Quick Take: Different ways of acquiring cryptocurrency

With this past month’s stock and crypto activity (various stocks heading for lunar orbit, Bitcoin breaking US$40,000, etc), a lot of people have started looking for ways to buy cryptocurrency (and stocks).

In a lot of forums, they’re being hit with misleading or outright false information. I’m here today to give you some pointers and context, and help you understand the cryptocurrency options available to you.

Nothing in this post is provided as investment advice or recommendations to conduct any financial transactions. There is risk in any of these processes, and you are on your own for that.

If you choose to use one of my referral links to sign up for one of the services mentioned, I’ll either get a share or two of a cheap stock, a few bucks worth of a stock, or sometimes a cash bonus. And I’ll appreciate your support. (Note that promos can change, and I may not come back and update these promos later; see the respective websites for active promotion terms)

  • SoFi Invest (fund an active account including crypto with $1000, and we’ll both get $50 worth of stock) (crypto available)
  • SoFi Money (fund an account with $500, and we both get $50 cash) (Virtual money management account, linkable to Invest and other services)
  • Robinhood (sign up and link a bank account, and we both get a free share of stock) (crypto available)
  • Webull (fun an account with $100 and get at least one stock share, maybe two) (crypto under tags like BTCUSD, ETHUSD, no DOGE)
  • Public (app-only, complete application and get a free amount of stock up to $16, must hold the value of the free stock in the account for 90 days) (no crypto, just stocks)

What is cryptocurrency? Do I get an actual physical bitcoin?

Cryptocurrency is a virtual currency that is created through a process called mining, and can be transferred and converted to other currencies (including “fiat” or what some would call “real” money). You don’t get a physical bitcoin (or ethereum or anything like that), and if you’ve seen one of those metal “Real Bitcoin Coin” items at a store, you’ve just seen a souvenir with little to no value and no association with any bitcoins.

Many cryptocurrencies have developed value, primarily through people giving them value and accepting them in transactions. This isn’t entirely unlike paper money – a piece of green and white paper alone doesn’t have any value, but when a nation accepts that that piece of paper is worth a certain amount and uses it in trade, it suddenly has value. 

The cryptocurrencies you’ve probably heard most about are Bitcoin, Ethereum, Litecoin, and (lately) Dogecoin. Bitcoin is the grandfather of crypto, and has been around since 2009. The others have come along since, to address perceived shortcomings or scaling issues with Bitcoin. 

Ways to acquire cryptocurrency

The common ways to acquire cryptocurrency are mining, direct purchase from an exchange, or indirect purchase through an investment firm.

Mining cryptocurrency

Mining is a process where you use computing power and special software to work mathematical problems out. This can be done with CPU power, GPU (video card) power, or custom built ASIC power, and some methods are better for certain coins. For example, mining Bitcoin today requires the custom ASIC rigs to be anywhere near profitable. Ethereum is GPU-mineable, although there are some ASIC miners. If you’re going to mine, check out my miner article from a couple years ago, and browse some of the mining sites like bitcointalk for more information and guides. 

Direct purchase from an exchange

What I’m calling “direct purchase” is going to an exchange site and buying currency there, to be placed into your wallet (the virtual repository for your cryptocurrency). Bittrex and Coinbase are among the most popular in the US and elsewhere. You can use these sites to convert currencies (i.e. turn 1 ETH into ~0.04 BTC or vice versa), or you can purchase cryptocurrency with your own currency (i.e. turn US$34,205 into ~1 BTC).

Some sites take bank transfers, instant debit card transactions, or even credit card transactions, but note that buying cryptocurrency with a credit card may result in a cash advance transaction to your card (with fees, interest charges beginning immediately, and limits for transactions)

It may also be possible to purchase cryptocurrency in a person-to-person transaction. For example, if you want to buy 1 ETH and I have 1 ETH available, I might sell it to you directly and send it to your ETH wallet address. Not everyone knows someone with cryptocurrency though, but it’s an option if you do. 

Indirect purchase through an investment firm or bank-like firm

Many of the smaller consumer level investment platforms (including Webull, Robinhood, and SoFi Invest) offer a way to buy cryptocurrencies through their systems. Paypal offers this option as well, and you will probably find some of the larger investment firms offering crypto services too.

With these options, you don’t need a crypto wallet or an exchange account, just a regular investment account with that company and some money in your account. 

If you visit forums for some of these companies, though, you’ll find people saying “it isn’t real crypto if you don’t have the keys to the wallet.” This is partly true, in that you can’t transfer cryptocurrency to/from your crypto wallet, or make crypto payments from SoFi Invest, Webull, or Robinhood directly. But it is still cryptocurrency, and you can still profit (or lose) from the movement of the currency in these accounts. 

Which should I do?

That’s up to you. Really. 

If you plan to transact business using crypto directly (i.e. you want to buy pepper sauce from Pex Peppers with ETH or DOGE), you’ll want to mine or use an exchange.

Mining is great if you have a lot of GPUs handy and free or cheap power. At the current price of Ethereum, you can probably break even on a current model GPU (if you can find one in stock) in about 4 months of mining. If you built a rig three years ago, you can probably dust it off and bring it back up and do even better. But the price of Ethereum (and other currencies) can go way up or way down. So consider the risk, as well as your tolerance for heat, noise, and power bills. 

Buying through an exchange is a good way to convert “cash” to crypto, if you don’t want to mine, or if you’re taking your mining rig down for maintenance or a move or the like. You can also use an exchange to sell cryptocurrency and convert it to your own currency and even move the funds to your bank. 

If you just want to treat it as an investment vehicle, and hope to profit off the movement of the currency, a bank or finance company is a fine option. You don’t have to worry about the security of your crypto wallet, and transactions are usually faster and less complicated with a SoFi or the like. You can’t transact with businesses or individuals in crypto this way, but for a lot of people in the crypto market, that’s not a problem. 

There’s nothing keeping you from doing two or even three of these methods. I mine with GPUs in a spare room, buy crypto in order to rent hashing power from a marketplace, and hold a bit of bitcoin in an investment account. It all depends on your priorities and your patience. 

Should I buy DOGE or BTC or ETH or WhopperCoin?

I can’t tell you that. For most of my readers, you probably shouldn’t, but I wanted to level the information playing field so you’d understand the options if you choose to do so. 

There’s nothing keeping you from enjoying the DOGE memes and continuing with your investments as they already are, of course. 

Where do we go from here?

I’m going to go check my DOGE wallet. Let me know in the comments what you’re doing with crypto these days, and if you have any questions that are not related to investment advice, which I cannot and will not provide. 

And again, if you choose to use any or all of the referral links above, I thank you. 

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