How do I buy cryptocurrency, how do I store cryptocurrency and what should I pay attention to?
It doesn’t have to be difficult at all! It’s easier than you think!
Version: April 2021
Table of Contents
1. What are cryptocurrency?
At YourCryptoLibrary, we believe it is important that you know what you are investing in. We strive to provide informative content with high quality. In this guide, we explain to you everything about cryptocurrency; from blockchain to exchanges and from bitcoin to specific projects.
One thing is clear, you decided to open this guide, so you are interested in crypto. But, what exactly does ‘cryptocurrency’ mean?
Cryptocurrencies emerged as a byproduct of another discovery, one we’ve probably all heard of: Bitcoin. The inventor of Bitcoin is Satoshi Nakamoto (a pseudonym) and no one knows who he really is. Bitcoin was intended as a new electronic payment system that uses a peer-to-peer network to address the problem of “double spending” (being able to spend digital currency multiple times), Nakamoto said in the original explanation of Bitcoin. For understanding what a cryptocurrency actually is, this is not immediately very relevant.
When you take away all the noise and information surrounding crypto and Bitcoin and look at what a crypto currency really is, you can simplify it tremendously. Try to imagine what your bank account looks like. What does this money look like? Actually, this money is nothing more than a number in a database that can only be changed under certain circumstances, right?
Cryptocurrencies are exactly the same. Like any form of money, it must be verified in some kind of database, where you arrive at a certain balance and a number of transactions. With traditional money, this database resides with an authority such as the ING or Rabobank (in the Netherlands). In the case of cryptocurrencies this database is shared and verified decentrally across the world in an encrypted way using the blockchain. What that is and what benefits it brings you can read here.
In summary, then, cryptocurrency is nothing more than a decentralized and encrypted version of traditional money; therefore, there is no central computer server or authority behind it. The best known examples of cryptocurrencies are Bitcoin, Ethereum, Ripple and Litecoin. But, there are hundreds of other types of cryptocurrencies at the moment, each with their own use case.
Bitcoin is originally a ‘coin’, a coin is a crypto currency used primarily as a means of payment. However, nowadays there are other types of crypto currencies such as security and utility tokens that bring possibilities that did not exist before. We explain these differences in detail on our website. In short, this means that it is possible to record people’s identities in a decentralized way on the blockchain, for example, contracts or the ownership papers and history of a house, the entire production chain of food to show that it is truly ‘fair trade’, and there are countless new possibilities!
This is why cryptocurrencies are becoming increasingly popular and the reason companies are getting more involved with blockchain technology and currencies.
2. What types of cryptocurrency are there?
As just explained there are different cryptocurrencies, we classify them on our website as follows: Asset Tokens, Equity Tokens, Utility Tokens, Security Tokens & Reputation Tokens. We’ll be publishing content on these in the near future.
The two most common types of tokens are the utility token and the security token.
Security tokens can be seen as an investment product. Security tokens are bought with the expectation of receiving dividends or making a profit on the stock exchange.
An example on our website of a security token is NEXO.
However, many crypto projects do not want their token to be labeled as a security token. When a token is seen as a security token, the issuer of the token is bound by certain laws and regulations, which he would not be bound by in the case of a utility token.
In addition to having to comply with various laws and regulations, security tokens also have some specific characteristics:
- Security tokens entitle a company to a profit distribution in the event that a company makes a profit.
- They entitle you to a say within the company.
- They are supervised by national regulators such as the AFM or SEC.
Utility tokens can be used to gain access to a network, service, control, etc. (think of a traditional loyalty card, a discount on meals, voting in % for shares, etc.). In the same way, you could, for example, determine something for a product or service of a certain crypto project (discount on certain products if you hold tokens). So the tokens have a specific use-case within the ecosystem of the blockchain project.
As a token creator, you enjoy several advantages the moment you create a utility token. For example, you do not have to abide by certain laws that do apply to some other types of tokens. These laws and regulations do not currently apply to utility tokens, because by their nature they are not designed as investments. However, this is still a gray area.
Thus, most companies with their own cryptocurrency promote it as a utility token, such as: TrustSwap (SWAP), Energy Web Token (EWT) and many others.
Characteristics of utility tokens are:
- Utility tokens operate on an existing blockchain that smart contracts have been developed on, such as Ethereum or GoChain.
- Each token has its own functionality and in most cases can only be used within one specific blockchain project.
- They allow for digital trading. They have more functions than just a means of payment. For example, they are also used as proof of a product or a stock.
Equity tokens are in our opinion a subset of security tokens. Equity tokens can be compared to a (digital) share, where the equity tokens represent ownership in a project/company. By buying these tokens you become, just like with shares, part owner of the company that issued this token. Given the many uncertainties surrounding the laws and regulations, equity tokens are not yet very common in for example the Netherlands.
Asset tokens represent a physical product. A good example of such a physical product is, for example, a house, which is fully registered on the blockchain and therefore enables owners to sell all or part of a house (online).
This is also already being done with art, book and film patents and all kinds of other physical products. This market is enormously emerging and will probably continue to grow enormously in the coming years on digital marketplaces.
Reputation tokens, or reward tokens, are used by some projects to establish a kind of rank system within their ecosystem. The tokens represent a reputation within this ecosystem, which is rewarded to active community members who help the project grow. Often these reputations come with different benefits.
3. What are Bitcoin and Ethereum?
Bitcoin is an invention of one or more anonymous individuals, who operated under the pseudonym Satoshi Nakamoto. The idea was to develop a medium of exchange that would allow transactions to be made over the Internet, without relying on central agencies such as banks. Bitcoin is characterized by direct, secure, verifiable and immutable transactions between two individuals.
Unlike traditional money such as the dollar or euro, the amount of bitcoins in the world is not determined by banks; everything is fixed in the way bitcoin is coded. Only a limited number of bitcoins are released each day, and they are distributed to anyone who uses computer power to contribute to the bitcoin network.
Should you want to learn more about the details, advantages and disadvantages. Then check out our page on Bitcoin.
Ethereum was founded by a Russian named Vitalin Buterik. His fascination with blockchain led him to start developing his own project in 2014, what we know today as Ethereum. Buterin developed a decentralized platform that, like Bitcoin, uses blockchain technology. Despite this, Ethereum is vastly different from Bitcoin. Indeed, Bitcoin’s functionality is focused on transferring value, while Ethereum can serve as the basis for decentralized applications and smart contracts.
For a long time Ethereum has been the second largest cryptocurrency in today’s crypto market after Bitcoin. The total value of Ethereum (ETH) represents about 10% of the total market. ETH, like BTC, is a digital currency that you can send to anyone in the world in no time.
Should you be interested in the details and how it works, check out our page on Ethereum.
Why invest in Bitcoin?
Perhaps you have already decided for yourself that you want to invest in bitcoin or other cryptocurrencies. It is also quite possible that you are still unsure. We are not here to convince you to invest in bitcoin, but of course we can think of some reasons.
Store of value
Bitcoin, like gold, is increasingly seen as a store of value (purchasing power reserve). This term refers to the function of money or other assets that can maintain their purchasing power into the future. To be useful as a store of value, it must be easy to store and retrieve at a later date. Gold is favored as a store of value because of its rarity, which reduces the risk of devaluation due to a (large) increase in supply, for example.
Bitcoin may seem like an even better store of value in the current zeitgeist. Because bitcoin is digital, you can simply “move” it even more easily. Moreover, the maximum amount of bitcoins is fixed. It is a given that only 21 million bitcoins will be available and that this maximum number will be reached approximately in 2140. Bitcoin is therefore increasingly being referred to as digital gold.
Bitcoin as a means of payment
With more and more professional parties turning to bitcoin, the currency may still be able to serve as a means of payment. Paypal has offered the possibility to buy bitcoin through its platform since the end of 2020. According to rumors, consumers will also be able to pay for products and services in bitcoin in the future. Those bitcoins can then be converted into “real” currency.
Bitcoin as an hedge against inflation
Gold historically does well in uncertain times and provides some form of protection against inflation. Recently, governments and central banks have decided to print huge amounts of additional money to combat the corona crisis. The hefty stimulus purchases also bring a lot of new money into the system and as a result many investors now think inflation is on the horizon.
Although the official figures hardly show inflation, people rather speak of asset inflation. This term indicates that assets are rising sharply in value. However, this price inflation is not reflected in the traditional indices, which only reflect the price development of consumer goods. However, we do see these developments on the financial markets. To protect yourself against this asset inflation, you could invest in bitcoin, but also in shares, real estate or gold.
Hedge against a collapsing money system
The 2008 financial crisis left a deep impact on many people. After that period, the price of gold rose hard and still some people think that the monetary system may not survive another crisis. We also see this when we look at the recent popularity of gold and bitcoin. Investing in bitcoin is therefore increasingly seen as a hedge against the collapse of the ‘system’.
One could argue that Bitcoin is bringing about a new monetary separation of powers. The power over money and money creation is decoupled from central banks and governments. Bitcoin, by the way, is more than just a monetary asset. It is an asset, but also an innovative and promising financial technology.
The underlying blockchain technology has not been cracked since its inception (over 12 years ago) and has never suffered downtime. Bitcoin can therefore be seen as a revolutionary, extremely secure, uncrackable and transparent payment network. By investing in bitcoin, you can be part of this digital money revolution.
4. Where do I buy cryptocurrency?
There are currently over 400 different exchanges where you can buy cryptocurrency. Which one has the best prices, which one has the lowest fees, and which one is the best fit for you right now? That’s where we would like to help!
There are different types of exchanges, namely:
- Centralized Exchanges
- Decentralized Exchanges such as Uniswap, SushiSwap, etc.
- Derivative Exchanges
We (will) have manuals available for many different exchanges, but for beginners we would recommend the following two exchanges, as they are simple to use and have low transaction fees:
Bitvavo is a Dutch cryptocurrency exchange, here you can buy Bitcoins and other cryptocurrency by first depositing euros and then trading them on the site. In addition to Bitcoin, you can also buy 47 other cryptocurrencies. There are different ways to deposit money, here it is the cost and the transaction speed that make the difference. Once you have deposited euros you can start trading them on the website. There are some costs associated with trading. These costs are 0.25% per transaction.
We have a very good experience with Bitvavo and would definitely recommend it. A complete manual for the exchange, in which we simply explain how to create an account – deposit money – buy cryptocurrencies, can be found here.
A second exchange we recommend is Binance. Binance is the largest (centralized) cryptocurrency exchange when it comes to crypto-to-crypto trading. So, on Binance you can buy and sell cryptocurrencies. In a short time Binance has grown to become the largest cryptocurrency exchange in terms of daily trading volume. The trading volume now amounts to billions per day. In less than a year, Binance has become the most popular cryptocurrency exchange.
We recommend Binance for beginners because the exchange is easy to use, has a great selection of altcoins and has a good reputation in the market. You can find a full guide with all the steps here.
In addition to these exchanges, there are many others. Should there be a specific cryptocurrency you want to buy, we recommend using CoinGecko. CoinGecko offers a list of almost every cryptocurrency that exists. They share information such as: the unit price, the price trend, the exchanges where this cryptocurrency is traded, the website, the total valuation of the project (market cap), 24-hour transaction volume, and so on.
So you can also find on which exchange the price of this particular cryptocurrency is the cheapest at that moment.
As mentioned, there are more than 400 different exchanges. On Cryptobieb.nl we have made an overview with manuals and reviews for several exchanges that have a good reputation. If Bitvavo or Binance are not your preference, check out our page for other options.
5. How do I keep my cryptocurrency safe?
Buying cryptocurrency is one thing, but storing it is another. It is extremely important to do this in the best (and safest) way.
Cryptocurrencies are stored in a wallet. This can be done in both a digital and a physical wallet (the currency itself is of course always digital), it is also possible to store these on an exchange. However we advise against this, after all it’s safest to have the currency in your own possession at all times and not at a centralized party.
When you create a wallet, you receive a public address and a private address. The public address can be seen as your public bank account number, which you can send to other people so they can deposit currency into your account (but also publicly view your balance on the blockchain). The private address can be seen as your unique pin code, you should never share it with anyone and keep it safe.
The easiest and safest way of storing crypto currency in our opinion is through a Trezor. The Trezor is a (physical) hardware wallet that you can think of as a kind of USB stick. It is the safest because it is only owned by you, and you can store backup codes if you lose your Trezor and access your currency again with a new Trezor (for example if the original one is lost or stolen).
If the original is stolen someone still can’t access your currency. For this they need your unique pin code.
In addition to the Trezor, it is also possible to possibly use a ledger. Like the Trezor, this is an offline wallet that supports multiple crypto currencies. Personally, I have been using the Ledger for over two years and I am very satisfied with it.
In addition to the hardware options, it is also possible to store your cryptocurrency digitally. There are several options available in this regard:
- Storing Cryptocurrencies on Exchanges. Personally, we would advise against storing your crypto on a centralized exchange. Only those things you actively want to trade with should be stored here. In recent years exchanges have often gone down or been hacked, with users being the victims.
- Store cryptocurrencies in a software wallet, such as Trust Wallet, Exodus and Jaxx. We explain software wallets in detail on this page. Software wallets can be easily installed on a desktop or cell phone. Software wallets are safer than exchanges because you hold your own private keys. We would recommend it to those who do not want to buy a hardware wallet
We hope we have answered your questions with this explanation: How do I buy cryptocurrency, how do I store cryptocurrency and what should I pay attention to?
At YourCryptoLibrary we want to explain in an easy and clear way what cryptocurrency and blockchain is. We do this by means of many articles in which we explain how wallets work, exchanges work, how to buy crypto etc.
We will continue to develop YourCryptoLibrary so that we become an even more comprehensive website with a good and clear explanation for anyone interested in cryptocurrencies and blockchain technology.
Trading in digital currencies involves significant risk. Make sure you are aware of these risks before you start trading. Only use financial resources that you are prepared to lose partially or completely. We recommend seeking impartial information from competent individuals or agencies before buying digital currency. A previous successful trade or investment, or profits made in the past, are in no way a guarantee of future success.
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