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How to buy cryptocurrencies

Cryptocurrencies have undergone an outstanding development over the years and are increasingly coming into the focus of investors. Only a few years ago, Bitcoin and Ethereum were still considered speculative objects for IT freaks. However, this has changed, as more and more private and institutional investors are keeping an eye on the development of digital currencies. In total, more than 8,200 cryptocurrencies exist today.

Phillipp Schuster

Verified writer

Updated September 21, 2021

eToro Experiences & Test 2021: Our Rating

9.3 / 10

eToro Experiences & Test 2021: Our Rating

  • No deposit fees for all payment methods
  • Cheap method to buy Bitcoin instantly
  • One of the few providers that offer PayPal
  • Very user-friendly trading for beginners
USD ZEC ARDE NAV BTC GXS ICX

Best Crypto Exchange Brokers 2021

etoro logo 200-120

eToro

9.3 / 10

  • No deposit fees for all payment methods
  • Cheap method to buy Bitcoin instantly
  • One of the few providers that offer PayPal
  • Very user-friendly trading for beginners

9.3 / 10
9.30%

etoro logo 200-120
eToro

9.3 / 10

  • No deposit fees for all payment methods
  • Cheap method to buy Bitcoin instantly
  • One of the few providers that offer PayPal
  • Very user-friendly trading for beginners

9.3 / 10
9.30%

Binance logo 200-120

Binance

8.7 / 10

  • No personal verification or bank details required (but recommended)
  • Low trading fees
  • Many cryptocurrencies
  • Many functions (staking, futures, options, margin trading)

8.7 / 10
8.70%

Binance logo 200-120
Binance

8.7 / 10

  • No personal verification or bank details required (but recommended)
  • Low trading fees
  • Many cryptocurrencies
  • Many functions (staking, futures, options, margin trading)

8.7 / 10
8.70%

Coinbase logo 200-120

Coinbase

8.3 / 10

  • Good usability
  • Largest provider

8.3 / 10
8.30%

Coinbase logo 200-120
Coinbase

8.3 / 10

  • Good usability
  • Largest provider

8.3 / 10
8.30%

Bitpanda logo 200-120

Bitpanda

7.9 / 10

  • Very low fees
  • Large number of cryptocurrencies available
  • Quick and easy registration
  • Easy handling and great customer support
  • Useful functions such as crypto savings plan

7.9 / 10
7.90%

Bitpanda logo 200-120
Bitpanda

7.9 / 10

  • Very low fees
  • Large number of cryptocurrencies available
  • Quick and easy registration
  • Easy handling and great customer support
  • Useful functions such as crypto savings plan

7.9 / 10
7.90%

Kucoin logo 200-120

Kucoin

7.0 / 10

  • Low commissions
  • High level of security and privacy
  • Competitions and tournaments for investors

7.0 / 10
70%

Kucoin logo 200-120
Kucoin

7.0 / 10

  • Low commissions
  • High level of security and privacy
  • Competitions and tournaments for investors

7.0 / 10
70%

To be able to buy a cryptocurrency, you need to go through the following steps:

  1. Choose a suitable trading platform
  2. Trade FIAT money, such as euros, for the cryptocurrency.
  3. Cash out the cryptocurrency to a secure wallet or….
  4. … resell your purchased coins on an exchange (hopefully at a profit).

In the following article, we go into more detail about how and where you can buy cryptocurrencies. In doing so, we list various exchanges and trading platforms where you can invest in cryptocurrencies. We advise you to take a closer look at the provider before choosing an exchange. Large and well-known exchanges should always be preferred to smaller, unknown platforms. If you want to get started immediately, click on this link to get to the step-by-step guide with screenshots.

Distributed ledger technology as the technical basis of cryptocurrencies

Distributed ledger technology, or DLT for short, is a distributed and decentralised database. This technology offers a verifiable history of all information stored on this distributed ledger. Accordingly, DLT are digital systems that record the transactions of all assets and store them decentrally in the network. Unlike traditional databases, DLTs have no central data storage or management function. The validation of outstanding transactions and information is carried out by the nodes. The validation creates a record of the elements and distributes it in the network. This procedure creates a consensus within the network. Thus, the technologies are suitable for recording registrations or transactions.

Blockchains are the best-known distributed ledger technologies

Blockchains are probably the best-known type of distributed ledger technologies.

The functionalities are similar to those of DLTs in almost all respects. The biggest differentiating feature is the type of data storage, because this takes place in a blockchain in a block. Accordingly, a blockchain combines several transactions and stores them in blocks. These are strung together in a chain to generate a particularly high level of security.

Blockchains use cryptographic signatures – the so-called hashes – to link the blocks. Each block uses the hash of the previous block and thus prevents unintentional manipulation. In addition, this technology opens up the possibility of defining automated rules for transaction processing. These rules are intelligent contracts, also known as smart contracts.

In practice, there are also distributed ledgers that do not exist in the form of a blockchain – the best-known example is IOTA. The first blockchains were also based on so-called proof-of-work algorithms (PoW) for transaction validation. Today, it is apparent that blockchain technologies without PoW have better scalability and are thus more versatile. Probably the best known, because the first blockchain, is Bitcoin. Satoshi Nakamoto published the white paper for Bitcoin as early as 2008. In January 2009, the developer, who operates under a pseudonym, published the Bitcoin Blockchain. The success of Bitcoin and its disruptive potential is known to most users today.

Where can I buy cryptocurrencies?

The market for cryptocurrencies is no longer in its infancy, so there are now numerous options for buying cryptocurrencies.

In the following, you will learn more about the options for buying cryptocurrency.

To find the best crypto exchange for you, you should first define your trading habits. Do you want to buy once and then send coins to your wallet or are you more interested in price movements and active trading?

In the following article, we go into more detail about how and where you can buy cryptocurrencies. In doing so, we list various exchanges and trading platforms where you can invest in cryptocurrencies. We advise you to take a closer look at the provider before choosing an exchange. Large and well-known exchanges should always be preferred to smaller, unknown platforms. If you want to get started immediately, click on this link to get to the step-by-step guide with screenshots.

What type of investor am I?

cryptocurrency physicallyfTrade crypto prices
Buying cryptocurrency physicallyTrade crypto prices
• I understand the principle of addresses and private keys
• I would like to learn more about blockchain technology
• I would like to participate in smart contracts
• I mainly want to profit from the price development
• I intend to actively buy and sell
• I do not want to worry about the safekeeping of my cryptos

Buying cryptocurrencies with a broker

Probably the easiest way to trade cryptocurrencies is through crypto brokers.

Crypto brokers often offer trading in Contracts for Difference – CFDs for short. This is a type of security that reflects the price of a cryptocurrency.

Especially the platforms of eToro, Plus500 and Libertex convince with a good user experience and a very good product range.

The most famous brokers for Bitcoin

eToro Plus500 Libertex
Min. Deposit200 EUR100 EUR100 EUR
fees 0.75 – 5% 0.52 – 6.11% Min. 0.001%
lever up to 2: 1 up to 2: 1 up to 2: 1
regulation CySEC, FCA CySEC, FCA CySEC
Other instruments Stocks, commodities, forex ETF, stocks, forex, commodities,
options, indices
ETF, stocks, forex, commodities,
indices

Fees with crypto brokers

Fee models of crypto brokers differ from crypto exchanges in that there are no transaction fees. Instead, spreads are charged on the prices through which the brokers make their money. The spread to buy Bitcoin, for example, is 0.75%. Let’s say you buy €1,000 worth of Bitcoin at a rate of €10,000. Then you pay a total of €7.50 in fees for your purchase of €1,000 in Bitcoin. If you trade with a broker with leverage, you should also pay attention to whether there are so-called “overnight fees”.

You can view the fees at any time in your portfolio overview at eToro.

Regulation & Verification

Crypto brokers are generally subject to the guidelines of the FAC (UK) or CySEC (EU) financial supervisory authorities. For you, this means that you have to verify your identity when registering with a broker.

Buy cryptocurrencies on an exchange

Crypto exchanges allow you to place direct orders on an order book to buy physical cryptocurrencies. The big advantage here is the sheer choice of cryptocurrencies and often low fees.

But beware: The risk also increases with crypto exchanges, because they are often not regulated and are not subject to any financial supervisory authority. It is therefore advisable to have purchased cryptocurrencies paid out immediately into your own wallet.

It is imperative that you understand the concept of private keys and addresses, because if you make a mistake here, this could result in a high loss, or even a total loss!

You should also make sure that you do not buy any dubious small coins on crypto exchanges, which have little liquidity and could crash down within a very short time. If you are unsure, crypto brokers might be a better choice for trading cryptocurrencies.

Deposit options with crypto exchanges

Generally, you can deposit on a crypto exchange in various ways, but unfortunately, depositing with PayPal is currently only possible with crypto brokers.

The most important deposit methods are:

  • Bank transfer (SEPA)
  • Credit card
  • Cryptocurrencies

Fees of the largest crypto exchanges

Crypto exchanges have different fee structures. For exchanges such as Kraken or Binance, the fee structure is determined by the monthly trading volume. Traders with large amounts have to pay less fees than small investors. We have compiled an overview for you in the following table:

30 days trading volumeCoinbaseBinanceOctopuses
$0 – $50.0001,49%ca.0,1%0,16% – 0,26%
$50.001 – $100.000 1,49%ca.0,1%0,14% -0,24%
$100.001 – $250.000 1,49%ca.0,1%0,12% – 0,22%
$250.001 – $500.000 1,49%ca.0,1%0,10% – 0,20%
Crypto Prices (USD)
Bitcoin

Bitcoin

$62092.25
–0.02%
Ethereum

Ethereum

$3788.87
+0.07%
Binance Coin

Binance Coin

$490.54
+0.06%
Cardano

Cardano

$2.13
+0.05%
Tether

Tether

$1
–0%
XRP

XRP

$1.09
–0.19%
Solana

Solana

$157.21
–0.11%
Polkadot

Polkadot

$41.01
–0.04%
USD Coin

USD Coin

$1
+0.02%
Dogecoin

Dogecoin

$0.25
–0.28%

Recommended broker

eToro Experiences & Test 2021: Our Rating

9.3 / 10

eToro Experiences & Test 2021: Our Rating

  • No deposit fees for all payment methods
  • Cheap method to buy Bitcoin instantly
  • One of the few providers that offer PayPal
  • Very user-friendly trading for beginners
USD ZEC ARDE NAV BTC GXS ICX
Dogecoin logo 400

September 21, 2021

Buy Dogecoin – Instructions on how to buy DOG

7 min reading

Ripple logo 400

September 22, 2021

Buy Ripple – Instructions on how to buy XRP

7 min reading

Tether logo 400

September 23, 2021

Buy Tether – Instructions for buying USDT

7 min reading

The Editorial Team

Phillipp Schuster

Phillipp Schuster was already interested in emerging technologies before he started his studies in the field of business informatics. In particular, the revolutionary potential of blockchain technology excited him and contributed to his professional focus on digitalisation. Besides technical topics, Phillipp is very interested in the tokenisation of assets and possible use cases of DLT in the IoT.

Regulation

Today, we are still in the early stages of cryptocurrencies.

None of the major crypto exchanges are located, which is why few if any crypto exchanges are regulated.

If you prefer to buy on a trading platform regulated by a financial market supervisory authority, choose a crypto broker. 

Buy cryptocurrencies P2P from other people

Of course, you can also buy cryptocurrencies “in real life” from other real people. However, great caution is advised here, because in the past there have been several robberies, especially of larger sums. Therefore, you should never appear alone at such a meeting and rather exercise caution than take an unnecessary risk.

Buying cryptocurrencies via an ATM

In a few large cities, it is possible to buy Bitcoin via an ATM.

These machines function similarly to change machines at an airport and allow you to exchange euros for bitcoin for a fee. If you have the option and there is a BTC ATM near you, this can be a good way to buy the cryptocurrency.

However, if you also want to invest in altcoins (alternative cryptocurrencies) such as Ethereum, IOTA or Polkadot, you will have to go to a crypto broker or crypto exchange.

Recommended brokers 2021

According to their website support forum, this is “for security, regulatory compliance and fraud prevention”. The limits are based on several factors that include the payment method you used, how old your account is, your purchase history, and more. These limits are calculated automatically.

etoro logo 200-120

eToro

Binance logo 200-120

Binance

Coinbase logo 200-120

Coinbase

Bitpanda logo 200-120

Bitpanda

Buy cryptocurrency – step-by-step guide

To get you started, we’ve put together a step-by-step guide on how to buy cryptocurrencies.

1 Step 1. Choose a trading platform
2 Step 2. Create an account with eToro
3 Step 3. Deposit funds
4 Step 4. Buy cryptocurrency
5 Step 5. Buy cryptocurrency and sell it again

Which cryptocurrency to buy?

According to the overview site CoinMarketCap.com, there are currently over 8000 cryptocurrencies.

However, many projects have been abandoned by the developers and are no longer being developed, whereas other projects strongly resemble scams and pyramid schemes.

To give you a good overview of technically sound projects, we have created an initial list of interesting technologies for you below:

What cryptocurrencies are there?

Cryptocurrencies are purely digital currencies that do not exist in the form of coins or notes.

Projects can be divided into groups that pursue different goals and use cases. These range from pure store-of-value, to smart contracts and dApps, to use cases in industry or the Internet of Things.

Bitcoin (BTC)

Bitcoin is the largest and also the best-known cryptocurrency. Bitcoin is also known by the synonym “digital gold”.

Ether (ETH)

Ether (ETH) logo

Ethereum is an open source network and is known for its programmability. The cryptocurrency Ether is the basis of the network and thus of the smart contracts.

Bitcoin Cash (BCH)

Bitcoin Cash (BCH) logo

This cryptocurrency is the result of a Bitcoin hardfork. In contrast to Bitcoin, Bitcoin Cash convinces with a higher transaction speed.

Ripple (XRP)

Ripple (XRP) logo

Ripple is an international payment network. With the help of the native coin XRP, transactions between banks can be processed within the shortest time frames at low costs.

IOTA (MIOTA)

IOTA (MIOTA) logo

IOTA is a digital currency for the Internet of Things. IOTA is not based on a blockchain but on the tangle. The native MIOTA tokens serve as the network’s means of payment.

Tezos (XTZ)

Tezos (XTZ)

Tezos is a platform for smart contracts and a direct competitor to Ethereum. With Liquid-Proof-of-Stake, the Tezos developers have developed a new and innovative governance method.

Litecoin (LTC)

Litecoin (LTC)

This is a technical copy of Bitcoin with faster transaction confirmations. Also, the limit on the maximum number of tokens is 84 million.

Cardano (ADA)

Cardano (ADA)

Cardano (ADA) is primarily a project to research challenges in the crypto sector. In the long term, Cardano aims to establish scalable solutions for the use of digital currencies.

Chainlink (Link)

 

Chainlink (Link)

This is a cryptocurrency that aims to solve the problems of decentralised oracles.

Polkadot (DOT)

Polkadot (DOT)

Polkadot is an “interoperability protocol designed to enable blockchains to communicate with each other.”

Dash (DASH)

Dash (DASH)

Dash is also a clone of Bitcoin. The biggest differentiator is Dash’s focus, which is on user privacy.

Monero (XMR)

Monero (XMR)

Along with Dash, Monero also focuses on privacy. The mining algorithm used is also considered user-friendly and is based on commercially available hardware.

NEO (NEO)

NEO (NEO)

The blockchain of the same name is used to create smart contracts and digital assets. NEO tokens can be converted into GAS tokens – these are necessary to operate the network.

EOS (EOS)

EOS (EOS) logo

The blockchain company Block.One is behind EOSIO. By using multithreading, the developers want to meet the requirements of professional users.

Stellar Lumens (XLM)

Stellar Lumens (XLM)

The cryptocurrency XLM enables international currency trading. Similar to XRP, Stellar is also intended to enable an international payment network.

Dogecoin (DOGE)

Dogecoin (DOGE)

The cryptocurrency Dogecoin is a meme coin. Dogecoin was meant to be a parody of Bitcoin, meanwhile the applications are increasing.

What should I look out for when investing in cryptocurrencies?

1 Tip 1: Decide on an investment type

Before you buy cryptocurrencies, you should decide on an investment type.

Do you want to buy cryptocurrencies and speculate purely on prices? The answer to this question is crucial for choosing the right trading platform.

If you want to be able to hold cryptocurrencies in your own wallets for years, you should choose a crypto exchange. If the technology is secondary to you and you are mainly interested in price fluctuations and price gains, then crypto brokers are for you.

Important:

No matter which type of investment you choose, you should only ever invest as much money as you are prepared to lose.

2 Tip 2: Are cryptocurrencies right for me? Are cryptocurrencies right for me

You have probably already asked yourself the question “Why should I invest in cryptocurrencies?”.

Cryptocurrencies are a new, highly volatile asset class where high price jumps up and also down are the order of the day.

If you are a more risk-averse investor, cryptocurrencies are most likely the wrong investment for you.

However, for investors who are less risk averse, there may be good reasons to invest. These include:

Diversification effect in the portfolio

Owning disinflationary assets in a phase of high inflation

Rising adaptation

3 Tip 3: Focus on a trading strategy

When investing in cryptocurrencies, different trading strategies can be used:

Day trading

Day trading involves buying and selling cryptocurrencies on a daily basis.

The whole process requires a high degree of concentration, emotional resilience and experience. Likewise, day traders also have to pay higher fees overall due to the increased trading of cryptocurrencies.

Therefore, this strategy should only be used by experienced traders.

Technical analysis also works for Bitcoin and other cryptocurrencies.

Swing Trading

Swing trading is an attempt to take longer swings.

If the Bitcoin price has doubled within a short period of time, a correction could be imminent. Swing traders try to sell at the local peak in order to re-enter at a lower price after such a correction.

Those who use this strategy correctly have a very good opportunity to further increase their portfolio in addition to pure appreciation.

Holding (HODL)

In crypto jargon, HODL stands for “holding”, i.e. holding cryptocurrencies for a long period of time.

Crypto-hodlers believe in the value of cryptocurrencies and are also prepared to hold out over long phases in which the price can drop by more than 50%.

With this strategy or attitude, however, one should not underestimate how strongly the emotions can be burdened. Sometimes it can be better to sell, even if one is slightly in the red, than to blindly hold out and hope for a renewed price increase.

4 Tip 4: Keep cryptocurrencies safe

If you have decided to buy crypto CFDs, you do not need to store your investment yourself. The following section only refers to physical cryptocurrencies purchased from Binance, Bitpanda or Coinbase, among others.

Cryptocurrencies are stored in a so-called wallet. In practice, different types of wallets can be distinguished.

Investors who only invest in cryptos via CFDs can safely skip this section. A CFD is merely a securitised financial derivative that reflects the price of another asset. Accordingly, no physical storage takes place here.

·         Hot Wallet

A hot wallet is used to store cryptos temporarily. The wallet is online and connected to the internet.

In particular, online services that accept crypto payments can be used with the help of such a wallet. In addition, the temporary storage of acquired cryptos at a trading centre can be described as a hot wallet.

However, the use of a hot wallet comes with a certain risk, as computer systems always have vulnerabilities. In the past, hot wallets have increasingly been the focus of cyber attacks.

·         Cold Wallet

Cold Wallet

The direct opposite of a hot wallet is a cold wallet.

This is also a virtual wallet that is used to store your own coins. Nevertheless, there is a decisive difference, because a cold wallet is not connected to the internet. All the keys that contain the personal tokens are offline.

We recommend this additional protection because a large part of the established crypto exchanges have already been the target of hacker attacks. For us, the Ledger brand hardware wallets offer by far the best solution. The devices support numerous cryptocurrencies and are particularly stable and of high quality.

Paper Wallet

Paper Wallet

A paper wallet is a document that contains copies of the wallet’s private and public keys.

Such a paper wallet usually also contains QR codes. These codes can be used to execute and validate transactions. Unlike other wallets, the paper-based form is completely analogue. Consequently, they cannot become the target of a cyber attack or a hardware failure.

However, users should bear in mind that paper can also be lost. Moreover, even with a paper-based wallet, investors should think about its storage. Moisture in particular is considered a major challenge. But theft is also a latent risk.

For larger amounts of money, for example, it is advisable to store them securely in a safe or to store them piecemeal in different locations.

5 Tip 5: Pay tax on cryptocurrencies

If you are interested in investing in cryptocurrencies, we would like to briefly discuss the important topic of taxation.

However, we also recommend professional advice from a tax advisor here.

Disclaimer: Blockchainwelt is purely an information portal and not certified tax advice!

In general, not only the buying and selling of cryptocurrencies is considered a tax-relevant process. Mining or staking also generates new tokens and is therefore relevant for tax.

Understanding taxes on cryptocurrencies

Understanding taxes on cryptocurrencies

An important factor influencing the tax burden in the crypto sector is the personal tax rate.

Those who hold physical tokens for longer than one year can generally sell them tax-neutrally. If a sale takes place within the first year, the profit is subject to the personal tax rate, the solidarity surcharge and church tax.

If the tokens are lent out as part of the lending process or if capital income is generated through staking, the profits are subject to the final withholding tax, the solidarity surcharge and church tax. In addition, the holding period until tax exemption is extended to ten years.

Private mining is considered a miscellaneous service. Here, 256 euros per year can be earned tax-free. Higher profits are subject to personal income tax.

A CFD is also subject to the final withholding tax. Accordingly, investors only have to pay 25 per cent plus solidarity surcharge and church tax on profits here, in contrast to the purchase of physical assets on a crypto exchange.

CFDs on cryptocurrencies offer tax advantages for many investors, as they only have to be taxed with the final withholding tax.

FAQ

Frequently asked questions about buying Bitcoin

Where is the best place to buy cryptocurrencies?
Can you buy cryptocurrencies at the bank?
Which cryptocurrencies should I buy?
Are cryptocurrencies safe?
Are cryptocurrencies money?
Why is a Bitcoin so expensive?
What time should I buy cryptocurrencies?
Can I buy all cryptocurrencies?
Are cryptocurrencies a new financial instrument?
What returns do cryptocurrencies promise?
Phillipp Schuster, Currency Strategist & CEO

Phillipp Schuster was already interested in emerging technologies before he started his studies in the field of business informatics. In particular, the revolutionary potential of blockchain technology excited him and contributed to his professional focus on digitalisation. Besides technical topics, Phillipp is very interested in the tokenisation of assets and possible use cases of DLT in the IoT.

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