchanged. These
exchanges have a third party that helps conduct transactions to make sure they
go through as intended — sort of like a bank.
This might seem counterintuitive since one of the founding
tenets of Bitcoin was a decentralized network, but exchanging fiat currencies
for cryptocurrencies can require a third party to help make everything go as
smoothly as possible. (“Fiat currency” is just a fancy term for traditional,
established currencies like U.S. dollars.)
A centralized cryptocurrency exchange can make it easier to
buy your intended crypto with real money and might give you some security that
the transaction will go as intended. Also, they can make it easy to link your
bank account or debit card in order to buy crypto.
Once you own cryptocurrency, you can usually trade it on
centralized exchanges, too. So, if you have some Bitcoin and you want to buy
some Litecoin, you can make that happen on a centralized exchange. Centralized
exchanges are more common than their decentralized cousins.
Decentralized cryptocurrency exchanges
A decentralized cryptocurrency exchange, or DEX, lacks the
third party found in centralized exchanges. You could say decentralized
exchanges are closer to the spirit of the blockchain that started the
cryptocurrency world, because they are open source and depend on users to trade
peer to peer.
In theory, a decentralized cryptocurrency exchange could be
more secure than a centralized exchange. Because there’s no central entity or
server to hack, it might make it harder to steal cryptocurrency. Fees might be
lower and your transactions might also process faster in a DEX.
DEX has some drawbacks compared to their centralized
counterparts. You might have to be a little more skilled with tech because DEX
doesn’t often offer easy transfers from bank accounts or debit cards to buy
Some DEX doesn’t offer fiat currency changes at all and your
only option might be to trade one cryptocurrency for another. Your funds aren’t
insured and there’s nobody to call if you run into a customer service issue, as
there’s no central authority.
Hybrid cryptocurrency exchanges
Hybrid cryptocurrency exchanges are exactly what they sound
like: an attempt to blend the best of both worlds from centralized and
decentralized into one exchange. Their aim is to give end users the convenience
of a centralized exchange while also giving them the security and freedom of a
Hybrid exchanges have yet to see the adoption that
centralized exchanges have realized, but they may be laying a roadmap for a
middle ground that might keep consumers and crypto enthusiasts happy in the
Remember that wallet you learned about? Well, now that
you’ve got a handle on how exchanges work, and what they do, you can combine
the two and move your fancy new cryptocurrency from the exchange to your
Here’s how a transaction like this might go down. Let’s say
you want to buy one Bitcoin:
• First, you can
find a Bitcoin-compatible wallet you like.
• Then, you might
find a centralized exchange (because they can be easier).
• You could then
create an account at the exchange and add some funds, usually from a bank
account or debit card.
• Then you could buy
your one Bitcoin.
You could keep your Bitcoin on the exchange, but some crypto
folks might suggest you move it to a personal wallet if you’re going to hang on
to it for a while. That’s because the exchange could get hacked and you could
lose your shiny new Bitcoin.
Or the exchange might suddenly close up shop and your
Bitcoin might go right along with it — such as what happened with Polish
cryptocurrency exchange, Coinroom.
Moving your Bitcoin from the exchange to your wallet is
almost like taking cash from the bank and putting it in your safe at home. It
might be a good idea to help keep your cryptocurrencies secure.
Get ready to trade
Finding the cryptocurrency, exchange and wallet that works
for you and your goals is a personal choice. It may also depend on something
like your operating system and if the wallet and exchange are available on
mobile. It might even depend on the cryptocurrency you’re trying to buy. Please
note that while the crypto industry is evolving, it is still nascent and
volatile — so be careful!
here for the original article.