When it comes to investing, the common terminology says that you're investing in "the markets" or Wall Street. But what do these terms mean, and how are markets defined?

Simply put, financial markets are where traders and investors buy and sell assets. Markets can be used as a way for businesses to reduce risk and raise capital. Through markets, investors can buy into these companies in a way that hopefully makes money. The benefits of financial markets in a capitalist economy are numerous, from bringing confidence to the economy and helping to fund entrepreneurial ventures to providing liquidity to businesses.

Several types of financial markets can be invested in, including but not limited to stocks, bonds, derivatives, and commodities.

The stock market is a financial market where companies can go to raise capital to expand. Investors can buy the shares of a company—called stocks—through a broker-dealer. Stocks may be traded on listed exchanges, such as the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotations (Nasdaq) stock market. Indexes such as the Standard and Poor's 500 (S&P 500) Index and the Dow Jones tracks the averages of a group of companies that are publicly traded.

Mutual funds and ETFs (as well as some other types of investments) allow you to buy a bunch of stocks at once without having to pick them out individually. You may have seen mutual funds as an option for investing in your 401(k), for example.

Bonds are used when companies need to raise a large amount of money. Unlike stocks, bonds are a security in which an investor loans money for a defined period at a preestablished interest rate. Furthermore, unlike stocks, in which there is no guarantee of financial gain, bonds are more like a loan agreement. The bond market sells securities, such as notes and bills issued by the United States Treasury.

Derivatives entail a more complicated financial market. Essentially, a derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (e.g., a security) or set of assets (e.g., an index). Derivatives are secondary securities whose value is solely derived from the value of the primary security that they are linked to. In and of itself, a derivative is worthless. Rather than trading stocks directly, a derivatives market trades futures and options contracts, as well as other advanced financial products, which only have as much value as the primary security.

Commodities markets involve physical goods that are bought, sold, and traded. These are also considered alternative assets. Whereas stocks and bonds are more akin to financial contracts, commodities markets deal in physical goods. There are four main types of commodities markets: energy, metals, agricultural products, and livestock.

The previous markets covered have existed for decades. A new market that has only been around for a little over a single decade is the cryptocurrency, or digital asset, market. You may have heard of Bitcoin or Ethereum, the top two cryptocurrencies. This new market involves a variety of digital assets, from cryptocurrencies that are designed to be a replacement or alternative to traditional fiat currency, a token to represent some other asset, or a new way to interact with and transact with traditional financial markets.

Many consider crypto to be the future of the financial system as well as many other things we interact with today. Digital assets and cryptocurrencies are very new, can be purchased and transacted with in a variety of ways, and can appear to be a very complex system today. Fortunately, Strateon Intelligent Wealth is among the few financial planners and advisors that provides clients with education, guidance, advice, and even training on using cryptocurrencies and digital assets.

If you've come to the conclusion that purchasing or investing in digital assets and cryptocurrencies is the right thing for you, you may be confused about how and where to purchase them. Digital assets and cryptocurrencies are complex, so learning how to buy cryptocurrencies can be confusing.

Fortunately, Strateon Intelligent Wealth is available to educate and guide clients through the process of purchasing digital assets and cryptocurrencies. This guide is a general overview on the options available to individuals for purchasing their first cryptocurrency.

What is an on-ramp? The term on-ramp is used to describe a service that offers the ability to convert fiat currency to cryptocurrency. If you already read the Strateon Intelligent Wealth Insights article Addressing Common Objections to Bitcoin you'll remember that fiat currency is technically what the US dollar is, and that's a currency that's not backed by anything tangible, and is instead backed by the good faith and credit of the government issuing it. When you hear or read fiat or fiat currency it's referring to any traditional currency that you're used to.

You may also hear of the same services referred to as off-ramps. An off-ramp is simply does the opposite task or converting cryptocurrencies to fiat and then allowing you to withdraw the fiat currency to a bank account. Many cryptocurrency exchanges operate as both an on-ramp and an off-ramp.

With the number of options available, there are five main factors that will influence where you purchase your cryptocurrencies.

If you live in the United States, there are some states that restrict where and how cryptocurrencies can be purchased. It's important to check your state's regulations to see what limits, if any, there are. Fortunately, California is not one of the states with a lot of restrictions at this time. This means that if a cryptocurrency exchange is authorized to operate in the United States, most likely California residents can use them. The same cannot be said for some other states. Again, make sure any service you plan to use for purchasing cryptocurrencies is legal in your state. If a service is not, and you do purchase cryptocurrencies with that service, you may not be able to get your cryptocurrency out or your funds back.

Not all cryptocurrencies are available from every on-ramp. Depending on what you want to buy, you may have to purchase from multiple places, which may mean opening accounts at more than one exchange.

This refers to how you're going to pay for your initial crypto purchase. Common payment methods available include credit cards, debit cards, ACH bank transfers, and wire transfers. It's important to note that each exchange or on-ramp solution has it's own offerings for payments and the fees will differ.

Generally, you'll find the fees to be significantly higher for credit cards and debit cards, and some will charge fees for ACH transfers while others will not. Each exchange will have different trading fees, as well as different fees for withdrawals.

It's important to note that digital assets and cryptocurrencies are not covered by any regulator-required insurance. For many of the services where you can hold fiat currency there is no FDIC insurance. However, there are some that do have FDIC insurance for your US dollars held there. For all of the on-ramps where you can hold cryptocurrencies there is no SIPC insurance like you would find with a traditional broker-dealer or custodian of traditional securities.

As the regulation landscape surrounding digital assets changes we may see FDIC and SIPC insurance become available or even a requirement for cryptocurrency exchanges and custodians to provide, but that is not for certain and there is no way of knowing when that could happen if it does. In the meantime, some cryptocurrency exchanges and custodians do have their own insurance that they have purchased to cover a limited amount of assets.

There are different types of on-ramps. Below are the three main types that you'll encounter.

A centralized exchange is a service that operates much like a traditional broker-dealer, except that instead of traditional securities you trade cryptocurrencies. Examples of centralized exchanges include Coinbase, Binance.us, Gemini, Kraken, and Crypto.com. There are more as well, and Strateon Intelligent Wealth does not promote or recommend any particular centralized exchange.

With most of these exchanges you can ACH or wire transfer funds from your bank account and then purchase cryptocurrencies that are offered by the exchange. There may be no cost for ACH or wire transfers, but some will charge fees depending on how you initiate the transfer of funds. For example, there are two ways to make an ACH transfer with Kraken. One has fees, but the other doesn't. You may also be able to purchase cryptocurrencies on these exchanges with a credit card or debit card, but keep in mind the fees are higher. Also, some credit cards charge additional fees for purchasing cryptocurrencies with credit cards, or put more limitations than they do for traditional transactions.

There are a number of advantages to central exchanges. They typically will allow for a greater number of cryptocurrencies available for purchase. You can deposit fiat from your bank or you can deposit cryptocurrency from another exchange or wallet. You can also withdraw fiat to your bank account or cryptocurrencies to another exchange or wallet.

Many centralized exchanges also have two ways in which you can buy or sell cryptocurrencies. The first is an easier method called a market order. With a market order, you simply set the amount of the cryptocurrency, or the fiat amount, you want to purchase or sell and the order is executed at whatever the market price is. If you say you want to buy $1,000 of bitcoin, then you'd receive a certain amount of bitcoin that's equal to $1,000 based on whatever the going price was at that moment. If you say you want to sell 0.01 bitcoin, then you would receive a certain amount of fiat currency that's equal to whatever 0.01 bitcoin was worth at that moment.

The other way to buy or sell cryptocurrencies on a centralized exchange is by placing a limit order. With a limit order you can specify the amount of fiat currency you want to spend and also the price of the cryptocurrency you want. So you could specify $1,000 or bitcoin at $43,000. The order wouldn't be filled until there is a seller that also wants to sell bitcoin at $43,000 per bitcoin.

On many exchanges the trading fee that is charged for market orders is higher than the fee for a limit order, also known as a maker/taker fee. Sometimes the market order trading fees can be double the maker/taker trading fees.

On some exchanges there may be no visible fees. Instead, the exchange only places market orders and makes a profit from the difference between what a seller is willing to sell for and what the market price is. This is called a spread. It's generally invisible to the individual investor.

As mentioned previously, there are also fees for withdrawals. Some exchanges may charge fees for certain fiat withdrawals, and also place daily and monthly limits on withdrawals. For most people, these limits usually won't matter. Some exchanges also charge fees for cryptocurrency withdrawals. For example, if you want to withdraw bitcoin to send to an external wallet, they may charge 0.0001 bitcoin to transfer. So if you wanted to withdraw your entire bitcoin holdings of 0.01 bitcoin to your external wallet, you would pay 0.0001 bitcoin in fees to the exchange and then receive 0.0099 bitcoin in your external wallet.

With centralized exchanges that are authorized to operate in the United States, you will have to complete a KYC (know your customer) process. This is mostly to prevent use by those who live in states where it is not yet legal, as well as help prevent fraud and money laundering. KYC is typically pretty simple, and mostly easier within a smart phone app that on a computer. If you're opening a new account, it's recommended to use the mobile app for the service to open the account to make the process quicker and easier. The process consists of taking a picture of the front and back of your drivers license, a live picture of your face or a picture of you holding a code you write down on paper, and maybe a picture of a utility bill. Some centralized exchanges will require KYC to do anything on their platform, some will require it for higher limits deposit, purchase, and/or withdrawal limits, and some will require it before you can withdraw any fiat currency or cryptocurrency.

A key characteristic of centralized exchanges is that if you keep your digital assets and cryptocurrencies on the exchange, the common thought is that technically your do not actually own the assets in your account. You may hear the phrase "Not your keys, not your crypto," and this is essentially where the thought comes from. The centralized exchange owns the assets and holds them for you, and would fulfill an "I owe you" if you request to withdraw the assets to an external wallet or another exchange.

For those that already have a wallet or some other place to send cryptocurrencies to, there are services that offer a simple and quick way to purchase cryptocurrencies. These services includes Wyre, Moonpay, Ramp, Transak, and others. Strateon Intelligent Wealth does not promote or recommend any particular service for purchasing cryptocurrencies. With this type of service, purchasing cryptocurrency is as simple as selecting the cryptocurrency, specifying the fiat amount or the cryptocurrency amount, specifying the wallet address to send the cryptocurrency, and then entering credit card, debit card, or bank account details. The transaction is completed rather quickly with the cryptocurrency sent to the specified wallet address in a matter minutes or a few hours depending on the blockchain. The important thing to consider with this method of purchasing cryptocurrency is that the fees are high. The fees could be as high as 5% plus network fees. Also, if you pay with a credit card you would likely have to pay additional fees that the credit card company will charge for this type of transaction.

Most people are familiar with personal payment services such as Venmo and PayPal. These services offer the convenience of easily sending money from your bank account or credit card to another person or company. Now they both also offer the ability to purchase cryptocurrency. It's important to note that with Venmo and PayPal you can only buy and sell cryptocurrencies. You cannot send cryptocurrency to another person or to your own external wallet.

There's another personal payment app option, though, that allows you to send and receive Bitcoin to other people and even to your own external wallet. That app is called Strike. With Strike you deposit fiat currency and then can send whatever amount your want as Bitcoin to another Strike user or any Bitcoin wallet address.

Note that Strateon Intelligent Wealth does not promote or recommend any particular service or app for purchasing cryptocurrencies.

Although these and other personal payment apps are limited in the cryptocurrencies available, and they may only allow you to buy and hold in their respective accounts, they are among the easiest ways to quickly begin purchasing cryptocurrency. This is especially true if you already have an existing account with them.

Making your first cryptocurrency purchase can be complex and confusing. Strateon Intelligent Wealth is here to help clients select and make purchases of digital assets and cryptocurrencies, offering not only advice, but also education and instruction so that clients understand and know how to use these new technologies and services.

Whereas Bitcoin has a maximum limit of 21 million bitcoin that will ever be created, Ethereum's ether does not have such a limit. There are currently 118 million ether in circulation, and that number will continue to grow. However, Ethereum's transition to Proof-of-Stake changes how new ether is mined and how transaction fees are assessed. The new method will actually burn some of the ether that is paid as transaction fees for each transaction. Burn is a term used in cryptocurrency to describe the process of taking coins out of circulation. It typically involves sending the coins to a non-existent wallet address or a wallet address that is not accessible by anyone. It is akin to burning US dollars, hence the word burn. Burning coins limits the amount of new ether entering circulation as each block is added to the blockchain, resulting in a slow-down of inflation and potentially result in deflation of the value.

It is possible to send and receive ether anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Ethereum allows its users to be in full control of their money. Because it's decentralized there is no authority that can take your money from you.

It is possible to send and receive ether anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Ethereum allows its users to be in full control of their money. Because it's decentralized there is no authority that can take your money from you.

There is no fee to receive ether, and many wallets let you control how large a fee to pay when spending. Higher fees can encourage faster confirmation of your transactions. Additionally, merchant processors exist to assist merchants in processing transactions, converting ether to fiat currency and depositing funds directly into merchants' bank accounts daily. As these services are based on Ethereum, they can be offered for much lower fees than with other payment services.

Ethereum transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.

Ethereum users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Ethereum payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Ethereum users can also protect their money with backup and encryption. Further, an Ethereum wallet cannot be brute-force hacked, or at least none have been hacked yet. For more details on this, read the Strateon Intelligent Wealth Insights article Addressing Common Objections to Bitcoin.

All information concerning the Ethereum network and the ether money supply itself is readily available on the blockchain for anybody to verify and use in real-time. No individual or organization can control or manipulate the Ethereum protocol because it is cryptographically secure. This allows the core of Ethereum to be trusted for being completely neutral, transparent, and predictable.

Ethereum lacks a central authority that could censor users. For example, because apps can run on top of Ethereum, it's possible for a social media platform like Twitter to run on the Ethereum blockchain. Without a central authority, the only way for a user to be censored (i.e. a tweet removed or a user banned) would be if a majority of the rest of the community voted to do so.

Everything that has advantages also has disadvantages, and it's important to be aware of them so you can weigh the pros and cons for yourself. Here are some of the most prominent disadvantages for Ethereum.

Many people are still unaware of Ethereum or are not using it yet. More businesses are beginning to accept Ethereum and other cryptocurrencies because they want the advantages of doing so, but the list remains small and still needs to grow in order to benefit from network effects.

The total value of ether in circulation and the number of businesses using Ethereum are still very small compared to what they could be. Therefore, relatively small events, trades, or business activities can significantly affect the price. In theory, this volatility will decrease as Ethereum markets and the technology matures. This is a new asset class and a for of currency at the same time, so it's difficult to imagine and know how it will play out.

Ethereum software is still in active development, and may always be. New tools, features, and services are being developed to make Ethereum more secure and accessible to the masses. Some of these are still not ready for everyone. Most exchanges and markets for ether are new and lack full regulation, and may offer no insurance. In general, Ethereum is still in the process of maturing.

Ethereum is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Ethereum is not anonymous and cannot offer the same level of privacy as cash. The use of Ethereum leaves extensive public records. Various mechanisms exist to protect users' privacy, but it is possible to track transactions and accounts. This is a disadvantage for some, but could also be seen as an advantage as it does help make Ethereum less enticing to bad actors who would use it for fraud or criminal activity.

Some concerns have been raised that private transactions could be used for illegal purposes. However, it is worth noting that Ethereum will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems. Ethereum cannot be more anonymous than cash and it is not likely to prevent criminal investigations from being conducted. Additionally, Ethereum is also designed to prevent a large range of financial crimes.

Ethereum is often compared to Bitcoin. Although the two cryptocurrencies have similarities, there are some distinct differences. Whereas the Bitcoin blockchain was created to only support the bitcoin cryptocurrency with the purpose as a method of monetary exchange, the Ethereum blockchain was created as a programmable network that can run applications and support a number of different cryptocurrency coins and tokens that serve various purposes. Both serve different purposes and different utility, so there is not really any kind of one is better than the other comparison or any purpose of choosing one over the other.

There are two main common ways to acquire ether.

Another way is to have someone send you ether to your own Ethereum wallet. To do this you need to create a wallet. There are different kinds of wallets and many of each kind are available. That topic will be covered in a future Strateon Intelligent WealthStrateon Intelligent Wealth Insights post. Once you have your own cryptocurrency wallet you can select the option to receive ether and then essentially follow the same steps as above.

Sending ether from your own wallet works pretty much the same way, except that there is usually a confirmation screen where you confirm the recipient's address, the amount of ether being sent, and the gas fee. Most wallets allow you to customize the gas fee, so you could pay a lower gas fee, but have a longer transaction time, or you can pay a higher gas fee to settle the transaction quicker. Some wallets will require approving the transaction using private keys on a separate device. This is a security feature of some wallets to protect your wallet from becoming subject to malware or hacking of your computer or mobile device. Again, more on this later in a future Strateon Intelligent Wealth Insights post.

The key here is that it's actually pretty easy to transfer ether from one person to another. It's almost as simple as if you were typing in someone's email address or phone number to pay with Apple Pay, PayPal, Venmo, or other similar payment services. The key difference is that the account address is much longer and you have to be extra careful to make sure the address you're sending to is the right one. Also, the transaction will most likely settle in a matter of minutes so the recipient won't have to wait to be able to use the money that was sent to them.

This is accomplished by making the blockchain completely public. You can go to different websites and view any transaction and any account along with its transaction history. One example is the Blockchain.com Explorer, which is one of the blockchain explorers for Bitcoin. Each cryptocurrency blockchain has its own explorer. Another example, and a really interesting one to view, is mempool.space, which tracks the mempool of Bitcoin in real-time. The mempool, short for memory pool, is the unconfirmed transactions on the blockchain. Essentially, it is all the transactions that are awaiting settlement on the blockchain. You can actually see all the transactions as they are submitted to the blockchain.

Immutability means that once a transaction is recorded on the blockchain it cannot be altered or removed from the blockchain. The transaction lives there forever.  There are thousands of miners on the blockchain that record transactions on the blockchain. Because the blockchain is public, they all are able to verify and confirm transactions on the blockchain, so no single miner can add a fraudulent transaction or remove a transaction from the blockchain.

Security of the blockchain and cryptocurrencies is established in multiple ways. One is the immutability of the blockchain ledger, as already discussed above, which is partly accomplished by encryption. Each block has a hash. If the block doesn't match the hash, then it isn't valid and is ignored in the blockchain. So no one can create their own block and add it to the blockchain since it wouldn't be able to be verified as valid.

The blockchain is also stored across a network of computers all over the world. There is no central location of the blockchain ledger or database to be targeted in a hack or some other attack. For example, last year when China banned Bitcoin mining (mostly because China wants to create their own digital currency to control it) and miners in China had to shutdown their operations, Bitcoin mining kept operating because it exists all over the world.

Another important aspect of security comes from the security of the accounts themselves. As mentioned in the Strateon Intelligent Wealth Insights article Addressing Common Objections to Bitcoin, each cryptocurrency account or wallet has a special passphrase or seed phrase. These are  typically a 12- or 24-word passphrase using the BIP-39 standard (there are other standards, but that’s the most common). You can go back and read that previous Insights post, but basically with a 24-word passphrase there are actually more possible combinations than there are atoms in the observable universe. Even if an account or wallet used only a 12-word passphrase it would take approximately 317 billion years to hack the account using the power of the entire Bitcoin mining network. Needless to say, without knowing most or all of the passphrase words, a hacker is not going to be able to break into a cryptocurrency wallet. The only stories of hacks of individual digital wallets have been due to social engineering or getting hold of files, documents, pictures, or paper that has the passphrase on it.

Blockchain creates trust between different entities where normally trust is either non-existent or unproven. It allows people or entities who otherwise wouldn't be able to engage in a transaction a way to trust each other. For example, you want to sell your car to someone, but you are worried their check won't clear the bank. Because of the speed of the settlement of the transaction and the public visibility of the blockchain, accounts, and transactions, you could accept payment as a cryptocurrency transaction and trust that the funds are yours seconds or minutes later. The enablement of trust is one blockchain's most cited benefits.

This simply means that an individual or business doesn't need permission from anyone to participate in transactions or even mining on the blockchain. If you want to send or receive cryptocurrency on the blockchain it is as simple as opening your own wallet or account and giving someone the public address of your account or purchasing cryptocurrency and adding it to your account and then sending cryptocurrency to another person's public address. Whereas it might take you an hour or maybe more to go to a bank and open an account, you can open your own cryptocurrency account or wallet in minutes and begin transacting right away. Also, if you wanted to begin mining Bitcoin, or some other cryptocurrency, it would be as simple as creating your own account, purchasing the appropriate equipment (from a typical personal computer to specialized mining hardware), and installing the free and open-source hardware. No one needs to give anyone permission to mine cryptocurrencies.

With the traditional financial system there are various costs incurred by individuals and businesses. For individuals, you might have to pay a monthly fee for a checking account at a bank, pay for money orders or cashiers checks, pay for a book of blank checks, pay overdraft fees, returned check fees, and fees for wire transfers. For businesses, they pay merchant fees for processing checks and credit card transactions, and the fees can be quite high. With blockchain and cryptocurrencies, many of the fees are eliminated and all are at least reduced for the most part (Ethereum transaction costs are an outlier at this time until the Ethereum blockchain is upgraded later this year).

If you want to send $1,000 to someone in another country, with the traditional banking system you would need to send a wire transfer, which could cost $25-$35 dollars and it would take a day or two to clear. With blockchains and cryptocurrencies you could send that same amount of money, or more, for as little as fractions of a penny (though it could easily be a multiple dollars depending on the particular cryptocurrency and how busy the network is) and have it settle in minutes instead of a day or two.

If you run a business and want to accept payments, with a credit card you pay an average of around 3% in credit card processing fees. With blockchains and cryptocurrencies, you would actually incur no fees at all to accept a direct payment from a customer to your public address. In turn sending those funds to another address or getting it converted to a fiat currency (like the U.S. Dollar) would be another story, but even then the fees could be much lower. A business might pay a small fee (fractions of a penny to a few dollars) to transfer funds to an exchange or custodian, and then maybe a 0.175% to 1% fee (depending on the exchange or custodian or the account type) to exchange for the fiat currency or another cryptocurrency. Those additional fees could of course be completely avoided if the business kept the cryptocurrency instead of exchanging for fiat and conducted its business dealing using cryptocurrency. The end result could be hundreds to millions of dollars in savings for businesses.