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Crypto account opening process

Lesson in Course: Crypto (beginner, 5min)

We're ready to start investing in crypto. What do we need in order to open an account at a centralized exchange?

Eureka!

What it's about: We need a Centralized Exchange to convert our fiat into crypto and back into fiat.

Why it's important: A CEX is the only legal way to convert crypto into US dollars.

Key takeaway: CEXs are regulated and will require us to verify our identity.

The decentralization of crypto can be exciting. We are offered pseudo to complete anonymity on any of our purchases allowing us to invest how and when we want. This could be incredibly refreshing in a world where rules exist everywhere.

But, we can't just yet buy groceries or services using crypto, so we will need to convert our unrealized gains back into cold hard cash. The only legal way to convert that cash is through a centralized exchange, where we swap our crypto for fiat. All fiat currencies are regulated, and so are CEXs.

Opening an account

Much like opening a brokerage account to trade stock, CEXs abide by KYC and AML. Here's what we should consider as we plan to open our account.

Know your customer requirements

  1. Social Security Number (often a picture of your Social Security Card is required)
  2. Drivers license / State ID / Passport
  3. Bank account statement or other proof of fund and address
  4. Proof of Permanent Residency Card (if you are not a US citizen)
KYC prevents criminals from using CEXs

Many CEXs allow you to open an account and a wallet without providing KYC information; however, all non-verified accounts have limited functionalities.

Anti-money laundering

While regulations have lagged, AML is finally starting to catch up to CEXs. Governments are putting pressure on CEXs to stem criminal cash flow. We might not be allowed to withdraw money during periods of investigation and high volume due to AML protocols.

 

Minimal deposit amount

Certain exchanges require minimum deposit amounts, so we'll have to transfer cash into the account when we open it.

Minimum deposit example

 Coinbase requires $50 while Binance.US currently does not.

Access to coins

A CEX will have access to a specific list of supported coins and not all exchanges will have access to the coin we want. 

If a CEX doesn't have the coin we want, we need to use another CEX or a DEX

However, most of them support the largest market cap coins. For the cryptocurrencies not supported, we will have to use DEXs. The list shouldn't dissuade us from opening a CEX since we still need to convert fiat into crypto and eventually back into cash.

 

Actionable ideas

If we have a large amount of money to invest, we should use multiple CEXs and hire a tax accountant to help manage the taxes. Spreading out our money through multiple CEXs helps us reduce our counterparty risk to exchanges being hacked. The lesson about picking a CEX will help us decide which ones are right for us.

For example, check out the video below on Mt. Gox!

The story of Mt. Gox
https://www.youtube.com/watch?v=SfiiF1zHWU4
 

What's next

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