Your Guide to Buying Crypto on Robinhood

What is Robinhood Crypto?

Robinhood is a US-based financial services firm founded in 2013 by Baiju Bhatt and Vladimir Tenev. It allows customers to buy and sell stocks, options, ETFs (Exchange Trading Funds), and cryptocurrencies. 

It is important to note that the Robinhood platform is not exclusively dedicated to cryptocurrency trading. Robinhood Crypto started in 2018 and is one of the many services provided by Robinhood. With no account minimum to get started, it is technically not a crypto exchange. It is a brokerage service. This means that once you buy your coins, you cannot withdraw them, transfer them or put them in another wallet.

The only way to get your money back is to sell the crypto coins in return for cash and collect the payment. Robinhood Crypto thus acts as the custodian of your cryptocurrencies and does not allow you to touch them unless you want to sell them.

Also, unlike most crypto exchanges like Coinbase, Robinhood Crypto does not charge a commission fee on any transaction. But this does not necessarily mean it is cheaper. 

Robinhood does charge an order flow fee, which means that it gives your trade to market makers and collects a percentage of the trade after it is executed. So, you might be buying the coins for a higher price while you don’t pay a commission fee. 

What cryptocurrency can you buy on Robinhood?

With a Robinhood account, you can buy seven kinds of cryptocurrencies: Bitcoin, Bitcoin Cash, Bitcoin SV, Dogecoin, Ethereum, Ethereum Classic and Litecoin. You can create a free account by registering with an email ID and password and your social security number for verifying your identity. Once you link your bank account, you can start buying.

Is it safe to buy cryptocurrency on Robinhood?

Buying cryptocurrency on Robinhood comes with an important risk. Once you put in money to buy the coins, you cannot withdraw unless you sell them. This selling of coins is a taxable event. If you are not comfortable with this prospect, you should not buy crypto on Robinhood.

  • When it comes to security, the website quotes two-factor authentication. 
  • The majority of the cryptocurrencies you purchase are stored in cold storage, i.e., a wallet not connected to the internet. 
  • Some are put in hot storage, which means they are used to support day-to-day operations on the internet. 
  • Robinhood claims to routinely review their security arrangements and ask experts to test their system. 

A frequently asked question about security is “Is Robinhood Crypto insured?”

The answer is reassuring – it is covered by the Federal Deposit Insurance Corporation (FIDC). Losses from theft and cybersecurity breaches are covered by crime insurance.

Nevertheless, the company has a history of being vulnerable to cyberattacks. In October 2020, there was news of more than 10,000 alleged Robinhood email login credentials being available for sale on the dark web. 

An internal investigation revealed that almost 2000 accounts had been hacked. The company explained that a third party had compromised the email ids with which users had been registered and that it did not start on the Robinhood platform. Still, there have been numerous complaints voiced by users. Some of them even involved lawsuits. Overall, users don’t trust the platform very much.

To be fair, cybersecurity attacks are not specific to Robinhood. In fact, with the surge in cryptocurrency transactions and economic uncertainty because of covid, they have been on the rise on most platforms. But compared to other crypto exchanges, Robinhood has lagged behind in terms of security. 

For example, in several cases of hacking, the attacker added a new bank account to a funded account and transferred them to the new account. If Robinhood had the feature of verifying changes in linked accounts, this could have been avoided.

At the same time, it is important to note that we don’t have reports about Robinhood Crypto specifically. These reviews and reports are about the company in general, not their cryptocurrency service.

Comparison to Other Platforms

Compared to other cryptocurrency exchanges like Coinbase and Binance, Robinhood is undoubtedly lagging behind in important ways. 

  • Robinhood offers only 7 cryptocurrencies, while Coinbase offers 50, and Binance offers more than 500 currencies and virtual tokens.
  • Robinhood does not accept payment via credit or debit card, unlike other platforms. It only allows ACH transactions. 
  • Robinhood Crypto is only available to citizens from the US, UK and Australia, while Coinbase and Binance are open to business in several countries. 
  • As mentioned above, you cannot access the coins in your Robinhood wallet unless you sell them, and it is a big disadvantage. In general, online wallets are less safe than hardware, software and physical wallets. So, you may want to transfer your coins to a hardware wallet once you are done transacting. But because Robinhood does not offer this feature, this point goes in favour of other platforms.

To sum up, Robinhood is user-friendly, but it is not designed for crypto exchange in the conventional sense. There are other options out there with better reviews and a greater focus on cryptocurrency. There may be upgrades and modifications that will make the platform more suitable for this purpose in the future, but as of now, you may want to look elsewhere. 

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