Cryptocurrencies. Complete guide: how to buy, where to store?

In this article, I will try to give the necessary minimum of information, which will be enough to send readers on an independent voyage into the ocean of cryptocurrencies. I will make a reservation in advance that the listed examples from the article are far from a complete list, but having a general idea of ​​​​the industry, you can easily find alternatives to any of the listed services.

The article consists of three parts: where to store, where to buy, what to buy.

A few terms in simple words, without which it will be difficult for us to understand each other:

  • Blockchain – a chain of blocks, at the household level can be perceived as a database with advanced protection against manipulation.
  • Fiat currency is our ordinary money: rubles, dollars, euros and others.
  • Cryptocurrency is an electronic currency that uses its own blockchain to store information.
  • A token is an electronic currency that uses a “public” blockchain. There are a number of projects that allow you to create any other projects on the basis of a single blockchain. The brightest representative is Ethereum.

Interesting fact: Few people know that in fact Ethereum is not a cryptocurrency as such, but an ecosystem for creating tokens, and in fact the native token of this ecosystem is called Ether. But at the everyday level, we accept the simplification and identify Ether with Ethereum.

  • A native token is simply a control token of the ecosystem, that is, a token in which all commissions, rewards and other service items are paid.
  • Tokenization is the creation of a token, the value of which is directly linked to the value of the entity to which it is linked.
  • Stablecoin is a tokenized fiat currency, most often it is linked to the value of the US dollar. Examples: Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TerraUSD (UST), Dai (DAI), TrueUSD (TUSD), Pax Dollar (USDP) and many more.
  • A private key is simply your main password from a crypto wallet, from which all wallet addresses are generated according to certain algorithms, and pairs of private and public keys from them.
  • A seed phrase is a human-readable alternative to a private key. In essence, this is just a set of 12, 16 or 24 English words from a predetermined dictionary, from which, if the sequence is followed, a private key can be recreated.
  • A smart contract is a pre-programmed algorithm, according to which automatic operations occur when certain conditions occur. You can program anything, any conditions and actions, everything that can be digitized.
  • DeFi is a collective name for projects from the field of decentralized finance, that is, projects that replace the functions of the existing financial system (lending, investing, insurance, etc.)
  • GameFi is a collective name for projects from the field of gaming projects built on blockchain technology. Often, games with the play-to-earn (P2E) principle are meant, in which gamers can earn cryptocurrencies and NFT tokens through their gaming activities.
  • NFT is literally a non-fungible token, in other words, each such digital token is unique (unlike conventional cryptocurrencies, all bitcoins are the same and equal to each other); Often, in the context of investments, it is precisely the collection component of this term that is understood, although the scope of potential application of the technology is much wider.

Disclaimer! Here I have given simplified formulations, for the official ones, go to Wikipedia.

Where to store cryptocurrency?

Obvious answer: in crypto wallets (c) your cap.

But seriously, we will consider this issue a little deeper, from two aspects: where you can store and where you should store.

All storage services can be divided into two large classes: custodial and non-custodial. In some sources, the division often occurs into “hot” and “cold” wallets, substituting at the household level for these concepts precisely the division we are considering. But this is not an entirely correct comparison, since “hot” wallets can also be non-custodial – I schematically depicted this below.

“Hot” and “cold” wallets differ in connection mode – the former are always online, while the latter use the connection to the blockchain only to send and receive data.

The differences between custodial and non-custodial are not so obvious, but they lead to conceptual differences in actual application.

Custodial services are analogous to ordinary banks: your funds are transferred to the trust storage of a certain organization, you can dispose of your tokens as long as the service allows you. A non-custodial service is just an interface for accessing a wallet in the official blockchain of a particular cryptocurrency: the service temporarily has access to managing the wallet using your private key (or seed phrase).

Both have their pros and cons

Custodian services are easy to manage. If you forget your password, you can restore access by verifying your identity. Often, such services represent a whole ecosystem with a variety of financial instruments, including the purchase of cryptocurrency directly from a bank card. But their main disadvantage is the price.tralization – there is a certain organization that manages funds on your behalf.

Many crypto enthusiasts exaggerate this feature with a vivid phrase: “not your keys, not your coins”. What looks most relevant in the light of recent geopolitical events, when the main problem of centralization emerged – the bias of individual subjects, and as a result, the freezing of accounts.

Non-custodial services support the original idea of ​​cryptocurrencies – economic independence and lack of transaction censorship. Although they are not as convenient and simple as custodial ones, and if the seed phrase is lost, access to the wallet will be irretrievably lost, but many experts recommend using them. The little hardships and allowances you have to make are definitely worth the security they provide.

Above, I used the word “services”, and not “wallets”, for the reason that you can store cryptocurrency: on the exchange, on the wallet, in the payment system or in a third-party service. Let’s take a closer look at each of the categories.

Exchanges

Cryptocurrency exchanges are either centralized (CEX) or decentralized (DEX). The first ones are the same Binance, Coinbase and others that are well known. It is very easy to interact with cryptocurrencies on them, and also [it was easy] to deposit and withdraw fiat currencies. But the main disadvantage of any centralized exchange is the custody service.

Decentralized exchanges are not suitable for storage. In essence, this is not even an exchange, it is a software package of automated algorithms that provides automatic exchange of different tokens among themselves. Therefore, despite the bright calls of enthusiasts to switch to DEX, it is completely impossible to do this.

The functionality of such services is limited only by the ability to exchange tokens, and only those located in blockchains that support smart contracts. This is partly solved by the tokenization of cryptocurrencies, but this seriously narrows and complicates the work with unpopular tokens, and also does not allow working with fiat currencies.

For example, the WBTC (Wrapped Bitcoin) token was created specifically for the Ethereum ecosystem, the value of which is fully secured by the value of bitcoins frozen for this purpose.
Wallets

Cryptocurrency wallets are divided according to many parameters. In addition to the previously mentioned custodial/non-custodial and bitter/cold divisions, there are various implementations within these categories.

The most secure option is a cold wallet. But often such protection is redundant and inconvenient, so it would be optimal to choose a non-custodial wallet, but from the “hot” category, that is, having a permanent connection to the network.

They are different: browser-based (MetaMask, Coinbase Wallet, Brave Wallet, etc.), online (MyEtherWallet, blockchain.com, etc.), desktop (Bitcoin Core, Jaxx, Electrum, Avax Wallet, etc.), mobile (Trust Wallet , Jaxx, Electrum, Phantom Wallet, etc.) and hardware (Ledger, Trezor, Safepal, Keepkey, etc.). They are all equal and interchangeable if you keep your private key (or seed phrase).

It is worth mentioning a separate category of wallets – multicurrency crypto wallets. They need to be treated very carefully – such services can be both custodial and non-custodial. If the wallet does not have the ability to export private keys from wallets created in the application, then you have a custodial service with all the ensuing features.

Payment systems

Cryptocurrency can be stored on the balance of electronic payment systems such as PayPal, WebMoney, Advanced Cash, Payeer, Perfect Money.

At their core, these are ordinary custodial services, while working with fiat currency according to the same principle. Quite convenient and simple, but often expensive (relatively high fees) and relatively dangerous due to centralization.

Third Party Services

You can store cryptocurrency with some Western brokers and on the accounts of especially progressive banks. I will consider examples of such services below in the section on buying cryptocurrency.

How and where to buy cryptocurrency?

Let’s look at the first part of the question, “how?”

By this we mean exactly “with the help of what”: with the help of bank cards (Sberbank, Tinkoff, Alfa-Bank, Privatbank (Privat 24), Monobank, Kaspi Bank, etc.), electronic payment systems [EPS] (QIWI, WebMoney , YuMoney, Payeer, Advanced Cash (AdvCash), Epay, Payoneer, Neteller, Capitalist, Paxum, NixMoney, Skrill, PayPal, etc.), cash (rubles, hryvnias, tenges, dollars, euros, pounds, crowns, etc.) or even from your mobile phone balance.

For each “where” there will be a different set of “hows”, so we will consider buying options in this context.

Centralized Cryptocurrency Exchanges (CEX)

  • Advantages: wide choice of cryptocurrencies; one of the lowest intra-exchange fees
  • Disadvantages: custodial service; the commission for withdrawing tokens can be very high; and the withdrawal of fiat currencies is at least 3%
  • Available options: a limited set of EPS and, until recently, replenishment from bank cards [now Visa / MasterCard from Russian Russian banks are not supported]
  • Examples: Binance, Coinbase, FTX, Kraken, Bitfinex, Bitstamp, Poloniex and many more…

Decentralized Cryptocurrency Exchanges (DEX)

  • Advantages: non-custodial service; highest anonymization
  • Disadvantages: limited choice; inability to work with fiat currencies
  • Available Options: Tokenized assets only, including stablecoins
  • Examples: Uniswap, PancakeSwap, dYdX, DODO, Balancer, SushiSwap and more…

Peer-to-peer (P2P) sites

  • Advantages: minimum commissions
  • Disadvantages: custodial service; limited offer; the inconvenience of buying large volumes (you need to conduct several separate transactions); the risk of receiving “dirty” money (stolen or funds from criminal activity)
  • Available options: bank cards and a very limited list of cryptocurrencies and stablecoins
  • Examples: Cryptolocator, Binance P2P, LocalBitcoins, LocalCryptos, Paxful, Monabey, Bitpapa, HodlHodl and more…

Exchange offices

  • Advantages: a wide range of exchange options; in some cases lack of verifications
  • Disadvantages: custodial service (albeit with a minimum time spent on the accounts of the exchange office), average commissions
  • Available options: the maximum list of existing options, including cash
  • Examples: Mine, NetEx24, WmExpress, 365Cash, ExHub, NixExchange, Kassa.cc and others…
  • Due to the huge number of scammers and the large spread in the profitability of different exchange directions, it is better to choose exchange offices through aggregators. The most popular of them: BestChange.

Exchange offices are a balance between safety and profit. On the one hand, they have the advantages of P2P in terms of less attention to AML / KYC procedures [often optional identity verification] and low commissions, and on the other hand, the advantages of crypto exchanges in terms of the range and “purity” of funds sent.

Electronic payment systems

  • Advantages: convenience, savings on transaction fees
  • Disadvantages: custodial service; average commissions; most EPS are licensed to exchange information with tax authorities;
  • Available options: bank cards, sometimes friendly EPS and other non-cash transfers
  • Examples: PayPal, WebMoney, Advanced Cash, Payeer, Perfect Money and more…

Telegram bots

  • Advantages: relative simplicity and convenience
  • Disadvantages: a horrendous number of scammers, including those mimicking real services; lack of control by aggregators (the service does not risk its reputation); average commissions
  • Available options: bank cards, sometimes some EPS, a limited selection of cryptocurrencies
  • Examples: @Chatex_bot, @bitpapa_bot, @Prostocash_bot and others…

Crypto wallets with built-in purchase

  • Advantages: convenience, savings on transaction fees
  • Disadvantages: high commission, in some cases these are custodial services
  • Available options: bank cards [but now Visa / MasterCard from Russian banks is not supported]
  • Examples: Trust Wallet, Atomic Wallet, Blockchain.com, Jaxx, Exodus and more…

Brokers, banks and fintech

  • Advantages: transactions are completely legal; convenience of investment instruments; savings on transaction fees
  • Disadvantages: custodial services directly controlled by the tax authorities; average commissions; very limited choice of cryptocurrencies
  • Available options: bank cards and other non-cash transfers [but now Visa / MasterCard from Russian banks is not supported]
  • Examples: Revolut, Robinhood, Banxa, Nexo and more…

ATM, bitcoin terminals [Cryptomats]

  • Advantages: high anonymity
  • Disadvantages: physical accessibility; high commissions; limited choice to buy (usually only Bitcoin)
  • Available options: cash, sometimes withdrawal to bank cards or EPS is available
  • Examples: RusBit, BBFPro and others…

It is also worth mentioning the purchase directly from some individuals, for example, from friends and acquaintances, less often through ad platforms. This is a very risky way, I advise you to avoid it. Recently, buying cryptocurrencies directly from miners has also become popular, but this is also risky and involves high commissions (such assets are considered very “clean” and are willing to pay dearly for them).

All of these methods have their pros and cons, as well as risks. To minimize the chance of losing funds, investors should double-check data, avoid obscure platforms and services, check reviews, and make small test purchases.

Which cryptocurrencies are worth buying?

If we figured out where and how to buy, then the question of what exactly to buy remains uncertain, so we will consider this aspect separately.

Bitcoin (BTC) is the first and most popular cryptocurrency, often even acting as a household name for the very concept of cryptocurrency. Definitely worth keeping BTC in your portfolio as it is the market trendsetter.

Ethereum (ETH) and Binance Coin (BNB) are the native tokens of the leaders among the ecosystems that ensure the development of the sphere of decentralized finance (DeFi), so their growth will be ensured by the influx of new investors who pay commissions in DeFi protocols with these same tokens.

Stablecoins can be used as a hedge against inflation. Buying tokens pegged to hard currencies is in itself a good strategy to protect against the devaluation of the national currency, but it is also possible to increase capital with the help of them. Investment vehicles available on exchanges (“saving” and “staking” for CEX; “lending” and investment in DEX liquidity pools for DeFi)

You can also consider young and interesting projects from the field of DeFi and GameFi, but allocate a very small part of the investment portfolio to them.

Dogecoin (DOGE) and Shiba Inu (SHIB) can take off on the hype wave. The growth of these tokens has a spasmodic character due to the “fan club” of Elon Musk.

What you should definitely avoid: ICO / IEO, NFT and other three-letter words.
For any safe investment in these tools, hundreds of hours of thorough study of the niche, excellent technical literacy and high “seeing” in the cryptocurrency community are needed.

I tried to cover as many questions from newbies as possible, but if there are any additional questions, I’m waiting for you in the comments to this article, I will be happy to answer them.

This information does not constitute individual investment advice and the financial instruments or transactions mentioned in it may not be in line with your investment profile and investment goals and expectations. Determining the compliance of a financial instrument or transaction with interests, investment objectives, investment horizon and level of acceptable risk is a personal task for each investor.