If you want to get involved in the exciting world of cryptocurrencies, there are many different routes you can take. One way is to purchase coins directly and store said coins in cryptocurrency wallets.
Cryptocurrency wallets come in many shapes and forms, from paper to hardware to exchange-based. But what are cryptocurrency wallets and why do people use them?
Brokerage Firms versus Exchanges
You may decide you’d rather purchase coins directly, rather than take advantage of the fantastic CFD cryptocurrency options on offer from top sites such as eToro, Plus500, and AvaTrade. If this is the case then you’ll need somewhere to store your coins. Or, more specifically, the private keys which secure your coins. In other words, a cryptocurrency wallet.
Brokerage firms allow you to trade with cryptocurrencies without owning the coins. By taking advantage of trading options such as CFDs, you can profit from a coin’s fluctuations in price without having to worry about buying and storing cryptocurrencies.
Trading sites also have safeguards in place, meaning there’s no chance of your coins getting lost or mismanaged. All the firms we recommend are fully regulated and completely trustworthy, unlike certain exchange sites which have proved to be scams.
In our opinion, utilising brokerage firms to trade cryptocurrencies is the easiest and most effective way of getting involved in this exciting new market.
There are countless cryptocurrency exchange sites around with which you can buy and store cryptocurrencies.
Many are only available in certain countries so you’ll have to research which ones you’re permitted to use.
Also, some have been reported as scams and, as such, should obviously be avoided. Once you’ve purchased your coins via an exchange site, you’ll need to store them somewhere.
All exchange sites offer what are called exchange-based wallets (more on these later), i.e., wallets which they control but wherein you can store the coins you just bought or open an account and transfer coins there from elsewhere.
Buying cryptocurrencies can be rather a long and arduous process, which is why we tend to suggest new cryptocurrency traders take the online brokerage firm route.
However, if, for whatever reason, you decide you’d rather own your coins outright then you’ll need to familiarise yourself with the various coin storage options available.
You’ll also need to decide where you want to buy your coins. This can be costly process thanks to high fees. Getting verified can also take weeks with exchange sites.
With brokerage firms, however, the process of setting up an account and getting verified can be done in a matter of minutes.
Storing and transferring cryptocurrencies can be tricky if you don’t know what you’re doing as it’s easy to send coins to the wrong address. If this occurs, coins can easily be ‘lost on the blockchain’. If this happens, good luck retrieving them because it’s no walk in the park, that’s for sure.
Exchange-based cryptocurrency wallets
If you choose to buy cryptocurrencies directly from an exchange sites, upon purchase your coins will be deposited in an exchange-based wallet.
This means that, although the coins are technically yours, they will still be stored on the exchange sites’ servers (the private keys, at least). This means if the exchange site gets compromised, your coins will be at risk.
It is for this reason that most people who choose to buy cryptocurrencies this way move their coins into a separate wallet (hardware, software, or paper-based) as soon as possible.
Realistically, the only time you’d want to have your coins in an exchange-based wallet is when you’re trading them for other coins or selling them. If you’re holding them for an extended period, you’ll want to choose a more secure storage option.
It is the easiest and fastest way to buy cryptocurrencies such as Bitcoins:
It offers you the possibility of having your wallet with them and of buying or selling cryptocurrencies as bitcoins in a very simple way. If you sign up with my invitation, You will earn $10 when you buy or sell $100 or more of Bitcoins, Ethereum or Litecoin.
- If you do so via bank transfer, you’ll have to wait 1-2 days (1.5% commission).
- By using a credit card you can buy them instantly (3.5% commission).
- You can also use your Paypal account for instant transactions (3.75% commission).
If you make lots of shopping and want everything to go faster, it is best to link a debit/credit card to your account or bank account. When you have done so, you just need to buy the Bitcoins you need, and these shall be deposited in your wallet.
One exchange which offers a secure wallet option is Coinbase. As well as their normal wallet, they offer something they call the ‘Vault’ which they allegedly cannot access. When you use the Vault, you can receive funds like a normal wallet, but can also prevent stored funds from being immediately withdrawn by adding optional security steps.
Users can also choose to split ownership between multiple users and email accounts, requiring these users to approve of a transaction before it can be completed.
Hardware cryptocurrency wallets
Hardware wallets are a fantastic way of keeping your private keys safe. Private keys are the strings of letters and numbers which allow you to access your funds. If these are compromised, your funds will be at risk.
You don’t have to worry about private keys when investing with brokerage firms as they take care of all the technical stuff regarding the storing of private keys and the security of the ‘underlying’ cryptocurrencies.
Hardware wallets are usually reasonably cheap. The Ledger Nano S, for example, retails at €58.
However, it can take weeks or even months for one to arrive thanks to a high demand among cryptocurrency traders and a slow rate of manufacture.
With most models, you can also set up additional safeguards if you like, for added security.
All hardware cryptocurrency wallets come with a 12, 18, or 24-word recovery phrase which you must carefully jot down, upon first usage.
If you lose your wallet, it is this recovery phrase which will allow you to regain access to your funds. You can do this by either purchasing a new hardware wallet, or using a compatible online wallet, and then entering in your recovery phrase which is intrinsically linked to your private keys.
This is quite technical which another reason why buying cryptocurrencies outright and storing your private keys on a hardware cryptocurrency wallet may not be the best option for those who are new to cryptocurrencies.
Paper-based cryptocurrency wallet
Paper-based cryptocurrency wallets are the safest method of safeguarding your private keys. But, what do we mean by paper-based wallet?
Literally, a piece of paper with your private key or keys written or printed on it. It’s that simple.
The reason this is the safest method of storing your private keys (which allow you to access your funds) is because your keys are never exposed to the internet so, if you use a VPN and take all the other necessary precautions when accessing your funds, there’s no risk of a hack attack.
The only risk of storing your private keys on a paper wallet is, of course, the possibility you might lose it or accidentally throw it away. However, if you’re careful, this is unlikely.
Also, the paper wallet could potentially get stolen. However, this is also unlikely because thieves would probably not know to look for a paper wallet or be able to find something so small and easily concealed.
Although, storing your private keys using a paper wallet is probably the most complex method in that it requires the most amount of technical knowhow so, again, not ideal for those who are new to cryptocurrencies.
As mentioned earlier, rather than buying cryptocurrencies outright, you also have the option to trade cryptos via CFDs (contracts for difference).
This can be a great way to benefit from the often volatile swings in price, without having to deal in actual cryptocurrencies.
Many sites offer fantastic options on cryptocurrencies which allow to benefit financially even when a coin falls in value. Obviously this can’t happen if you own the coins outright.
Coinlist’s Cryptocurrencies Recommendation
As highlighted in this page, buying Bitcoin is easy! Deciding how you buy it is down to you. For beginners we feel that buying Bitcoin through a regulated provider is considerably safer than an exchange, which can be more complicated.
When you first start out, having someone to speak to is so important and exchanges do not offer that. Brokerages are regularly audited by the FCA to make sure your needs are adhered to.
Once you have a better handle of the workings of the crypto market, then perhaps invest directly in Bitcoin. But until then, we advise risk management, and that comes in the format of regulation.
To find out quickly how to buy Bitcoin Watch our Video!