When it comes to making our first cryptocurrency purchase, centralized exchanges are often preferred due to their familiarity, as the user experience is most similar to Web2 products such as traditional interfaces. But what steps do we need to take when making our first cryptocurrency purchase from an exchange using fiat money in our bank account?
When it comes to making our first cryptocurrency purchase, centralized exchanges are often preferred due to their familiarity, as the user experience is most similar to Web2 products such as traditional interfaces. But what steps do we need to take when making our first cryptocurrency purchase from an exchange using fiat money in our bank account?
1. Setting up a crypto exchange account
First, you need to choose a reputable cryptocurrency exchange. For today’s example, we’ll use Coinbase, a centralized exchange (CEX). Other popular options include Binance, Kraken, Kucoin, and Crypto.com. These centralized exchanges offer a safe environment with user-friendly interfaces for your first experience of exchanging money from your bank account to cryptocurrencies in your wallet.
Step-by-step process:
1. Visit the exchange website and click the “Register” button.
- Select Individual unless you are creating a business account.
2. Enter your personal information (name, email, password). Keep your password safe!
3. Confirm your email address and phone number.
4. Complete the KYC (Know Your Customer) process by uploading identification documents. Note: Have an ID card, passport or driving license ready. For ID cards, you will be asked to upload a picture of the front and back of your ID.
5. Congratulations! You can now log in to your Coinbase account and deposit funds!
2. Deposit of funds
Once your account is set up and verified, you can log in with your credentials and view your dashboard.
Next, link your bank account to the exchange to deposit funds. To do this, follow these steps:
Step-by-step process:
1. Navigate to “Add payment method”.
2. Select your bank and enter the required information.
3. Initiate the transfer from your bank account to the exchange.
3. Buy cryptocurrency
Congratulations, once your deposit is complete, you can navigate back to the Trade tab (left column), enter the amount you want to spend (e.g. 300 euros) and purchase any of the cryptocurrencies available on your chosen exchange.
Step-by-step process:
1. Go to the Trade tab of your chosen exchange.
2. Select the cryptocurrency you want to buy (e.g. Bitcoin, Ethereum, Tether, BNB, Solana).
3. Enter the desired purchase amount (in the field where, for example, 300 euros is displayed) and confirm the transaction.
4. Congratulations, you have made your first crypto purchase using money from your bank account!
Your cryptocurrency will now be stored on the crypto exchange you purchased it from. In this case, Coinbase will hold your assets. We call this a custodial wallet. For additional security, setting up a non-custodial wallet is recommended. This process requires you to set up your own crypto wallet. While setting up your own non-custodial crypto wallet provides additional security, it also comes with additional responsibility.
4. Setting up a crypto wallet
After purchasing cryptocurrencies, you can move them to a secure (non-custodial) wallet if you want to keep your digital assets as safe as possible. Wallets can be hot (software-based) or cold (hardware-based).
A software wallet like Metamask runs in your browser and makes it easier to access and transfer your funds, but it also means your funds are more vulnerable to hacks, scams, and phishing links.
The safest option for storing your cryptocurrencies is to use a cold storage option, also known as a hardware wallet. Popular hardware wallet providers include Ledger and Trezor. These options offer ease of use and portability, but there are many options on the market for different user needs. For hardware wallets that prioritize security rather than portability, Lattice1 by Grid Plus, for example, might be worth considering.
Still need help deciding where to store your cryptocurrencies? Read on!
Hot Wallet vs. Cold Wallet: What is a Hot Wallet?
Most popular wallets
- What are hot wallets?
- Hot wallets are digital wallets (software) that are connected to the Internet and are therefore easily accessible for online transactions.
- Why are they called “hot wallets”?
- Software wallet options like Metamask and Phantom are called hot wallets because they are easily accessible directly from your browser.
- When should I use a hot wallet?
- These wallets are ideal for frequent transactions and trading as they can be accessed directly through browsers or mobile apps.
- How secure is a hot wallet?
- While hot wallets are convenient, their constant internet connection makes them more vulnerable to online threats such as hacking and phishing attacks.
Cold wallets
- What are cold wallets?
- Cold wallets are physical devices that store private keys offline to significantly reduce the risk of online hacks.
- Why are they called cold wallets?
- Hardware wallets like Trezor, Ledger and Lattice 1 by GridPlus are called cold wallets because they offer additional security measures and require a physical device to access your funds, making them slightly slower to access than a “hot” wallet.
- When should I use a cold wallet?
- Cold wallets are best for storing large amounts of cryptocurrencies or for long-term storage that does not require frequent access.
- How secure is a cold wallet?
- Cold wallets offer enhanced security measures as they are not connected to the internet. They protect the private keys from online threats and are therefore considered more secure than hot wallets.
To learn more about custodial and non-custodial wallets and how to set up your software or hardware wallets, visit Secure storage of your cryptocurrencies for step-by-step instructions on both!
glossary
- Crypto exchange: A platform for buying, selling and trading cryptocurrencies.
- KYC (Know Your Customer): A process for verifying the identity of users.
- Hot wallet: A software-based, internet-connected wallet.
- Cold wallet: A hardware-based wallet that is stored offline for security reasons.
- Private key: An alphanumeric secret code that allows access to your crypto funds.
- Seed phrase: A set of words to recover your crypto wallet.
- Two-factor authentication (2FA): An additional layer of security that requires two forms of identification.
- DeFi (Decentralized Finance): Financial services using blockchain without intermediaries.
- Transaction fees: Cost paid for processing transactions on a blockchain. In the Ethereum network, this is called the gas fee and is measured in Gwei.
