Complete Beginner's Guide to Cryptocurrencies – Part 1: Buying Your First Bitcoin

After explaining to one friend, and then another, how to get started with Bitcoin and cryptocurrencies, I decided to write this up & share it with the world.

I'll assume you already know the risks, but:
Don't invest any money you wouldn't be willing to bet in Vegas. Bitcoin (& all cryptocurrencies) is a very high-risk investment. Your money could compound 1000x, or it could all virtually vaporize overnight. ...Now then...

Cryptocurrency Security Precautions
The fewer people who know you have Bitcoin (or any cryptocurrency – there's more than just Bitcoin), the better. It's virtual currency, and hackers gonna hack.

1) Create a new email address to use just for cryptocurrency (crypto). Don't use your real name in the email address or the "Name" form. You'll have to use your real name on crypto sites to validate your identity for legal purposes, but your email doesn't need to match anything.

2) Use a strong password and 2-Factor Authentication (2FA) on your email account & all crypto-connected accounts. I'll get into 2FA in more detail later, so if you want to skip it on your new email address for now, that's fine, but it's a must.

3) If you're going to post something about crypto publicly, don't use your crypto email address on that site. Probably don't use your real name, either. Create yet another email address & use a pseudonym if you want to post about it. And it's probably best not to discuss it too much on your public Facebook/Snapchat/whatever account, either. Again, hackers gonna hack, and their break-in tool is your information.

Part 1: Buying Your First Bitcoin
Difficulty: Beginner

Coinbase is the main entry point into crypto for most people. It's set up for newbies, and it's the fastest/easiest way to turn cash into crypto, and later, back into cash and to your bank account. They also have a really nice mobile app.

Coinbase is a cryptocurrency exchange – kind of like an online wallet, but for more than just US dollars [USD]. Like PayPal or Venmo, you can connect your bank account to send, receive, and withdraw USD. But on Coinbase, you can also also buy & sell Bitcoins (or a fraction of a Bitcoin) with your USD. You can keep your USD and Bitcoin on the site, or you can transfer your coins somewhere else, and you can withdraw your USD back to your bank account at any time.

1) Sign Up
Use your just-for-crypto email address. Use my referral link to get $10 after you deposit your first $100: http://www.coinbase.com/join/52cf662798be7e744800008f 

2) Set up 2FA
Set up 2-Factor Authentication (2FA) on your Coinbase account. 2FA adds an extra layer of security when you log into your account, so that in addition to your password, you'll also need to supply a temporary code that's only available on your phone. Never use TEXT messages for 2FA. Use the Google Authenticator (GA) mobile app. Follow Coinbase's 2FA instructions. BUT! Before you close the 2FA browser window on Coinbase, save a copy of the Authenticator Secret Code (ASC) and the QR code image to your computer. Save them somewhere safe (& encrypted). If you ever lost your phone, you would lose access to those GA temporary codes, and thus your Coinbase account. If you have the ASC or QR Code backed up, you can scan or type the code in GA on your new phone to regain access to the temporary codes. 

If you haven't set up 2FA on your email account yet, do that now, too – and don't forget to back up (and encrypt) the ASC & QR code.

3) Verify your Identity
You'll have to verify your identity, which includes uploading a pic of your id and a utility statement or something similar. That'll take a few days. You can increase your verification to higher levels later on by providing more information.

4) Link Your Bank Account
You'll want to link your bank account right away so you can deposit & withdraw money to buy coins with. You can use Credit Cards & deposit right away, but there's a pretty significant fee, so I recommend using your bank account. You'll need to set up your bank account to withdraw funds anyway.

5) Understanding Your Coinbase Wallets – Deposit/Buy/Sell/Withdraw
Once your account is set up, under Accounts you'll see you have a few different wallets. There's one each for Bitcoin, Ethereum, & Litecoin (I'll cover the last two in Part 2), and one called USD Wallet. You can either deposit funds from your bank account into your USD Wallet, or you can directly buy coins from your bank account. That part is all pretty straightforward so I won't cover it here. You can also sell coins with proceeds going to your USD Wallet or straight back to your bank account. For tracking purposes, I find it easier to deposit & withdraw USD to/from my bank into my USD wallet first, and then separately buy or sell coins to/from my USD Wallet.

6) Storing Your Coins
Most crypto traders will recommend not holding any coins on any exchanges, including Coinbase, because there is a chance they will get hacked or the owners will run off with your money. That is a possibility, but Coinbase is based in the US, is insured, and seems about as safe as PayPal or any other bank-account-connected app. I'll cover withdrawing and transferring coins in a future post, but if you're just getting started you should be safe trusting Coinbase about as much as a PayPal or Venmo account.

This should be enough to get your started with using Coinbase for buying & selling Bitcoin. In Part 2 I'll explain a little more about Bitcoin, and introduce you to Ethereum & Litecoin.

Part 2: Beyond Bitcoin – Ethereum & Litecoin