At Brown County State Bank, our goal is to empower you with knowledge to help you navigate the complex world of finance, and this includes understanding cryptocurrency. We recognize its growing popularity and the curiosity it sparks, and this article outlines key steps involved in the process to provide clarity.
Please Note: We are not recommending buying or using cryptocurrency, nor endorsing any of the vendors or companies referenced as examples. Any decision to proceed should only be made after thorough personal research and consideration of the risks involved.
A Beginner’s Guide to Buying & Using Cryptocurrency
What Is Cryptocurrency?
Cryptocurrency is a decentralized digital currency that uses cryptography for security and operates on a technology called the blockchain—a transparent, tamper-proof ledger of transactions. Unlike traditional money issued by governments, cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) are managed by a network of computers rather than a central authority. This makes them borderless, fast, and, for many, an attractive alternative to conventional finance.
Step 1: Understand Your Goals
Before diving in, ask yourself: Why do you want to use cryptocurrency? Some buyers view it as a long-term investment, hoping its value will rise. Others use it for quick, low-cost international payments or to explore decentralized finance (DeFi) opportunities. Defining your purpose will help you choose the right cryptocurrency and strategy. Whatever you decide, we recommend treating cryptocurrency as you would any other asset – as part of a diversified financial plan, balancing its potential rewards with its risks.
Step 2: Choose a Reputable Platform
To buy cryptocurrency, you’ll need to use an exchange or payment app. Popular exchange options include Coinbase, Binance, and Kraken, and common payment apps include BitPay, PayPal, and Venmo. The key is to select one that prioritizes security and complies with U.S. regulations. Look for:
- Multi-factor authentication (MFA) for account protection.
- Clear fee structures (e.g., transfer, trading and withdrawal fees).
- Regulatory compliance — for instance, platforms registered with the U.S. Financial Crimes Enforcement Network (FinCEN).
Step 3: Set Up and Fund Your Account
Once you’ve chosen a platform, you’ll need to create an account. This typically involves providing identification to comply with Know Your Customer (KYC) rules; linking a payment method, such as a bank account, debit or credit card; and depositing funds—most platforms accept U.S. dollars or other fiat currencies.
When creating your account, be sure to create a strong password and engage multi-factor authentication. Key factors to consider when linking a payment method include transfer speed, fees, and security. Do your research to find out which option is best for you. Linking a bank account often allows for the lowest fees but may not process as quickly as debit and credit cards. In addition, some credit card issuers may block crypto exchange transactions, and if they do allow them, may charge additional fees or subject them to cash advance rates on top of exchange processing fees.
One option is to open and maintain a separate checking account and only fund it with the amount(s) needed for your purchase transactions. From there, you can buy your desired cryptocurrency. For example, if you deposit $100, you might purchase 0.0012 BTC, depending on Bitcoin’s current price.
Step 4: Store Your Cryptocurrency Safely
After buying cryptocurrency, you’ll need a secure place to store it – a cryptocurrency wallet. These wallets store your private keys to your cryptocurrency after purchase. Private keys are unique codes that authenticate your access and use of your cryptocurrency. It is vital your private key(s) are kept secure and confidential. If lost, you cannot access your cryptocurrency and if compromised, your cryptocurrency can be stolen without recourse. When choosing a wallet, you have two main options:
- Wallets on the Exchange or Payment App: These may offer the most convenience but leaving funds on an exchange can be risky if the platform is hacked.
- Personal Wallets: These come in two forms:
- Hot Wallets: Software apps or browser extensions (e.g., Trust Wallet or Exodus) connected to the internet or another connected device. These are easy to use but more vulnerable to cyberattacks.
- Cold Wallets: Hardware devices (e.g., Ledger or Trezor) or paper wallets are stored offline. This affords them more protection from hackers, but they can also be lost, stolen, or damaged.
It’s advisable to treat cryptocurrency like any valuable asset: protect it with strong passwords, backup recovery phrases, and, whenever possible, activate multi-factor security features.
Step 5: Start Using Cryptocurrency
Once you own cryptocurrency, you can:
- Hold it: Many investors “HODL” (a crypto term meaning “hold on for dear life”) in anticipation of value increases.
- Spend it: A growing number of merchants accept crypto payments, from online retailers to coffee shops. Look for “Pay with Bitcoin” options or use crypto debit cards.
- Send it: Transfer crypto to friends, family, or businesses globally, often with lower fees than traditional wire transfers.
- Trade it: Exchange one cryptocurrency for another (e.g., BTC for ETH) to diversify or capitalize on market trends.
Key Considerations Before You Begin
Cryptocurrency offers exciting opportunities but comes with unique and real risks:
- Volatility: Prices can swing dramatically—Bitcoin, for example, has seen both meteoric rises and sharp drops.
- Regulation & Taxation: Governments are still defining rules for crypto, which could impact its use or taxation. While cryptocurrencies in the United States are presently taxed as property, not currency, according to IRS guidance established in 2014 (Notice 2014-21), it’s important to consult a trusted tax professional to understand your obligations.
- Security: Unlike traditional bank accounts, cryptocurrency transactions are uninsured, irreversible, and there’s no customer service line to call if you lose access or value.
The Future of Money?
Cryptocurrency is more than a trend—it’s a glimpse into the future of finance. Whether you’re intrigued by its investment potential or its practical applications, taking the plunge requires preparation and caution. Start small, stay educated, and leverage trusted resources to keep your financial journey on track.
At BCSB, we are committed to helping you make informed decisions. While we don’t directly offer cryptocurrency services at this time, we are always exploring ways to bring you the best and latest financial services and proven technologies. In the meantime, as our industry awaits regulatory guidance on this issue, our United Wealth Financial Services investment executives will be happy to visit with you to discuss how cryptocurrency may fit into your broader financial strategy. Contact us today to plan your future!