Cryptocurrencies is the term for digital currencies. The term is a so-called compound noun. The words crypto and currency are compound words made up to name crypto. Cryptography is the science of encryption. According to the actual meaning of the word, cryptocurrencies are therefore currencies based on cryptography.
The term cryptocurrency, crypto for short, comes from the ancient Greek word for “conceal”, “hide”, and “protect”. This indicates that cryptocurrencies are encrypted in all their components via the users’ computer network. They exist solely digitally and are recorded in a decentralised database, usually called a blockchain. Like any other currency, their value is measured in terms of their equivalent value, for example, goods that can be bought with them. As a typical object of speculation, cryptocurrencies are not recognized by states as an official form of money. One exception: El Salvador. However, the small country in Central America has lost over 60 per cent of its investment in Bitcoins.
Nevertheless, several hundred million people worldwide already use brokers for cryptocurrency. Some passive participants have exchanged classic money for cryptocurrencies. And active participants who generate crypto money as well. These so-called “miners” use special interconnected computers to solve the complicated computational task of crypto transactions. As a reward for computing power, they receive new cryptos – the miners “mined” them.
Some cryptocurrencies can be mined indefinitely. Others, like Bitcoin, are limited to a certain number and can be bought only with a crypto broker. The most popular cryptocurrencies are Ethereum, Ripple, and Bitcoin. So, that was the basic knowledge. Those who prefer something more long-term can invest money in crypto securities. The biggest advantage: Income is then also not subject to income tax but to the lower capital gains tax.
A Few Basic Tips on Investing in Cryptocurrencies
- As with all forms of investment, it is advisable to spread widely over several different investments to minimise the risk of total loss.
- It is also important to compare different providers. This is because the fees for transactions, for example, can vary massively - depending, among other things, on the time of day and the number of current transactions.
- Due to the high volatility of cryptocurrencies, i.e. the strong price fluctuations, it is advisable to approach the matter as unemotionally as possible: Buy outside of hypes and test different options with small amounts on.
- When transferring cryptocurrencies from a broker to your wallet or back, make sure to use the correct address. A simple typo - and your coins or tokens will be gone forever. Even the best crypto broker won’t help you in this case.
- Cryptocurrencies held for at least one year are tax-free - before that, gains are subject to income tax.
Investing in Cryptocurrencies - A Good Idea?
Even if blockchain technology makes transactions exceptionally secure, cryptocurrencies, like all currencies and means of payment, are based on little more than a system of trust. Just as a 20 euro bill is only worth 20 euros because a large proportion of people accept it that way. Do you get the idea?
After the great hype and the enormous price gains on the forex brokers, most cryptocurrencies have also gone down again. And simply because of these high fluctuations, many economists consider Bitcoins and Co. to be a fool’s errand: you hardly see a reliable means of payment in a currency that can be worth ten per cent more today than it was yesterday. The (main) reason for the fluctuations: The already mentioned speculation with cryptos and a certain mentality that has spread when it comes to cryptocurrencies.
Last but not least, there is also criticism of blockchain technology. It has an immense energy consumption. Digging cryptos in the UK, therefore, makes little sense, if only for reasons of high electricity costs. And a “sustainable investment” also looks different for the forex brokers.
Let’s summarise: Understanding cryptocurrencies so comprehensively that you invest strategically instead of (realistically) just hoping for a lucky strike – takes a long time. On the other hand, we hope that we have nevertheless given you a first overview of technology, functionalities and investment opportunities. After all, that is exactly what this article was intended to do.
Pros and Cons of Using Brokers
By choosing an online crypto broker, the newcomer to the stock market has the opportunity to trade securities online on various stock exchanges, usually at much more favourable conditions than at a branch bank. The online broker acts as an intermediary who executes the securities orders on behalf of the customer on the capital market in return for the payment of a commission, which usually depends on the selected order volume.
Due to the rapid spread of the Internet over the last 10 years, a large number of online brokers have now established themselves on the UK crypto market. With their rise the question of the best crypto broker has never been so important. In contrast to the classic securities trader, who not only acts on behalf of the customer but also advises him in advance of a transaction, the online broker usually only carries out the investor’s instructions, manages the securities account and clears the stock portfolio.
Although the investor usually does not receive individual investment advice from an online broker, many investors prefer it to a branch bank, particularly because of the attractive order fees and free securities account management. However, the absence of investment advice is not necessarily to be interpreted as a disadvantage, in fact, quite the opposite:
- Access to the portfolio of forex brokers at any time and from location enables fast reaction to market developments, especially in volatile phases.
- High savings through attractive order fees
- Free custody account and account management
- Trading on national international stock exchanges
- Over-the-counter direct trading
- Attractive promotions for new customers
- Only rarely individual investment advice
- Increased risk due to lack of experience in financial markets
The online crypto broker impresses with its account and securities account management, which is usually completely free of charge and can be conveniently carried out at any time via the Internet. In addition to retrieving documents such as custody account statements, the current account and custody account balance can also be viewed daily. Flexible securities account management allows investors to react to market developments at short notice at any time, regardless of their location – whether they are on vacation, in the office, or at home – and to implement possible buy or sell decisions promptly.
The investor is by no means limited to only trading, most online brokers offer, in addition to national stock exchanges, the connection to several foreign stock exchanges and off-exchange direct trading – and at extremely attractive order fees! Especially for new customers, many online brokers offer interesting bonuses – a broker comparison is worthwhile!
Is Cryptocurrency Trading Risky?
Cryptocurrencies, such as Bitcoins, cannot be touched because they only exist in digital form. They are often based on blockchain technology. They still do not play a role of their own in payment transactions, but rather serve as high-risk speculative objects so far. What do speculators need to be aware of?
The idea of cryptocurrencies or crypto is based on the desire to create an electronic payment system without the involvement of banks and states. These non-governmental, virtual currencies work with limited amounts of money that are digitally formed using computer networks in mathematical processes. Whether these are currencies or money is disputed because they are not issued by a central bank. Nevertheless, these terms have become established in common usage, which is why they are also used here.
The blockchain is a decentralised, public database. Blockchain technology is used to chain different data sets together in chronological order. Using cryptocurrency as an example, you can think of it like this:
A transaction with a virtual currency is summarised in a record. Using an algorithm (hash function), this complex data record is shortened to a smaller string of characters. Hash here stands for “chop up.” The result of this calculation is mapped in a checksum, the so-called hash value, and linked with hash values of other transactions in large data blocks. Thus, a blockchain is ultimately a long chain of data blocks. Any change to a data block would change the logical relationship to the subsequent data blocks, which the system does not allow. Once transactions have been made, they are therefore also irreversible. In this respect, it can be said that the blockchain cannot be manipulated.
With your wallet, you can then start trading on crypto exchanges yourself. Since it is easy to make a mistake, you should inform yourself well. Some crypto exchanges also offer integrated wallets for trading and safekeeping, which can be practical. For this, you have to register there and be prepared to transfer money to foreign accounts.
Crypto trading via a smartphone app is also possible. These are designed to be user-friendly and provide access to the largest crypto assets. Neobrokers also make it convenient. Similar to the app solution, you only need to open a securities account there and you can get started immediately. Increasingly, they also offer crypto ETPs (exchange-traded products). Here you do not invest directly, but via bonds that track the performance of the respective crypto asset. This involves higher costs but is very easy for investors to handle.
- Flexible but slow: A Bitcoin transfer takes between 10 minutes worldwide. This is many times slower than in traditional digital payments. Crypto works independently of national currencies. Exchange rates do not apply, everywhere in the world can theoretically be paid with Bitcoin. However, the payment options are still limited both on the Internet and, even more so, in stationary retail in the UK.
- Secure process through transparency and irreversible payments: Blockchain-based cryptocurrencies have scored so far with their non-manipulability and the fact that all transactions take place publicly. However, this also means that once payments have been made, they cannot be reversed.
- No value stability: Even though bitcoins are sometimes touted as a store of value (digital gold), cryptocurrency is subject to very strong fluctuations in value and has not yet proven to be a haven in times of crisis. As an investment, cryptocurrencies are therefore to be classified as highly speculative. They are not at all suitable for retirement provision.
- No cost stability: Fluctuations are also common in transaction costs. For example, a Bitcoin crypto CFDs transfer in March 2021 costed only USD 0.30, while in December 2017 one still had to pay over USD 55 for it. In addition, transaction costs may increase permanently the faster the energy demand for global crypto mining develops. Currently, the energy consumption for Bitcoin mining alone is comparable to that of the Netherlands, and the trend is rising.
- High energy consumption/low sustainability: The calculation of Bitcoins is energy-intensive. This can certainly be seen as a legitimate price for the benefits, supporters believe. For example, very many people, especially in poorer countries, benefit from the payment and value storage possibilities of crypto trading. However, the energy consumed comes mainly from dirty power generation and hardly from sustainable sources, counter the critics.
- Uncertain market: which provider, which currency, and which system will prevail? These questions cannot be answered at present.
Reviewing The Best Bitcoin Brokers for Beginners
Nowadays there are a lot of options on the market. And even if you would like to choose the best broker for beginners you need to know the basics first. So let’s take a closer look at what you should pay attention, when considering the broker.
Automatic purchase of cryptocurrencies at a certain interval (e.g. monthly) for a predefined amount. The savings plan function is known from classic financial apps and is also often used to buy stocks or ETFs regularly to achieve a cost-average effect.
Through so-called “staking”, interest can be earned by “freezing” a certain number of cryptocurrencies for a defined period. The interest is generated from the consensus algorithm (e.g., “Proof of Stake”) used to validate and secure the network.
Most exchanges or brokers offer the purchase and sale of “real” cryptocurrencies. However, some providers only offer the purchase of derivatives, crypto CFDs or ETPs (exchange-traded products) that merely mirror the asset. In these cases, the underlying crypto is not purchased directly.
Self-custody of cryptocurrencies plays an important role for many users who want to manage their cryptocurrencies and thus their “private keys” themselves and not leave them in the hands of the exchange. Most exchanges offer the possibility to send the purchased cryptocurrencies to their wallet.
Before deciding on a crypto exchange, be sure to use reputable and independent review portals such as Trustpilot.com to check the average satisfaction and opinion of other users. The reviews of forex brokers in the App Store (iOS or Android) can also be helpful.
Especially as a beginner, you should also compare the fees of different exchanges in advance. Some providers charge very high and sometimes hidden fees. It is important to find a middle ground here, because the lower the fees, the more complicated the operation of the crypto exchange often is.
Checklist for Beginners
Choosing the right crypto exchange for crypto trading is not always easy. It is best to ask yourself which criteria are particularly important to you. Do you want it to be as easy as possible to use? Are low fees important to you? Do you need a large number of tradable cryptocurrencies, or do you only want to buy Bitcoin or Ethereum anyway? Here is a completed Checklist for beginners:
- Simple user interface
- Company headquarters in the UK or Europe
- Real cryptocurrencies
- Reputable, independent reviews (e.g. Trustpilot).
- Reasonable fees
- Simple user interface
The topic is complicated and full of technical terms that can scare off beginners. Therefore, a simple user interface of the crypto exchange’s app or website is important to be able to focus on the essential things when starting. In addition to the functions for buying and selling, this also includes a simple registration and verification process that takes newcomers by hand.
Crypto Brokers Quickly Compared
The best crypto exchange is without a doubt the platform that best suits your needs.
To make the decision as easy as possible for you, we have focused on objective and comprehensible evaluation criteria. Therefore, you also have the option to sort and filter the providers above according to your preferences. Based on our rating, you can already recognize the favourites in our crypto exchange comparison. However, keep in mind that each provider has its advantages and disadvantages. What we particularly like and in which aspects the respective providers can still improve, we will show in the next sections. In particular, our experience and personal assessment are in the foreground.
eToro
eToro is among the best cryptocurrency brokers for newcomers to the crypto world.
What’s special about eToro is that you can buy physical cryptocurrencies as well as crypto here. For example, if you buy Bitcoin on the platform without leverage, then you are acquiring “real” Bitcoins. However, if you buy Bitcoin with leverage, you acquire contracts for difference.
You should pay close attention here because CFDs are handled differently from a tax perspective than physical cryptocurrencies. While physical cryptocurrencies are tax-free after one year of holding and otherwise taxed at the income tax rate (up to 45%), you pay the final withholding tax (25%) on CFDs no matter over what period you have held the cryptocurrencies.
So think carefully if you want to trade crypto CFDs! eToro is considered to be one of the largest providers and has built up an image, especially through sponsoring important crypto media and crypto conferences.
Bitpanda
Bitpanda is one of the best crypto exchanges when it comes to handling and user-friendliness.
The Austrian platform, which is now both a broker and an exchange, is characterised by a clearly structured and concise user interface. The range of tradable cryptocurrencies surpasses that of many other brokers.
Another positive feature for us is the possibility to open a Bitcoin savings plan. In our opinion, there is potential for improvement in the cost structure. If you want to buy Bitcoin with a credit card, for example, you will pay almost 2% in fees. In addition, there is a relatively high spread of 1.49%. On Bitpanda Pro, the fees are much lower, but the trading interface is rather designed for experienced users in crypto trading. At this point, we would have liked to see somewhat lower fees, although, in our opinion, the cost structure is acceptable for assets like Bitcoin.
JustTrade
justTRADE is one of the best German cryptocurrency brokers that offers not only cryptocurrencies but also stocks, ETFs and other financial products. Investors can currently purchase over 1,500 ETFs for free in addition to 21 cryptocurrencies.
If you want to trade your cryptocurrencies and other financial products as well, then justTRADE is worth a look. However, the comparison of justTRADE and the Trade Republic shows that justTRADE has a significantly more limited trading offering.
The user interface is also not as intuitive as the other no brokers in the comparison. Since we are evaluating just trade here as a crypto exchange, we would like to see a more extensive range of tradable coins.
F.A.Q.
Firstly, look for brokers that are regulated by reputable financial authorities. Regulated brokers are generally held to higher standards and are subject to regular audits, which can add an extra layer of safety for traders.
Secondly, assess the broker’s security infrastructure. A reliable broker should implement strong security measures, such as two-factor authentication (2FA) for user accounts, encryption protocols for communications, and cold storage for the majority of user funds. Cold storage keeps the majority of funds offline, making them less vulnerable to hacking attempts.
Thirdly, consider your crypto brokers track record and user reviews. Look for feedback from other traders to gauge the broker’s reputation and reliability. Positive reviews and testimonials from satisfied users can be indicators of a trustworthy platform.
Lastly, evaluate the customer support provided by the broker. Prompt and helpful customer support can be crucial when encountering issues or seeking assistance with account-related matters.
No, you don’t necessarily need a broker to buy crypto. Cryptocurrencies can be purchased through various means, and one popular alternative is peer-to-peer (P2P) trading. P2P platforms connect buyers and sellers directly, allowing them to trade cryptocurrencies without the involvement of a traditional broker.
Another option is to buy cryptocurrencies directly from a cryptocurrency exchange that supports fiat-to-crypto or crypto-to-crypto trading. These exchanges act as intermediaries, providing a platform for users to buy, sell, and trade digital assets.
However, using a reputable broker or exchange can offer certain advantages, especially for those new to the market. Brokers often provide user-friendly interfaces, making the process more accessible for beginners. They may also offer additional services, such as portfolio tracking, technical analysis tools, and educational resources.
The fees charged by brokers can vary significantly, and they can have a substantial impact on your overall trading costs. When looking for a broker with the lowest fees, it’s essential to consider various fee types, including transaction fees, deposit/withdrawal fees, and trading fees.
One of the most well-known and a top-rated cryptocurrency exchange with a reputation for competitive fee structures is Binance. Binance offers a tiered fee system that provides lower fees to users based on their trading volume and holdings of the native Binance Coin (BNB).
Another popular exchange with competitive fees is Kraken, which is known for its robust security measures and diverse range of cryptocurrencies available for trading. Kraken’s fee structure is transparent and relatively competitive compared to other platforms.
Additionally, Coinbase Pro, the advanced trading platform offered by Coinbase, is favoured by traders for its user-friendly interface and relatively low fees when compared to the standard Coinbase brokerage service.
Choosing cryptocurrency brokers is a critical decision that can significantly impact your trading experience and overall success. With a growing number of platforms available, it’s essential to consider several key factors before making a decision:
1. Security: The security of the platform should be a top priority. Look for brokers that implement robust security measures, such as two-factor authentication (2FA) for user accounts, encryption protocols for communication, and cold storage for the majority of user funds. Cold storage ensures that a significant portion of funds is kept offline, reducing the risk of hacking attempts.
2. User Experience: A user-friendly and intuitive cryptocurrency brokers can make a significant difference, especially for beginners. Look for brokers with well-designed interfaces, easy-to-navigate dashboards, and comprehensive educational resources to support your trading journey.
3. Fees and Costs: Compare the fee structures of different brokers to find a platform that aligns with your budget and trading style. Consider transaction fees, deposit/withdrawal fees, and trading fees, and be wary of hidden charges that may impact your profitability.
4. Reputation and Reviews: Research the broker’s reputation and read user reviews from independent sources. Positive reviews and testimonials from satisfied users can be indicators of a reliable and trustworthy platform.
The safety of brokers is a critical concern for traders and investors, given the inherent risks associated with the crypto space. While not all brokers are equally safe, there are several steps:
1. Regulation: One of the most crucial factors in evaluating the safety of a crypto broker is whether they are regulated by reputable financial authorities. Regulated brokers are typically subject to strict guidelines and regular audits, which can increase transparency and accountability. Regulatory oversight can also help protect traders from potential fraudulent activities and ensure adherence to anti-money laundering (AML) and know-your-customer (KYC) requirements.
2. Security Measures: Strong security measures are essential for protecting user funds and personal data. Look for crypto brokers that implement industry-standard security practices, such as two-factor authentication (2FA), encryption protocols for communications, and cold storage for the majority of user funds. Cold storage keeps a significant portion of funds offline, reducing the risk of hacking attempts.