As interest in cryptocurrencies grows, purchasing options become easier. While this is good for new buyers, this simplicity can result in higher transaction costs. So if your goals go beyond the occasional purchase, it’s worth figuring out how much it costs to buy cryptocurrency.
The most successful online businesses reduce complex processes to a few simple clicks because consumers love the convenience of saving time and are happy to pay a little more for it.
This applies to buying cryptocurrencies and the number of hobbyists is on the rise. For example, popular ways to buy Bitcoin reduce the complicated process to a few simple clicks. This is simply more expensive, but since the amounts are quite small, it is difficult to understand the background process, users are happy to pay and move on.
Let’s say you just want to buy $100 / $100 Bitcoin; we can rank the options according to convenience.
Using an existing payment service: Paypal, Revolut, CashApp
The easiest way to buy this amount of Bitcoin is through a payment/banking app you already have on your phone that offers the option. Popular standard stock trading and payment apps like Venmo, Paypal, and Robinhood have added the option, with many more to follow.
You don’t need to connect a source of funds – your bank account, debit card or e-wallet – so the process can be just a few taps on a simple widget – spend $100 and receive X amount of Bitcoins and no special skills are required .
This, of course, appeals to beginners who want to invest but want simplicity:
- You will likely have to pay high transaction fees
- You are not getting the best possible price for bitcoin
- You have limited control over the Bitcoins you buy because the app is stored
- You may not be able to transfer your bitcoins, so you’ll have to resell them through the app and pay high transaction fees again
that allow you to buy Bitcoin or other cryptocurrencies: You pay higher transaction fees and get a worse price because you are not buying Bitcoin from Paypal or Revolut. The same goes for several brokers
- Banking and payment apps, such as Revolut, CashApp or Paypal
- Crypto wallets, such as Blockchain or MetaMask
- Crypto apps, such as wallet tracking
- Related services – gambling or game sites
- Bitcoin ATM
- OTC (Over the Counter) for wealthy people
These companies offer a so-called “value added” service and often take the opportunity to charge you more than they actually buy. So where do they buy bitcoins?
Cryptocurrency Exchanges – Cryptocurrency Markets
An important feature of cryptocurrencies like Bitcoin is that they don’t have a central authority behind them, such as a headquarters or staff, they are supposedly decentralized.
In practice, this means that Bitcoin circulates among users of its decentralized network, so the only way to buy it is from someone who already owns it. Cryptocurrency exchanges provide this service. They bring together bitcoin holders who want to sell with those who want to buy.
Think of exchanges as markets for various cryptocurrencies. You can just make an outright purchase, but the exchange is mostly for trading with complex tools and interfaces that can be intimidating for newcomers, so opt for a simpler but more expensive broker-style approach.
When you buy cryptocurrencies from an exchange, they simply facilitate the transaction between you and another seller user and charge a service fee, which is applied as a percentage of the size of the transaction made.
The commission rate is not fixed, but is normally on a sliding scale, decreasing as the trading amount increases, as the goal of the exchange is to generate more trades than the number of users.
With an exchange, you have much more control over the process, which is trading rather than buying, meaning you are more likely to buy closer to the real price.
To trade yourself, you must first link a payment method to your trading account and add funds. There may be a fee to fund your account, depending on the method used, which will be added to the transaction fee. You also need to create and verify an account ID before you can do this.
Depositing money with an exchange via card is usually the cheapest option – usually free – as long as you don’t make an international transfer. In the U.S.A. wire transfers are referred to locally as ACH, Faster Payments in the UK, and SEPA in Europe.
All you have to do is link your banking details to your cryptocurrency exchange account. The problem with bank transfers is that they are not always instant, can take a bit of effort to set up, and can be a nightmare if something goes wrong.
Wire transfers are offered by high-volume customers, rather than first-time crypto buyers who want the path of least resistance, who often use the card/convert option. However, bank transfers are usually limited to how much money you can send to a region.
If you want to receive your deposit immediately, you can use a bank transfer, although this involves costs for the sender and receiver. It can only be initiated by the sender and is less secure than ACH because they do not go through negotiation. House.
Purchases and card/currency exchange at the exchange
Marketplaces have found that many beginners are intimidated by the idea of trading, which is why many offer the option to easily convert $100 to Bitcoin with a single click.
With a debit card, the entire finance/purchase process is combined into one simple widget style process – add card details, spend X, get Y, click the ‘Buy’ button. This is a similar user experience to buying from a third-party app – as mentioned above – but it’s a bit cheaper because you’re buying from the premises.
But it’s probably more expensive than direct trading yourself because you pay a card fee for each transaction, and even though you’re an exchange customer, you’re probably still getting a worse deal for the purchase price because you’re not going the direct trading route.
This is basically how the world’s largest exchange, Coinbase, works. It is specially designed for a smooth user experience and acts as an intermediary for transactions that are actually processed on the underlying exchange – Coinbase Pro.
Any Coinbase user is free to use Coinbase Pro, but for simplicity, most prefer the easy conversion feature but pay a hefty price for the privilege. Not only do you pay higher transaction fees, whether it’s a fixed fee or a variable fee that you need an accounting degree to understand, whichever is higher, but they also charge something called a spread.
This is what we’re talking about when we talk about getting a lower price for the Bitcoin you buy. What is the difference between the optimal buying price and the optimal selling price. We have a separate blog post explaining the concept in detail, but in the case of Coinbase, there is more spread, which means you get a lower price for bitcoin than if you trade directly on Coinbase Pro.