How to invest in cryptocurrency: Exchanges, apps, wallets and more

Are you ready to start investing in cryptocurrency? 

A little more than a decade after the first cryptocurrency, Bitcoin, was launched, the industry that's developed around the new technology has seen explosive growth. Today, there aren't just cryptocurrencies available, but a few blockchain-based digital assets, including crypto tokens and NFTs. 

There's several methods for starting your investment journey in crypto. Depending on whether you want help managing your investment or if you want to align with the ethos of the ecosystem and "be your own bank," there are opportunities for those just starting out. 

Keep in mind that investing in cryptocurrency is still risky — you could lose the entire value of your investments —so make sure you're in a financially sound position and take the time to asses your risk appetite before putting money towards the asset class.

• How to buy cryptocurrency
• What cryptocurrencies should you invest in? 
• What to know after you've bought cryptocurrency

Traditional finance apps

Perhaps the easiest way to buy cryptocurrency is through one of the traditional financial service providers that have recently adopted the technology. 

CashApp, a peer-to-peer payment service owned by Square Inc., allows users to buy bitcoin only. PayPal allows users to purchase four different cryptocurrencies: bitcoin, ethereum, bitcoin cash and litecoin. Users holding crypto on PayPal can then use it to checkout on the app as well. Robinhood, the mobile app for stock investing, supports seven cryptocurrencies for purchase by users, including the popular Dogecoin meme cryptocurrency. And personal finance provider, SoFi, too allows for crypto purchases of 21 different coins and crypto tokens through its app. 

These products are well established in the market and may make new investors feel more at ease with the slick user interfaces. But they have certain limitations that make utilizing cryptocurrencies in any other regards a hassle. PayPal, for instance, does not currently let users send the cryptocurrency they've bought to any other crypto wallet, although the company has said that functionality is coming. Robinhood is also developing its own wallet. On SoFi, crypto tokens, which can typically be put up as collateral — called staking — to earn passive income, cannot be utilized in this way. 

The main utility of purchasing crypto through a traditional finance app is the ability to trade and/or invest for profit in US dollars.

Centralized exchanges

There are thousands of different crypto assets, so the traditional finance apps that support crypto trading offer a very limited selection. Buying cryptocurrency through crypto-first digital wallets and exchange providers will offer users more choice and functionality. 

Which wallets and exchanges are available to you will depend on what area of the world you live in, but there are safe and mature options in most locations.

The providers mentioned below are typically referred to as centralized exchanges, since they're managed by a single company. Centralized exchange providers offer certain protections that some investors might welcome, including insurance in case of cybersecurity breaches, regulatory clarity since they are licensed businesses and help safeguarding assets. Centralized exchanges typically offer more intuitive user interfaces making them more accessible for new cryptocurrency investors. 

But centralized exchanges rely on a central authority or middleman between you and your assets. This means your assets can be frozen or otherwise constrained by the exchange from participating in some actions or types of commerce. Centralized exchanges must also abide by Know Your Customer regulations and so must collect and verify personally identifying information, which makes them less ideal for individuals that want to preserve their privacy. 

Coinbase is the largest crypto exchange in the United States by trading volume and is also one of the longest-running exchange businesses. The exchange was founded in June 2012 and went public on the NASDAQ stock exchange in April 2021 with a nearly $100 billion valuation. It offers buying, selling and trading of 50 different cryptocurrencies and crypto tokens. 

Other U.S.-based exchanges include Gemini and Kraken. All these exchanges allow users to send their crypto off the platforms to third-party wallets and allow for staking to earn interest as well. 

Binance is another popular crypto exchange, although it doesn't operate everywhere in the U.S. (for instance, New Yorkers are unable to use the exchange). The Cayman Islands-based crypto exchange has the largest assortment of crypto available. The exchange supports 500 coins and tokens, including two of which it created itself. Binance has come under fire from regulators for lax anti-money laundering checks and other consumer protections, but still is the largest in the world in terms of trading volume. 

Decentralized exchanges

Some investors will prefer to use exchanges that align more strongly with the decentralized ethos of the crypto industry at large. 

Decentralized exchanges, or DEXes, are not run and managed by one single person, company or organization, but instead the code it's built on allows for peer-to-peer crypto transactions without intermediaries. 

Popular DEX options include Uniswap, SushiSwap, dYdX and 1inch. 

There are pros and cons to utilizing a DEX. Because there isn't a single entity involved in managing user assets, decentralized exchanges don't present hackers with a large honey pot of user funds. That said, hackers can and have exploited bugs in the exchange's code to drain money from the protocols. 

Because there's typically not a stringent onboarding process that collects personal information about customers, there isn't much recourse for users who lose funds on these exchanges. And DEXes tend to have more complex user interfaces that aren't always intuitive for those used to traditional and straightforward finance applications. 

NFT marketplaces 

NFTs, or non-fungible tokens, have recently garnered significant attention and huge resale figures. These tokens can be used for a wide variety of functions, including digital asset access and ownership, but recently, the hype has focused on NFT-based digital artwork.

For those interested in purchasing NFTs, there are several marketplaces that allow users to pursue NFT collections and purchase artwork. 

OpenSea is perhaps the most popular secondary market for NFTs. On this marketplace, users must already have an Ethereum wallet, such as MetaMask, funded with ether (Ethereum's native cryptocurrency) to purchase NFTs. 

ArtBlocks, SuperRare and Rarible are other popular options for getting access to NFTs. Nifty Gateway, the NFT marketplace owned by crypto exchange Gemini, allows for the purchase of NFTs using traditional payment methods, such as credit cards. 

This is a personal question based on your interest in the technology and risk appetite. 

Because the technology is so new, there isn't one silver bullet to evaluate these investments, but there are several methods for analyzing whether a project has legs or not, including investigating the team behind the project and inspecting the developer community working on the protocol. 

The longest-standing and most secure cryptocurrency is Bitcoin. Bitcoin was what started it all and has the highest market cap of any other coin, at over $1 trillion as of writing in mid-October 2021. The project has a healthy developer ecosystem constantly working to upgrade the code and has the most users by many metrics. 

Currently, bitcoin is trading around $57,000 a coin, although the price sees massive swings in both directions from time to time. For instance, bitcoin reached an all-time-high price of $63,576 on April 14, 2021, before falling by more than half to $29,971 only a couple months later. 

Most cryptocurrencies and crypto tokens see significant price volatility, which is why it's seen as a risky choice for many retail investors. 

Ethereum is another good bet for investors. Ethereum innovated on Bitcoin by implementing what's called smart contracts that allow for more complex tokens and transactions. While the Ethereum blockchain has dealt with significant scalability issues since it launched at the end of July 2015, it is the most actively used blockchain.  

It's been the blockchain of choice for several innovations, including the crypto fundraising mechanism initial coin offerings (ICOs), NFTs and decentralized finance (DeFi). Ethereum also has the largest developer community of any cryptocurrency project. 

You never have to buy a full unit of a cryptocurrency. Cryptocurrencies are highly divisible. For instance, you can purchase $10, $100, $10,000 of bitcoin, instead of one whole bitcoin.  

The most important thing to remember when participating in crypto is to never give out your private key or recovery phrase that's created when you open a wallet. 

Crypto wallets are used to store your digital assets and some allow you to also buy, sell and transfer crypto. If you start by buying cryptocurrency on a centralized exchange, you might decide later to transfer that cryptocurrency to a wallet with more features. For instance, by transferring ether from Coinbase to a MetaMask browser wallet, you are able to natively interact with a number of decentralized applications (or dapps), such as NFT marketplaces and yield-bearing DeFi platforms (where you can earn interest on your crypto). 

The private key is the alphanumeric string that secures your crypto and proves your ownership. The recovery phrase is a human-readable version of your private key, that is, a 12 to 24-word list of words in a specific order that can help users reclaim custody of their crypto should they forget their wallet password or their computer breaks.

No wallet provider, exchange or company will ever ask you to share these things. If you get an email that looks like it comes from a legitimate provider, but asks you to input your private key, that's a scam. Crypto is rife with this type of fraud, called a phishing attack, because of the lack of recourse users have when a theft happens. 

It's important that you don't lose your recovery phrase. Password managers, such as 1Password and LastPass, offer good solutions for storing and managing your passwords and recovery phrases. These services also offer unique and complex passwords to protect your crypto assets.

Another security measure you should take includes setting up two-factor authentication within your crypto wallets and apps. Two-factor authentication, or 2FA, adds another layer of security to your logins. Two-factor authentication solutions can either be SMS-based, sending a one-time password to you via text message or a one-time password generated within a specific authentication app, such as Google Authenticator or Authy. The latter solutions are more secure than SMS-based methods, since SMS-based 2FA can be utilized by hackers during a SIM swap attack.

Separately, if you've bought large amounts of crypto that you plan to hold long term, hardware wallets, like Ledger and Trezor, offer one of the safest storage solutions. These purpose-built devices remain offline, decreasing the attack vector from hackers. 

As the crypto industry matures, investing in crypto assets becomes both easier and more secure. It's an exciting space that offers you access to a new technology that's shaping innovation in many industries, but it also comes with risks.

Investing in cryptocurrency is still risky — you'll want to be in a financially secure position before you start putting money into crypto assets. Make sure to do your own research and remember that your assets are not FDIC-insured.

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