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How to Buy Bitcoin – Investing in Bitcoin can seem complicated, but it is much easier when you break it down into steps. Buying Bitcoin is getting easier by the day, and the legitimacy of the exchanges and wallets are growing as well.
IMPORTANT LESSONS TO LEARN
- The value of Bitcoin is derived from its adoption as a store of value and payment system, as well as its finite supply and decreasing inflation.
- Though it is nearly impossible for Bitcoin itself to be hacked, it is possible for your wallet or exchange account to be compromised. This is why practicing proper storage and security measures is imperative.
- Investing or trading Bitcoin only requires an account on an exchange, though further safe storage practices are recommended.
Before You Buy Bitcoin
There are several things that every aspiring Bitcoin investor needs. A cryptocurrency exchange account, personal identification documents if you are using a Know Your Customer (KYC) platform, a secure connection to the Internet, and a method of payment. It is also recommended that you have your own personal wallet outside of the exchange account. Valid methods of payment using this path include bank accounts, debit cards, and credit cards. It is also possible to get Bitcoin at specialized ATMs and via P2P exchanges. However, be aware that Bitcoin ATMs have increasingly required government-issued IDs as of early 2020.
Privacy and security are important issues for Bitcoin investors. Even though there are no physical bitcoins, it is usually a bad idea to brag about large holdings. Anyone who gains the private key to a public address on the Bitcoin blockchain can authorize transactions. Private keys should be kept secret; criminals may attempt to steal them if they learn of large holdings. Be aware that anyone can see the balance of a public address that you use. That makes it a good idea to keep significant investments at public addresses that are not directly connected to ones that are used for transactions.
Anyone can view a history of transactions made on the blockchain—even you. And though transactions are publicly recorded on the blockchain, identifying user information is not. On the Bitcoin blockchain, only a user’s public key appears next to a transaction—making transactions confidential but not anonymous. In a sense, Bitcoin transactions are more transparent and traceable than cash, but the cryptocurrency can also be used anonymously.
That is an important distinction. International researchers and the FBI have claimed that they can track transactions made on the Bitcoin blockchain to users’ other online accounts, including their digital wallets. For example, if someone creates an account on Coinbase, they must provide their identification. Now, when that person purchases Bitcoin, it is tied to their name. If they send it to another wallet, it can still be traced back to the Coinbase purchase that is connected to the account holder’s identity. This should not concern most investors because Bitcoin is legal in the U.S. and most other developed countries.
The first step is to select an exchange.
You may purchase, sell, and hold cryptocurrencies by signing up for a cryptocurrency exchange account. For the most part, you should only utilize an exchange if you can withdraw your crypto to a personal online wallet. This feature may or may not be important to those who want to trade Bitcoin or other cryptocurrencies.
Cryptocurrency exchanges come in a variety of shapes and sizes. Decentralization and individual sovereignty are central to the Bitcoin ethos, thus some exchanges let users to stay anonymous by not requesting any personal information from them. Exchanges like this are independent and generally decentralized, meaning there is no one point of control over them all.
Despite the fact that such systems have the potential to be misused, they are also utilized to deliver services to the world’s unbanked population. Anonymous trades can assist persons in specific situations, such as refugees or those living in countries with little or no official credit or banking infrastructure, integrate into the mainstream economy.
However, for the time being, the most popular exchanges do not need KYC and are not decentralized. These exchanges include, among others, Coinbase, Kraken, Gemini, and Binance.US in the United States. The amount of features available on each of these exchanges has increased substantially.
A increasing variety of alternative cryptocurrencies are available through Coinbase, Kraken, and Gemini. These three methods are arguably the simplest ways to get started with cryptography. Binance is geared for the more experienced trader, with more robust trading features and a wider selection of altcoins to choose from.
When setting up a bitcoin exchange account, be sure to follow safe internet usage guidelines. Two-factor authentication and a lengthy password with a mix of lowercase and uppercase letters, special characters, and digits are examples of this.
a quick fact
On June 9th, 2021, El Salvador will accept Bitcoin as legal money. In fact, it’s the first country to make this move. If a company accepts bitcoin as payment, it can be used in any transaction. Because of this, El Salvador’s principal currency is still the United States dollar.
Step 2: Integrate Your Exchange with a Payment Method
The next step is to gather your personal papers after you’ve selected an exchange. Depending on the exchange, this might include a photo of your driver’s license or your Social Security number, as well as information about your employment and your financial sources.. The data you’ll need is going to be determined by the rules and regulations in your location. The procedure is quite similar to that of opening a standard brokerage account.
You will be able to link a payment option when the exchange verifies your identification and validity. Most exchanges allow you to link a bank account or a debit or credit card directly. Due to bitcoin’s volatility, it is recommended that you do not buy cryptocurrency with a credit card. However, there are exceptions.
Banks may be reluctant to accept deposits to crypto-related sites or exchanges even if Bitcoin is legal in the United States. Check with your bank to see whether you may make deposits at the exchange of your choice.
Deposits made with a bank account, debit card, or credit card have variable costs. Beginners will appreciate Coinbase because of its low fee structure, which charges just 1.49 percent for bank accounts and 3.99 percent for debit and credit card transactions. The fees connected with each payment option should be investigated in order to assist you in making a decision on an exchange or on which payment method works best for you.
Additionally, exchanges charge a transaction fee. If the trading volume is minimal, the charge will be a flat rate; otherwise, it will be a % of the volume. In addition to the transaction costs, using a credit card also entails a processing charge.
Step 3: Make a Purchase
Purchasing Bitcoin and other cryptocurrencies is now possible if you have selected an exchange and linked a payment method. It’s only been in the last few years that bitcoin exchanges have started to gain traction. Liquidity and the number of things they provide have both increased considerably. While bitcoin exchange operations are changing, so is public perception. Even though it used to be considered fraudulent, the business is steadily evolving into a legal one that has attracted the attention of major financial institutions.
As a result, cryptocurrency exchanges now provide many of the same services as traditional stock brokerages. You’re all set to go after you’ve located an exchange and linked a payment method.
Many order kinds and investment methods are available on today’s crypto exchanges. Market orders, limit orders, and stop-loss orders are all available on nearly all crypto exchanges. Kraken is the exchange that provides the most order types out of the ones previously listed. Market, limit, stop-loss, stop-limit, and take-profit orders are all supported by Kraken.
As well as various order forms, exchanges provide clients with the ability to dollar-cost average into their assets of choice by setting up recurring investments. Customers of Coinbase, for example, may schedule daily, weekly, or monthly recurring transactions.
Step 4: Safely Store Your Items
Wallets for Bitcoin and other cryptocurrencies provide a safe haven for digital assets. To guarantee that only you have access to your cash, keep your crypto off of exchanges and in a personal wallet. If your exchange is hacked, you won’t lose your money since you have stored your savings elsewhere.
Despite the fact that most exchanges provide wallets for their customers, security is not their major concern. For significant or long-term bitcoin holdings, we don’t suggest utilizing an exchange wallet.
Most exchanges provide wallets, but security is not their major concern. When it comes to substantial or long-term cryptocurrency holdings, we don’t advocate utilizing an exchange wallet.
Wallets differ in terms of the number of features they offer. Some exclusively store Bitcoin, while others allow the storage of a wide range of other cryptocurrencies. Token swapping is another feature available in some wallets.
A Bitcoin wallet is a place where you save your private keys. As a beginner, you must first grasp the difference between hot and cold crypto wallets (paper or hardware wallets).
Hot wallets
Hot wallets are online wallets. Computers, phones, and tablets that are linked to the internet run hot wallets. This creates a risk since these gadgets produce the private keys to your currencies. While a hot wallet allows you to access and deal with your assets fast, keeping your private key on an internet-connected device makes it more hackable.
Using these hot wallets without adequate protection might result in cash being stolen. This happens frequently and in various ways. It would be foolish to brag about your Bitcoin holdings on a public site like Reddit while employing little protection and storing them in a hot wallet. However, with proper care, these wallets may be made secure. Strong passwords, two-factor authentication, and secure Internet usage should be standard.
For modest quantities of bitcoin or cryptocurrency actively traded on exchanges. A hot wallet is a checking account. The conventional financial advice is to keep just spending money in a checking account and save or invest the rest. Hot wallets are in the same boat. This includes exchange account custodial wallets and mobile wallets.
As stated earlier, exchange wallets are custodial accounts. The owner of the private key to the cryptocurrency stored in this wallet is not the user. Your cash would be lost if the exchange was hacked or if your account was compromised. Not your key, not your coin is a common saying in bitcoin discussions.
Cold wallets
A cold wallet is simply one that isn’t linked to the Internet, and as a result, it’s much less likely to be hacked. Offline wallets and hardware wallets are other terms for the same thing.
When you utilize one of these wallets, you may see your portfolio without risking your private key since they keep a user’s private key on an offline device rather than online.
A paper wallet is one of the safest ways to keep bitcoin offline. There are websites that allow you to create a paper wallet. It then generates a pair of public and private keys, which you can then print out. This access to cryptocurrencies is only feasible if you have a copy of the private key on hand. Wallets made of paper are frequently laminated and kept at the bank or even at home in a safe. Because you can’t immediately sell or trade Bitcoin kept in these wallets, they’re best for long-term investments.
A hardware wallet is a more widely used form of cold wallet. A hardware wallet is generally a USB drive device that securely stores the private keys of a user apart from the computer network. Unlike hot wallets, which are vulnerable to viruses on the user’s computer, cold wallets are impervious to viruses. Hardware wallets ensure that your private keys never leave your machine, even if it is network-connected. They are also open source, so the community may decide their own safety through code audits, rather than relying on a corporation to say that the gadget is safe to use for consumers.
For storing Bitcoin and other cryptocurrencies, cold wallets are the only option. However, setting them up usually takes a little more expertise.
In order to maximize your security, it’s a good idea to keep three types of wallets on hand: an exchange account, a hot wallet for keeping small to medium quantities of crypto, and a cold hardware wallet for long-term storage.
How to purchase Bitcoin with PayPal
Additionally, Bitcoin may be purchased using the payment processor PayPal. There are two distinct methods for purchasing Bitcoin using PayPal. The first and most easiest option is to use your PayPal account to acquire cryptocurrency. The second option is to utilize your PayPal balance to buy cryptocurrency from a third-party supplier. This is a less convenient alternative than the first, as very few third-party websites enable customers to purchase Bitcoin via the PayPal button.
PayPal supports the purchase of four cryptocurrencies directly: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Except for citizens of Hawaii, residents of all other states may utilize their current PayPal accounts or create new ones.
PayPal requires the following information to create a crypto account: your name, physical address, date of birth, and tax identification number. There are several ways to purchase Bitcoin using PayPal.
Among them are the following:
- Your PayPal account’s current balance
- A debit card that is associated with your PayPal account
- A bank account that is associated with your PayPal account
It is not feasible to acquire Bitcoin using PayPal using a credit card. PayPal will display a price during the purchase procedure. However, because to the inherent volatility of cryptocurrency pricing, their values are prone to rapid fluctuation. You should ensure that your account has adequate cash to complete the purchase.
When you purchase Bitcoin straight through PayPal, the company profits from the crypto spread, or the difference between Bitcoin’s market price and the currency’s conversion rate in USD. Additionally, the firm charges a transaction fee on each purchase. These costs are proportional to the purchase price. For example, a $0.50 flat tax is applied to orders between $100 and $200. Following that, the charge is calculated as a percentage of the total monetary amount. For crypto purchases between $100 and $200, for example, a fee of 2% of the entire amount is paid.
One downside of acquiring cryptocurrencies using PayPal is that the cryptocurrency cannot be transferred outside of the payment processor’s network. As a result, you cannot move cryptocurrencies from PayPal’s wallet to an external cryptocurrency wallet or to your own wallet.
The other drawback of utilizing PayPal is that just a small number of exchanges and online traders accept payment via the payment processor. eToro is one of the few online brokers that accepts PayPal for Bitcoin purchases on its site.
Purchase Bitcoin with a credit card
Acquiring Bitcoin with credit cards is comparable to purchasing it with debit cards or automated clearing house (ACH) transactions. You will need to input your credit card information and authorize the transaction with the exchange or online trading business. However, it is generally not a good idea to acquire Bitcoin with a credit card. There are a few possible explanations for this.
To begin, not all exchanges accept credit card purchases owing to the accompanying processing expenses and danger of fraud. Their choice may be in the best interests of their consumers. This is because credit card processing companies have the ability to tack on extra fees to such transactions. Thus, in addition to transaction costs, you may be charged processing fees by the exchange.
The second reason is that purchasing using a credit card might be costly. Credit card companies classify Bitcoin purchases as cash advances and levy steep fees and interest rates on them. American Express and Chase, for example, both classify cryptocurrency purchases as cash advance transactions. Thus, if you use an American Express card to purchase $100 worth of Bitcoin, you will pay $10 (the current cash advance cost for such transactions) plus a 25% annual percentage fee.
Obtaining a Bitcoin Rewards credit card is an indirect means of acquiring Bitcoin with a credit card. These cards operate similarly to standard rewards credit cards, except that they give rewards in the form of Bitcoin. As a result, they invest the cash back they get on purchases in Bitcoin. The BlockFi Bitcoin Rewards Credit Card is an example of a Bitcoin Rewards card. Bear in mind, however, that the yearly charge for these cards may be prohibitively high, and that there may be additional expenses related with the conversion of fiat money to cryptocurrency.
Alternative Methods of Purchasing Bitcoin
While exchanges such as Coinbase or Binance remain popular methods of acquiring Bitcoin, they are not the only ones. The following are some extra procedures that Bitcoin owners employ.
ATMs that accept bitcoin
Bitcoin ATMs operate similarly to physical Bitcoin exchanges. Individuals can spend cash to acquire Bitcoins, which are subsequently transferred to a secure digital wallet. Bitcoin ATMs have grown in popularity in recent years; Coin ATM Radar can assist in locating the nearest machines.
P2P transactions
In contrast to decentralized exchanges, which link buyers and sellers anonymously and handle all elements of the transaction, certain peer-to-peer (P2P) exchange platforms enable a more direct connection between users.
Local Bitcoins is one such exchange. After making an account, users may submit requests to purchase or sell Bitcoin, complete with payment information and the current price. Users then peruse lists of purchase and sell offers, selecting trade partners with whom they desire to conduct business.
Local Bitcoins streamlines several elements of the deal. While peer-to-peer exchanges do not provide the same level of anonymity as decentralized exchanges, they do allow users to shop around for the best value. Numerous online exchanges also have rating systems that enable users to assess possible trading partners before to dealing.
The Best Ways to Make Money Selling Bitcoin
You may resell Bitcoin at the same places you bought it, such as cryptocurrency exchanges and peer-to-peer networks. For the most part, the procedure for selling Bitcoin on these exchanges is the same as the procedure for buying it in the first place
A simple button click and order type selection (i.e. whether the cryptocurrency should be sold quickly at current prices or sold to prevent losses) may be all that’s needed to complete the sell. The Bitcoin offering price may fluctuate according on the local market’s composition and demand. A kimchi premium was paid by South Korean exchanges following Bitcoin’s price rise in 2018.
Exchanges for cryptocurrencies impose a fee based on a percentage of the sale price of the cryptocurrency. The costs charged by Coinbase, for example, are 1.49 percent of the whole transaction value.
Withdrawal restrictions on exchanges are often set per day and per month. Consequently, a significant sale’s proceeds may not be available to a trader right once. To be clear, there are no restrictions on how much bitcoin you may sell.