When deciding the best method to buy Bitcoin or other cryptocurrencies, there are several factors to consider. How much of the cryptocurrency do you want to buy? How long have you been buying crypto? How much capital do you have to invest? And where in the world are you located? And what is the safest way to buy crypto?
In Canada, there are many ways to obtain cryptocurrencies legally and safely. The way you decide to obtain Bitcoin will depend on a combination of these factors mentioned. If you are new to cryptocurrencies, then it is a good idea to keep it simple. Find a user-friendly cryptocurrency exchange that sells Bitcoin.
Before you buy anything, make sure you understand the platform’s mechanics. Investors who have been buying cryptocurrency for a while may want to find a platform that offers high-volume discounts or has OTC (over-the-counter) trading services. Or the experienced investor may be more interested in using a DEX (decentralized exchange) that offers more trading features, such as token staking, margins, or futures. And some will prefer peer-to-peer exchanges.
Fund Your Account or Digital Wallet
Whatever method choose, you need to fund a digital wallet. Digital wallets hold your cryptocurrencies and account information and enable you to buy and sell Bitcoin on an exchange. Once you have set up a wallet, you can fund your wallet with fiat currency or other cryptocurrencies.
If you are using a fiat currency, like Canadian dollars, you can use wire transfers, e-transfers, or credit cards. Most exchanges accept all of these methods of funding. And most exchanges also have digital wallets built into the exchange. All you need to do is create an account and verified it. Once that’s done, you can add your funds and buy BTC.
Those who already own other cryptocurrencies, such as Ethereum or Tether, can exchange this crypto for Bitcoin. Sometimes traders get a better value with crypto trading pairs than with fiat currency. A warning, not all digital wallets are compatible with all cryptocurrencies. And not every exchange accepts the cryptocurrencies that you already have. But all it takes is a google search to find one that is compatible with your needs.
Some examples of digital (or hot wallets) that hold Bitcoin are Exodus, Electrum, Mycelium, Metamask. Once you amass over $500 of cryptocurrency, it is worth investing in a hardware wallet such as Trezor or Ledger. These devices store your crypto offline, where it is safest.
Cryptocurrency Exchanges v. Decentralized Exchanges
Centralized exchanges are often the most accessible and user-friendly way to buy Bitcoin. They do not require a lot of technical know-how and have customer support when you need it. If you choose to buy Bitcoin on CoinSmart.com or other Canadian exchanges, most of them are simple and safe to use.
These are all examples of managed, custodial cryptocurrency exchanges. That means that the exchange takes custody of, and is responsible for, your money. All Canadian cryptocurrency exchanges that operate in Canada must be licensed to do so. Many prefer to use centralized exchanges because your money is insured, and it never leaves the country. Canadian financial institutions back many of these exchanges as well.
Decentralized exchanges (DEXs) may be more appealing to experienced investors and prefer the libertarian values of Bitcoin’s trustless design. DEXs are decentralized, which typically means that they are non-custodial exchanges. These exchanges are designed to bring together those trading in the crypto market. Many DEXs are starting to offer token staking, with enables interest earnings while facilitating cryptocurrency mining. Some also provide futures and advanced trading bots.
The basic structure of a DEX is to let the code and blockchain technology work for itself, with little intervention. For many who are new to trading, this may seem a bit overwhelming or scary. If you aren’t comfortable with the technology or are unfamiliar with crypto markets, it may be better to use a managed exchange. There are substantial online supports and communities to support your learning. Most exchanges have a comprehensive resources sections, and other forums such as Twitter and Reddit can also be very useful.
Examples of DEXs are Hotbit, 1Inch, and KuCoin.
Peer-to-peer is the OG way to buy Bitcoin. Cryptocurrencies were designed to function a lot like e-transfers or emails. All you need is the address and the desired amount. The transfer is approved when/if the transaction the Bitcoin network confirms that the agreed-upon funds are available, along with the correct passkeys to complete the decryption process.
To make p2p exchanges, all you need is a willing trader. There are countless online forums where you can meet others interested in selling BTC. Some platforms function as loosely structured DEXs for traders to connect. You can buy BTC with whatever the seller is willing to accept, be it cash, or bus tickets, or other cryptocurrencies. For a p2p transaction, the two parties agree on the terms of the exchange.
Cryptocurrencies are designed to be secure. The technology and encryption are very reliable. Some problems can arise if you do want to exchange p2p. While p2p is doable, you don’t have much of a safety net, and you never know who you are interacting with. When you use an exchange, you only ever interact with the exchange. That means that the exchange is responsible for keeping your identity private and your information secure.