Buying and Selling Cryptocurrencies
As the ecosystem for digital assets has matured, the process of buying and selling cryptocurrencies has become increasingly user-friendly. Trading crypto is fairly similar to trading equities and other asset classes, with two major differences: trading platforms and crypto storage.
Places to Buy and Sell Cryptocurrencies
Cryptocurrency Exchanges: Crypto trading exchanges are the most popular platforms for buying and selling digital assets. To open an account at an exchange, you usually need to provide valid identification and link your bank account to your trading account. When you buy cryptocurrency on an exchange, it is stored in an exchange-hosted wallet where, typically, the exchange controls your private keys.
However, you may withdraw your crypto investment by using your exchange-hosted private keys. In addition to being a custodial wallet, where the exchange controls your private keys, an exchange wallet is almost always a “hot” wallet — a wallet that is constantly connected to the internet.
While hot wallets typically facilitate faster trades, they may be more vulnerable to hackers because they’re always online. Conversely, a “cold wallet” remains offline and much more secure against hacking, but transferring funds into and out of cold storage takes more time and effort. Most reputable exchanges store the majority of customer funds in cold hardware wallets, ensuring that a majority of funds are held securely offline.
Mobile Apps: Several popular mobile apps bundle crypto trading services along with other services. For example the trading app Robinhood offers traditional stock trading in addition to crypto trading; PayPal is a money transfer service that allows users to buy and sell crypto on its platform; and Square is a point-of-sale (POS) system for small businesses, but users can also trade crypto on its app.
Crypto ATMs: Crypto ATMs are physical locations where you can withdraw crypto by using a crypto credit card or purchase it by depositing fiat currency. Not all of these ATMs support selling crypto, however. Crypto ATMs connect directly to a wallet or a cryptocurrency exchange at the back end and have daily limits on cryptocurrency purchases.
In-Person Meetups: Following Bitcoin\’s launch in 2009, in-person meetups were the most popular method for crypto trading. A number of online platforms, such as one called LocalCryptos, still function as intermediaries to connect crypto enthusiasts and traders with each other. However, the growth of cryptocurrency exchanges, and growing regulations of digital assets, has diminished the popularity of this method.
Futures Exchanges: Futures are an indirect method of buying or selling cryptocurrencies. With futures, you bet on an asset’s price on a specific date in the future. Crypto futures culminate in the digital delivery of the cryptocurrency at the end of the trading period.
