Well done, you already know more than a vast majority of people and the fact that you expressed an interest will only give you an advantage in the future.
Now you’re perhaps wondering how to buy Bitcoin and start investing in your first cryptocurrency.
The good news is, nowadays you have a plethora of choices – from online wallets to USB sticks and military-style secured devices.
You can also pay with credit card, bank transfer and even with cryptocurrencies itself. It all depends on where you live and which exchange you decide to go for. The options keep on growing with the cryptocurrencies’ rising popularity.
This guide will show you how to buy bitcoins and what you have to do step by step to make the right decision.
Private Information While Buying Bitcoin
Plenty of first-time buyers are scared and confused with a number of different platforms. However, once you try it, you will see how simple is the entire process and what was scaring you, was perhaps the negative perception of cryptocurrency and blockchain technology.
It’s important to remember that Bitcoin is a financial tool and thus a subject to financial regulation in most countries. In most jurisdictions, Anti-Money-Laundering-Rules (AML) are applied to all platforms that sell bitcoins. They also have to adopt Know-Your-Customer-Rules (KYC) to verify the identity of users.
Bitcoin transactions are publicly visible to anyone who’s a member of the public ledger, hence the degree of private information you enclose can have serious implications on your privacy.
There are several grades of KYC:
- No KYC – you don’t have to show any form of an ID and you pay with private means, e.g. cash or ATM; the seller of bitcoins doesn’t know who you are; usually more expensive than other options
- Light KYC – you will be identified by your phone number, email address or a payment method; if you pay with a bank card, the seller will know your identity; you will have a limit on how many bitcoins you can buy
- Full KYC – your identity will be verified with your phone number, bank account and an ID form, e.g. passport and you might have to go through a video identification; definitely, the safest and most reliable way of buying bitcoins, especially if you want to invest in a large amount
Get a Cryptocurrency Wallet
First things first, before you move on to buying your bitcoins, you have to have a place to store them.
Well, kind of.
Cryptocurrency wallets don’t actually store any bitcoins, rather they keep a record of the transactions you made and show the outstanding balance. But, for the time being, just think about the wallet as if it was your online bank account.
Depending on the security you prefer, there’s a choice of three wallets:
- Software Wallet – stored on the hard drive of your computer
- Online Wallet – web-based service, accessible only online
- Hardware Wallet – otherwise known as a vault, offers extra protection and keeps your funds offline
None of them is perfect and they all have their vulnerabilities. It’s easy to go for just an online wallet as it seems like the most modern option. But you have to be careful about losing you login details and you must invest in a good anti-virus software.
The same thing goes for a software wallet – once it’s installed on your desktop, it becomes exposed to any hacking attacks and the wallet’s file can get corrupted. Another issue with a software wallet is the lack of flexibility. Meaning, you always have to have your laptop with you or be next to your desktop to be able to access it.
With the hardware wallet, on the other hand, you are getting more security but you have to be careful not to lose the USB stick or any other device that will be given to you with a wallet.
One of the best options is combining an online version with a hardware wallet, e.g. Ledger Nano S. It gives you an access to an online platform, is compatible with the majority of mobile applications and… It gives you and USB stick.
Yes, we are still using the USB sticks in 2017. Move on, clouds and Drives.
Putting jokes aside, it really is one of the most secure wallets out there. With the USB stick, your confidential data is never exposed and it has multiple security layers.
Find an Exchange
One thing all newcomers might find confusing is the difference between a wallet and an exchange. Especially that the former gives you an option to purchase bitcoins as well.
Understanding the difference between a wallet and an exchange is like knowing the difference between a traditional bank and a stock exchange.
Cryptocurrency wallets have been created to store the record of your bitcoins and while you can use some of them (Coinbase) to buy bitcoins as well, it’s generally safer to use it like a traditional wallet and keep it offline.
An exchange will let you buy and sell bitcoins, which can be sent to your wallet afterwards. An exchange also allows you to pay for bitcoins with fiat money as opposed to a wallet, where you’re exchanging cryptocurrencies.
Exchanges, however, don’t offer as much anonymity as other services. In particular, if you want to buy or sell a large amount of money. Most of them require submitting a form of ID and some even go to the extent of video chat to confirm your identity.
There are three different types of exchanges:
- Trading Platforms – they connect buyers and sellers and charge a transaction fee
- Direct Trading – direct person to person trading; they don’t have a fixed market price, each seller sets their own exchange rate
- Brokers – the brokers set the price and anyone can buy it; they’re similar to foreign exchange dealers
One of the most popular exchanges for the US customers is Coinbase – both a wallet and an exchange. It’s one of the oldest Bitcoin platforms and has a good reputation for reliability and security. It allows you to exchange fiat currency for crypto.
How To Buy Bitcoin With a Credit / Debit Card
So… This is not as easy and popular as you might be thinking.
One of the cryptocurrency properties is being irreversible. Once you click ‘Send’ there is no way back, your money will travel to whatever address you provided and you cannot cancel the transaction. Some banks don’t release the funds to a merchant up to 60 days after the transaction happened.
The problem with bank cards is that with a one phone call you can cancel the transaction. So if the card transaction doesn’t go through, what happens to your bitcoins? Well, you will most likely lose them.
It’s simply too risky for a merchant to sell bitcoins with a card transaction. Luckily, recent security developments have opened new doors for exchanges and enabled more companies to accept bank cards.
What’s the advantage? It’s one of the easiest ways of buying bitcoins and the fastest. It’s also a good option for non-techy buyers, as most of us are familiar with online payments anyway. And buying bitcoins is no different to that.
Any cons? If you’re planning to start investing and want to use bitcoins for legitimate transactions, then it probably won’t bother you as much.
The majority of merchants won’t allow you to go ahead with a big transaction due to a high risk of card scams. Also, the fees are higher due to the fraud risk.
Another thing worth mentioning is a reduced level of anonymity when paying with a bank card. You will have to confirm your identity by submitting a form of ID. So your details will be stored by a third party company.
How To Buy Bitcoin With PayPal
Not sure how to say that to you but… There isn’t an easy way of buying bitcoins with PayPal.
Currently, there aren’t any exchanges or wallets that accept payments by PayPal. So be very careful if you come across any websites or services that will guarantee quick and easy payments by PayPal. They’re most likely a scam that will end up in stealing your card details.
However, it always seems impossible until it’s done. And there is a way around the system with the use of VirWox (Virtual World Exchange).
Those of you who ever played Second Life, are probably familiar with the platform through which you can buy Second Life Lindens – the currency used in a game.
You can buy Second Life Lindens with PayPal and then use them to buy bitcoins. It might sound a bit complicated, but this is the only easy and reliable way of buying bitcoins with PayPal.
Another major drawback is the charges associated with the entire process. The total amount comes up to approximately 10%, hence I wouldn’t recommend it to anyone who wants to invest just a small amount.
How To Buy Bitcoins With Cash
It might sound crazy but buying bitcoins with cash is actually one of the most secure anonymous options. However, such an exchange is most often limited to big cities and metropolis.
First of all, you have to check if such an exchange is legal in your country. You have to remember that Bitcoin is not considered as a currency by most banks and governments, hence the jurisdiction may vary. You should also be aware of the police presence as they might consider the exchange as a dodgy transaction.
Depending on the seller, they are likely to charge you 5-10% fee for the face-to-face transaction and the convenience it gives you. A reputable trader will negotiate with you before, but many will not want to wait for too long in case bitcoin drops in value.
LocalBitcoins is one of the most popular sites which helps to arrange a face-to-face exchange. The website also provides an escrow service as an added layer of protection for both parties.
If the one-to-one trade isn’t your thing, you can also try Meetup and see if there’s a local event of a group of people who are interested in exchanging Bitcoins.
Even though the platform is well-known, you should take all necessary precautions – always meet in a busy place and pay attention to any signs that would indicate a negative attitude.
Although it’s still quite rare, more and more ATMs have started popping up. They work similarly to regular ATMs but instead of connecting you to your bank account, they connect you to a bitcoin exchange. They also work both ways – you can either withdraw bitcoins or buy new ones.
How does it work? You need to insert your cash and either scan your mobile wallet QR code or receive a paper receipt with the codes necessary to load the bitcoins onto your wallet.
Needless to say, there’s an exchange rate which varies from 3-8% on the top of a standard exchange price.
Bitcoin ATMs aren’t that popular in Europe. They’ve boomed in the US and Canada, but they’re still one of the most expensive ways of buying bitcoins.
How To Earn Bitcoins Through Mining
Since you’re here, you must know a thing or two about bitcoin mining and you might have even considered mining yourself.
For rookies, just a quick a quick reminder – Bitcoin mining is a computing process of solving a complex mathematical formula in order to confirm transactions. Whoever solves the algorithm first, gets awarded with new bitcoins. So the more you mine, the more chances you have of earning new bitcoins.
Until recently, all you needed was your own PC and a powerful graphic card. That on its own was enough for mining. But the rise of bitcoin’s popularity has brought new and more popular devices – ASICs – into the network. They are not only capable of solving the algorithm quicker, they’re also very expensive to invest in and consume an enormous amount of energy.
On the top of that, there is a limited amount of bitcoins that can ever be mined, hence the remaining number keeps on diminishing.
Today there are entire companies and groups that specialise in bitcoin mining, with hundreds of powerful computers. And you cannot really compete with them from the comfort of your own house, with just one computer.
If you want to do that, it would be more of a hobby, rather than a way of making money through bitcoin mining.
Things To Watch Out For When Buying Bitcoin
To find the perfect method to buy your first Bitcoin you should first ask yourself these questions:
- How much private information do you want to disclose?
- How do you want to pay?
- Where do you live?
Your answers will determine which platform you should go for and how much you should invest.
You also have to remember that even the most secure Bitcoin platform doesn’t offer the same protection as traditional banks do.
Bitcoin doesn’t have a legal status in most countries thus the authorities don’t know how to tackle thieves or blockchain hackers. If the exchange you’re using gets hacked or decides to close down, it will take your account with it. And you cannot complain or report it to anyone.
The same scenario applies for you losing your keys or any other security lapses that would occur due to your negligence. You don’t have any guarantee of being able to recover your funds.
It’s also worth checking with your bank how do they feel about bitcoin transactions. Some banks around the world are well-known for being cryptocurrency unfriendly and they might even go to the extent of temporarily blocking your account.
If you want to buy bitcoins, you just have to be vigilant and take necessary precautions, just like when you create a bank account. You wouldn’t do that with an unknown institution or one that simply… Looks shady.
If you’re a newbie in the cryptocurrency world and you were wondering how to buy Bitcoin, hopefully, this guide answered your questions.
Let us know in the comments below if you need any help or which method you have decided to go for!