Cryptocurrencies, a digital-only form of financial exchange that uses cryptography as a means of security, made their debut more than 10 years ago with the launch of Bitcoin.
They divide opinion and aren’t for everyone. For example, the UK’s financial watchdog, the Financial Conduct Authority (FCA), issues regular warnings to consumers about the crypto industry, telling would-be investors that cryptoassets are unregulated, high-risk entities that offer little in the way of financial protection to consumers if things go wrong.
The regulator is at pains to add that “people should be prepared to lose all their money if they decide to invest in cryptocurrencies”.
Despite the warnings, more than two million adults hold cryptoassets in the UK - a holding of a few hundred pounds per person, on average.
If you’re new to the world of crypto, understand the potential risk of loss, but still want to get involved, it can be tricky working out how to buy Bitcoin, Ethereum or any of the thousands of other cryptocurrencies that now exist.
Follow these steps to help get started.
1. Choose a broker or a crypto exchange
In the same way you’d visit a bureau de change to swap pounds sterling for euros, if you want to buy cryptocurrencies you first need to choose either a broker or a crypto exchange.
Both enable you to buy crypto, but differences exist with each option:
What is a cryptocurrency exchange?
This is an online platform where buyers and sellers meet to trade cryptocurrencies, paying fees to the exchange for facilitating the process.
They often feature more complex interfaces enabling various types of trade and also offer tools such as advanced performance charts.
If you don’t have a background in buying stocks and shares, the standard trading interfaces offered by some cryptocurrency exchanges can be a little overwhelming for beginners. That said, the same providers may also offer more user-friendly, easy-purchase options.
Convenience, however, usually comes at a cost. If you opt for a beginner-friendly version, expect to be charged more for buying crypto compared with using an exchange’s standard trading facility.
If you’re a UK investor new to crypto, it’s worth making sure that your preferred exchange or brokerage of choice allows ‘fiat’ currency transfers and purchases made with sterling (a fiat currency is a government-issued currency, such as sterling or dollars, that is not backed by a physical commodity (such as gold), but backed by the government in question).
This is worth checking because some exchanges only allow customers to buy cryptocurrency using another crypto. This means you’d have to find a separate exchange to buy the tokens that your preferred exchange accepts, before you could start trading crypto on the latter.
What is a cryptocurrency broker?
An alternative to exchanges, cryptocurrency brokers remove some of the complexity from buying crypto by offering easy-to-use interfaces that interact with an exchange on your behalf.
Some brokers charge higher fees than exchanges, while others claim to be “free”, making their money instead in other ways: for example, by selling details to large brokerages about what you and other traders are buying and selling.
Undeniably convenient, it’s important to understand how the relationship between you and your crypto broker is going to operate. For example, you may come up against restrictions about moving your cryptocurrency holdings away from a particular platform. Check a broker’s T&Cs on transfers and what this means for your crypto holdings before signing up.
To newcomers, the issue of where their holdings are held might not sound like a big deal. But advanced crypto investors prefer to hold their coins in so-called ‘cryptocurrency wallets’ for extra security. A crypto wallet is an app that allows users to store and retrieve their digital assets.
Some investors choose hardware crypto wallets that are not connected to the internet for even more security.
2. Create and verify your account
Once you’ve chosen a cryptocurrency broker or exchange, you can sign up to start an account.
Depending on your choice of platform and the amount of crypto you’re planning to buy, it may be necessary to verify your identity using official paperwork such as a passport or driving licence. You may also be required to upload a selfie to your account to prove that your appearance matches your documents.
Only once the verification process is complete will you be able to buy and sell cryptocurrencies. If you’re champing at the bit to buy crypto, remember to build a day or two in case there are any hiccups with the verification process.
3. Deposit cash
You can only start buying crypto once you’ve got the necessary funds in your cryptocurrency exchange or brokerage account.
You can deposit money into your crypto account by linking it to your current account, or by making a payment with a debit or credit card.
Not all providers allow you to use their credit cards to buy crypto, for example TSB, Virgin Money and Tesco Bank block transactions with crypto exchanges. Some providers may allow you to use your card to buy crypto, but beware of any fees they might add to the cost of the transaction.
Depending on the funding method you’re using, plus the exchange or broker that you’ve decided to use, you may have to wait a few days before the money that you’ve deposited is available with which to buy cryptocurrency.
4. Place a cryptocurrency order
One the money’s in your brokerage or exchange account, then you’re in a position to place your first cryptocurrency order.
There are thousands of cryptocurrencies to choose from, including the best-known versions such as Bitcoin and Ethereum. You can learn more here about some of the largest cryptocurrencies by value.
Once you’ve decided what cryptocurrency to buy, enter the ticker symbol into your account. This is the three or four-letter abbreviation used to identify a particular cryptocurrency - such as BTC for Bitcoin and ETH for Ethereum – and also tap in how many coins you’d like to purchase.
Most exchanges and brokers allow customers to buy fractional shares of certain cryptocurrencies. This is a useful option when you remember that a currency like Bitcoin is currently (March 2022) trading around the £31,000 per coin mark. It has been higher than £50,000.
In the same way you might be inclined to keep your cash in a safe, it’s important to have a secure storage place for your cryptocurrencies.
Note that if you’re buying cryptocurrency via a broker, you may have little or no choice about the way your cryptocurrency holding is stored.
The situation is different with cryptocurrency exchanges. Remember that, unlike other parts of the UK’s financial marketplace, exchanges are not covered by a financial lifeboat arrangement known as the Financial Services Compensation Scheme.
If you forget or mislay the codes to access your account, you could lose your investment, which is why it’s important to have a secure storage place. When you buy cryptocurrency through an exchange, these are your options:
Leave your crypto on the exchange. When you buy cryptocurrency, it’s usually stored in a crypto wallet linked to the exchange. If you aren’t keen on the wallet provider that your exchange partners with, or you want to move it to a more secure location, you might transfer it from the exchange to a separate ‘hot’ or ‘cold’ wallet. Depending on the exchange and the size of your transfer, you may be charged a fee to carry this out.
Hot wallet. This is a crypto receptacle that is stored online and runs on internet-connected devices such as smartphones and tablets. Hot wallets are convenient but run the higher risk of theft since they remain connected to the web.
Cold wallet. In contrast, cold wallets are not connected to the internet, making them a more secure option for holding cryptocurrency. They take the form of external devices such as a USB, or hard drives. Again, it’s worth bearing in mind that if you lose the key code to a cold wallet, or if the device should fail in some way, you may never be able to retrieve your cryptocurrency.
Buying into cryptocurrency – other options
Exchange-traded funds (ETFs) are popular investment vehicles that provide retail investors with diversification while enabling them to buy hundreds of holdings (such as a basket of shares or cryptocurrencies) in one fell swoop.
Despite making their debut elsewhere last year, notably in countries such as the US, Canada and Brazil, crypto-based ETFs have not, as yet, received the green light in the UK.
One way to gain exposure to the crypto market, via companies with tangible products or services that are subject to regulatory oversight, is to consider buying shares in companies that use or own cryptocurrencies and the blockchain that powers them.
You’ll need an online investment account to buy shares in publicly-listed companies including US corporations such as:
Nvidia. A technology company that designs and sells graphics processing units that are at the heart of systems used to mine cryptocurrency.
PayPal. The online payments platform has expanded to allow customers to buy and sell certain cryptocurrencies with their PayPal accounts.
Square. Last year, the payment services provider for small businesses disclosed that Bitcoin holdings accounted for about 5% of the cash on its balance sheet. Square’s Cash App also allows people to buy, sell and store cryptocurrency.
As with any market-based investment, it’s important to work out your investment goals and to review your current financial situation before gaining exposure to companies with a connection to cryptocurrency.
Cryptocurrencies can be very volatile and, as a speculative investment, you should invest with caution.
Frequently asked questions
Q. Where can I buy cryptocurrency for beginners?
A. Beginners should look for a crypto exchange with a simple interface for making trades and plenty of educational content. Most well known exchanges, including the likes of Coinbase, Gemini and eToro, tick these boxes. However, they aren’t always the cheapest in terms of fees, so you’ll need to determine what’s most important to you.
Q. How do beginners buy bitcoins?
A. The same way anyone buys bitcoins. This is through a crypto exhange, using the five steps outlined above. If you need help with the first stage (choosing an exchange) this guide to the best crypto exchanges might help.
Q. Can I directly buy crypto?
A. Yes, most cryptocurrencies have websites through which you can buy cryptocurrencies. Bitcoin.org, for example, allows visitors to buy bitcoin direct from the site.
In most cases, however, the provider won’t give you a crypto wallet in which to store your public and private keys - and you’ll need to store these securely in order to make trades. Crypto exchanges on the other hand usually offer free wallets alongside trading facilities.
Q. How much does it cost to buy a cryptocurrency?
A. You can spend as much or as little as you like on cryptocurrency, though some crypto exchanges set a minimum deposit amount before you can set trading. So, while it’s possible buy a single token for tenth of a penny, in reality you might have to spend £10 to fund your account before doing so.
Q. How much crypto should I buy as a beginner?
A. It’s important to understand that crypto is highly volatile and unpredictable. The Financial Conduct Authority (FCA) has repeatedly warned that anyone thinking about investing in cryptocurrency to be prepared to lose all the money they spend.
Experts have advised a figure that’s equal to a certain percentage of your liquid assets. But the truth is you shouldn’t invest a penny more than you could realistically afford to lose, understanding that your investment is just as likely (if not more likely) to go down in value as it is to go up.