How To Buy Bitcoin
So, you’re interested in Bitcoin and you’ve done some research on it, you understand some aspects of it, you’re excited about its potential, but you don’t know how to buy it.
It’s easy when you know how, and in many instances it’s easier than buying stocks from a legacy broker, but there are a few things that you should be really careful about, and also what should you do with it after you buy it.
Bitcoin can be bought on cryptocurrency exchanges, or on peer-to-peer marketplaces where you can trade whatever the seller is willing to accept., and there are even Bitcoin ATMs where you can get bitcoins from.
Depending on where you live, you can pay for it the traditional ways like debit and credit cards, wire transfers, other cryptocurrencies, or in the case of the peer-to-peer marketplaces a bag of apples if the seller is wanting some golden delicious apples.
Not Your Keys Not Your Bitcoin
Before you buy some bitcoin, you should set up a wallet so you have somewhere to safely store it. There are many different types of wallet, but it’s highly recommended that you have your own, and not use an exchange wallet. There’s a saying in the Bitcoin space: Not your keys, not your Bitcoin.
Basically this means, if you don’t have access to the private key (exchange wallets have this) you don’t have full control of the bitcoins, and they can be taken from you at any time.
That said, most exchanges are reputable, and I doubt this would happen, but what if a government decided to clamp down and ordered exchanges to freeze all funds. Not your keys, not your Bitcoin.
Choosing a Bitcoin Wallet
It’s important to note that bitcoins are not really ‘in’ your wallet. Bitcoins can never leave the blockchain, so your wallet is basically a bridge with an interface that shows how many bitcoins you have on the blockchain, but people generally say it like you’re storing your bitcoins in a wallet.
Hardware wallets are the safest way to store your bitcoins. They’re basically hardware devices that lets you store your bitcoins, and you have full control of the bitcoins stored on there.
The best selling hardware wallets are the Trezor and the Ledger Nano X, and both are recommended. If you buy one, however, buy from a reputable source, and when it arrives, if the package has been tampered with, send it back!
The Trezor and Ledger devices don’t actually connect to the Internet, and you have a few security steps to get into your wallet. You will be given a seed phrase for back up if your wallet is destroyed or lost, and as long as you have the seed phrase you will be able to open up your same wallet on pretty much any other device. So keep this safe in at least two different locations.
Software Wallets are probably the most popular wallets, because they’re free to download. There are many different wallets, and although they are pretty safe, they are more susceptible to phishing attacks than hardware wallets.
Electrum is a wallet I hear plenty of good reviews about, but I don’t personally use it as I have a hardware wallet.
Arguably, the safest way to store your bitcoins is to write your private keys on some paper and store it in a few different places, just in case disaster happens and you lose your only piece of paper. I wouldn’t recommend this, however, especially if you’re only just getting into Bitcoin.
Buying Bitcoin from an Exchange
Cryptocurrency exchanges act like other legacy exchanges, but instead of you asking a broker to make a trade for you, you hold the bitcoin in the wallet they provide, and you can trade it at will 24/7/365.
There are thousands of exchanges, operating pretty much in every country. Many of them have varying degrees of liquidity, so I wouldn’t recommend smaller exchanges, as fraudulent behaviour is more prevalent in these establishments.
There have been several cases of customers’ funds going missing, or being locked up and frozen, or even exchange CEOs holding the keys to the exchange funds and vanishing. So it’s highly recommended only to use the bigger and more established exchanges.
There are many reputable exchanges to choose from, especially if you live in the US, Europe or other developed nations. That said, there are reputable exchanges almost everywhere, it’s just that there’s more of a choice in said countries.
The biggest exchanges in the world by liquidity are Bitfinex, HitBTC, and Binance, and although you can buy with your dollars and euros there, they’re more used for trading cryptocurrencies.
Most people actually buy Bitcoin from Coinbase, even though the liquidity is much less there. That is down to the few markets on Coinbase, and the fact most people only use it to buy Bitcoin initially, rather than trade on there.
There are many other reputable exchanges, but it all depends on your geographical location.
Bitcoin may have been created to get around the Big Brother oppression, but the truth is, all reputable exchanges have to comply with government rules and have started to implement a know-your-client (KYC) and anti-money-laundering (AML) set up.
Therefore, they all pretty much require verified government identification like your passport, and maybe proof of address. But it is easy, and quick, and nothing should hold you back from signing up.
Most exchanges accept payment via bank transfer or credit and debit card, and some accept PayPal. They should all give you sufficient information about everything from signing up to making your first purchase.
When buying bitcoin with your cash, once you have sent it and the exchange has received your payment, it will purchase the amount of bitcoin for you, and place it in your wallet within the exchange. It usually takes a matter of minutes, and is pretty simple to do.
You are then free to do whatever you like with your bitcoins. You can trade them on the exchange, if that’s your game, or if you want to hold them for a future investment, you should send them to a wallet you have set up.
Exchange wallets are not recommended for long-term storage as they are centralized and are susceptible to being hacked, and you could lose all your bitcoins.
Buying from Peer-to-Peer Marketplaces
Platforms such as LocalBitcoins and Paxful will help you to find individuals willing to trade Bitcoin.
As they’re peer-to-peer marketplaces, the platforms don’t really get involved with the trade, apart from holding both sides of the payment in an escrow until you’re both happy that all conditions are met, or if there’s a dispute about the trade.
These marketplaces allow bitcoins to be exchanged for pretty much anything. As long as you have someone wanting what you’re willing to trade for, you can trade.
Example, Amazon Gift Cards are commonly traded for bitcoins on these platforms, as are air miles, and many other random things.
Be careful with the person you’re opening a trade up with, however. There are scammers on these marketplaces, so check out their reputation, and only buy from someone who has great reviews.
Bitcoin is exciting. It has opened up a whole new asset class, and I believe it will disrupt many industries in the coming years.
That said, it is still pretty much unregulated, and there are many scammers and hackers trying their best to get your bitcoins.
Always be vigilant, and always only use reputable companies when buying bitcoins, hardware wallets etcetera.
But welcome to the wonderful and exciting world that Bitcoin has created, I’m sure you will continue to learn and understand more about the beauty of the most exciting innovation of the century.
Author: Tommy Limpitlaw