When an investor considers entering the world of digital assets and buying his first cryptocurrencies, he will find that there are several ways to do so. In this article we offer a comparison of the main ways to buy cryptocurrencies.
The main division in purchasing methods lies in the use of a centralized (CEX) or decentralized (DEX) cryptocurrency platform or the use of a digital cryptocurrency wallet.
A CEX provides a secure environment for buyers and sellers to trade their cryptocurrencies. To do so, users must create an account on the platform and provide all kinds of data to verify their identity as if it were a traditional bank. In this way, the user provides their money to the platform for it to buy and custody their digital assets.
A DEX is a platform that allows buyers and sellers to trade cryptocurrencies without the need for an intermediary. Unlike a CEX, the DEX is based on smart contracts, i.e. code, so orders are executed automatically without an intermediary. To trade on a DEX it is not necessary to provide information as in a CEX, the only requirement is to have a digital wallet of cryptocurrencies.
A digital wallet is software or hardware that stores public and private keys and is used to send and receive cryptocurrencies. Unlike CEXs, digital wallets do not store any cryptocurrencies, but store the keys needed to access them while they reside on the blockchain.
Comparison
Next, let’s compare 4 ways to buy cryptocurrencies.
Firstly, using MetaMask. This is the most well-known and widely used cryptocurrency wallet. If you do not have a MetaMask account, you can access our article in which we explain how to create an account.
The payment method for which the commissions are lower is SEPA bank transfer and the company we should choose to transform our money into cryptocurrencies is moonpay.
Thus the commissions for purchases between 18 and 100 euros are from 3.2% to 2.1%. The commissions decrease as the amount we buy increases. Finally, if the purchases are over 100 euros the commissions are 1.66%.
The second method of purchase is using Uniswap, one of the largest DEXs currently available. You can see our article on how to use Uniswap to buy cryptocurrencies.
In this case the commissions amount to 2.5% regardless of the amount we buy.
Next, we will look at the cost of buying cryptocurrencies on two of the major CEXs.
The first one is Binance:
First we must make a transfer to the platform, using a SEPA bank transfer as it is the cheapest way of deposit. Finally, the cheapest purchase option is to use the conversion option that appears in the trading drop-down at the top, which will apply a commission of 0.1%.
The second and last CEX is Kraken:
Like Binance, you must first make a deposit on the platform, which is free of charge if made by SEPA bank transfer to your Bank Frick account. Then, we must buy in the trading section located on the top left and a commission of 0.2% will be applied.
It is important to note that we should not use the section to buy crypto, because if we do it this way, the commission to be paid is 1.5%.
Thus, we can visualize the different commissions in the following table:
When we buy using MetaMask or Uniswap, a third agent comes into play, which is Moonpay. This company is in charge of receiving our money from the bank and sending the cryptocurrencies to our MetaMask wallet.
To carry out the transaction you have to create an account in Moonpay and provide some data such as name and surname, e-mail, address, zip code, age and bank details required for the transaction.
On the other hand, when we buy through a CEX, it is necessary to provide the same data as when using Moonpay and also to be able to operate we must pass an identity verification process, which consists of providing photos of the ID card and a video in which we can see our face.
In this way, we see that a CEX will always ask us for much more data than a DEX or a digital wallet, thus being much less privacy that we will have when buying through a CEX.
Another important aspect when choosing the purchase method is security.
We have to understand that what happens to our assets when we use a CEX is very different from what happens when we use DEX or a digital wallet.
A CEX is like a broker, we give it fiat money in exchange for the platform to buy with that money the cryptocurrencies we want and keep them for us.
However, the user never has the certainty that the money he gave to the CEX to buy cryptocurrencies has been used for that purpose and the cryptocurrencies are being guarded (see the FTX case).
On the other hand, when we buy through a DEX or from the digital wallet itself, what this wallet does is to store public and private keys. Cryptocurrencies are not stored, but rather the digital wallet stores the keys needed to access them while they reside on the blockchain.
Thus, we see that it is much safer to use a DEX or digital wallet to buy cryptocurrencies.
This table summarizes all the aspects already mentioned to take into account when choosing the purchase method.
In any case, the decision depends on the individual and his or her priorities. We hope we have helped you make an informed decision.