It is important to be aware when buying cryptocurrency of the concept of custodial vs non-custodial. A popular phrase in the crypto community is ‘Not Your Keys, Not Your Coins.’
‘Not Your Keys, Not Your Coins’
What this means refers to the actual ownership of a cryptocurrency. When buying crypto, it is important to determine if you will be able to actually withdraw the crypto you just bought – this is non-custodial.
On the other hand, some exchanges allow you to ‘buy’ the cryptocurrency, but do not allow you to withdraw the crypto – this is called a custodial account. PayPal is an example of a custodial account. PayPal will allow you to buy cryptocurrency, even send it to other people, but they will not allow you to withdraw the cryptocurrency.
‘Not Your Keys, Not Your Coins’ refers to the practice of leaving coins on exchanges, or any other 3rd party where you do not have direct control of the private keys. In cryptocurrency, your address is made up of a pair of 2 keys, the public key and the private key. The private key is what gives you control to send funds. You can think of it as a vehicle – the public key is the vehicle, everyone can see it, but in order to start and drive the car, you need the private key.
Moral of the story: When buying cryptocurrency, first determine if who you are buying it from provides a custodial or non-custodial account. After you buy the crypto, move it to a wallet that you control and secure it for safekeeping.
Cryptocurrency can be bought on exchanges, similar to how the stock market operates. There are many exchanges in existence, some with better reputations than others. To get the best price on cryptocurrency, it is best to use an exchange – they often allow more advanced order types. Many require you to undergo KYC procedures like submitting your ID, before linking a bank account. [do you guys want mentions of specific exchanges here?]
In recent years the availability of cryptocurrency exchanges has increased dramatically. These work similarly to regular ATM machines. They are often located in gas stations, smoke shops, and various other small businesses. When you arrive you will find a machine that looks like an ATM machine, and the whole process will be done from a touch screen and your cell phone.
Peer-to-Peer (P2P) exchanges are more true to the original spirit of crypto. They used to be more of a wild-west scene, but as regulations increase the platforms are becoming more regulated. These types of exchanges allow anyone to post an advertisement to buy and sell cryptocurrency, for any type of payment method. P2P exchanges often have hundreds of different payment options available. This is a great way to get cryptocurrency fast.
Over-the-counter (OTC) brokers provide a more white-glove type of service. These guys often serve people who are looking to buy big amounts of cryptocurrency. To buy bitcoin from an OTC broker, you will tell them how much you want to buy, they will come back to you with a price, and you send the money. OTC brokers can be found in a variety of formats, some run websites, some run apps, and some can be found on P2P exchanges.