Since the advent of the internet, new and exciting methods for education, commerce, and entertainment have continued to emerge. What once took days or copious amounts of research can now be accomplished in no time at all, leading to greater efficiency in virtually every facet of life for those who embrace this technology. As more and more new methods for engaging with brands and businesses emerge, new technologies are also making the customer experience more seamless.
Cryptocurrency, in particular, is one of these revolutionary technologies. Emerging approximately 10 years ago with Bitcoin and growing into a veritable fountain of hundreds of alternatives, everything from online entertainment to products and services can be purchased with currencies such as Bitcoin and Litecoin.
Ultimately, this new form of commerce presents a variety of advantages – but it also presents some confusion and caution for those who don’t inherently understand how it functions. To make the process clearer and safer, let’s look at the key factors that everybody should consider when paying with one or more cryptocurrencies.
How to Buy Cryptocurrency
Obviously, for those who have not used cryptocurrencies to make purchases before, the first factor to consider is how to obtain the currency. While it was once rather complicated to purchase this form of currency, there are many established exchange services available today that make it easy.
Generally, the process works virtually the same on all major platforms. First, you’ll need to sign up for an account through one of the many exchanges. After signing up, you’ll be required to provide proof of identification (usually in the form of a photo ID). Once your identity has been verified, you can then use a bank account or debit card to transfer funds directly into the account. With these funds, you can then buy any cryptocurrency available on the platform. From here, you can choose to either leave it parked on the exchange until needed or transfer it to your own personal wallet.
If you are planning to hold onto any currency for extended periods of time, then you obviously want to consider how best to store it. For those who are simply planning to exchange fiat currency for cryptocurrency and immediately make a purchase, this isn’t a factor. For everybody else, some consideration is needed.
There are a few options to consider. The first option is to simply leave the cryptocurrency in your account on the exchange(s) used. While there have been some hiccups with cryptocurrency exchanges in the past, most are heavily-regulated and secure today, meaning your investments are safe.
Another option is to store it in a hot wallet. The best way to describe a hot wallet is to think of it as a checking account: this is used to easily access funds and is usually based on your computer or another device. Think of cryptocurrency as a deposit method, just like you’d use when moving money between bank accounts, as this makes understanding the process much easier.
One more option is a cold wallet. Cold wallets are the most secure option, as they are not connected to the internet. If you are holding larger sums of cryptocurrency for extended periods of time, cold wallets make the most sense.
Cryptocurrency Value Fluctuation
When making purchases via cryptocurrencies, the transfers themselves happen virtually instantly. However, one factor to consider when using this currency is how long you intend to hold onto the currency. Why is this such a huge concern?
Simply put, most businesses that accept cryptocurrencies base the value on a fixed rate – usually linked to the US dollar, Euro, or another major currency. If your cryptocurrency of choice gains value in between the time you acquire it and the time you make the purchase, then you’ve effectively made money. However, the opposite can happen; suddenly, you may need more currency to purchase an item that was available at a lower price prior.
Given how volatile cryptocurrencies can be, this is a common consideration. As such, those who merely want to make purchases with this currency probably want to avoid holding onto it for any measurable amount of time, given the instability in the markets.
Security Issues with Cryptocurrencies
There are several concerns – besides those already mentioned – that you’ll want to consider when paying with cryptocurrency.
Perhaps the most obvious is the potential to be defrauded: when less than reputable vendors receive your payment, there is no guarantee that they’ll ship your goods. Due to the decentralized nature of cryptocurrencies, there is no way to reverse the payment. You can avoid this by either using escrow services or sticking to reputable and well-established vendors.
Likewise, providing a combination of payment and personal information can potentially expose you to hacking attempts. Shady entities may be able to intercept your IP, using it ultimately to target you personally (in the hopes of accessing your cold wallet or login data for exchange accounts).
By and large, purchasing items and services via cryptocurrency is increasingly becoming both common and reliable. However, before you decide to make any purchases, consider all of the information above regarding security, process, volatility, and storage. With this information, you’ll be better equipped to make the best purchasing decisions and safeguard both your money and security.