How to Purchase Bitcoin
Thinking of how to Buy Bitcoin (BTCUSD) may appear difficult at first, but it becomes much simpler once you break it down into steps.
- Bitcoin’s value stems from its widespread use as a store of value and payment system, as well as its limited supply and low inflation.
- Although it is nearly impossible to hack Bitcoin itself, it is possible for your wallet or exchange account to be hacked. This is why proper storage and security procedures are essential.
- Investing in or trading Bitcoin only requires a service or an exchange account, though additional safe storage practices are advised.
- Bitcoin can also be purchased using mainstream services such as PayPal and Robinhood.
- Investing in companies that have bitcoin on their balance sheets is one way to indirectly own Bitcoin.
Before You Buy Bitcoin
A cryptocurrency exchange account, personal identification documents if using a Know Your Customer (KYC) platform, a secure internet connection, and a method of payment are all requirements for aspiring Bitcoin investors. It’s also a good idea to have your own personal wallet separate from your exchange account. Bank accounts, debit cards, and credit cards are all acceptable payment methods on this path. Bitcoin can also be obtained through specialized ATMs and peer-to-peer (P2P) exchanges. However, as of early 2020, Bitcoin ATMs are increasingly requiring government-issued IDs.
For Bitcoin investors, privacy and security are critical concerns. Anyone who obtains the private key to a Bitcoin public address has the ability to authorize transactions. Private keys should be kept private; if criminals learn of large holdings, they may try to steal them. Keep in mind that the balance of a public address system can be seen by anyone. On the other hand, an individual can create multiple public addresses for themselves using this public information. As a result, they can distribute their Bitcoin stash across multiple addresses. Keeping significant investments at public addresses that are not directly connected to those used for transactions is a good strategy.
Anyone, including you, has access to the blockchain’s transaction history. Although transactions are recorded publicly on the blockchain, personal information about users is not. Only a user’s public key appears next to a transaction on the Bitcoin blockchain, making transactions confidential but not anonymous. In this sense, Bitcoin transactions are more transparent and traceable than cash transactions because, unlike private cash transactions, they are all visible to the public. However, Bitcoin transactions are designed with an element of anonymity in mind. On the blockchain of bitcoin, tracing the transacting parties—that is, the sender and recipient of bitcoin—is extremely difficult.
International researchers and the FBI claim to be able to track Bitcoin blockchain transactions to users’ other online accounts, including digital wallets. 1 When someone opens a Coinbase account, for example, they must provide identification. When that person buys Bitcoin, it is now associated with their name. It can still be traced back to the Coinbase purchase that is linked to the account holder’s identity if they send it to another wallet. Most investors should be unconcerned about this because Bitcoin is legal in the United States and most other developed countries.
The steps to purchase bitcoin are outlined below. Keep in mind that you must still conduct your research and choose the best option for you based on your specific circumstances.
Step 1: Select a Crypto Trading Service or Platform
Choosing a crypto trading service or venue is the first step in purchasing bitcoin. Cryptocurrency exchanges, payment services, and brokerages are all popular trading services and venues for purchasing cryptocurrencies. In comparison to other places, cryptocurrency exchanges are the most convenient option because they offer a wider range of features and a greater number of cryptocurrencies for trading.
You can buy, sell, and hold cryptocurrency by signing up for a cryptocurrency exchange. Using an exchange that allows users to withdraw cryptocurrency to their own personal online wallet for safekeeping is generally the best practice. This feature may not be important to those looking to trade Bitcoin or other cryptocurrencies.
Cryptocurrency exchanges come in a variety of shapes and sizes. Some exchanges allow users to remain anonymous and do not require them to enter personal information because the Bitcoin ethos is based on decentralization and individual sovereignty. These exchanges are typically self-contained and decentralized, which means they don’t have a single point of control.
Although such systems can be used for nefarious purposes, they are also used to provide services to the unbanked population of the world. Anonymous exchanges can help bring certain groups of people into the mainstream economy, such as refugees or those living in countries with little to no infrastructure for government credit or banking.
However, the majority of popular exchanges are currently not decentralized and adhere to laws that require users to submit identification documentation. Coinbase, Kraken, Gemini, FTX.US, and Binance.US, to name a few, are among these exchanges in the United States. The number of features available on these exchanges has increased significantly.
In recent decades, the crypto universe has expanded rapidly, with many new tokens competing for investor dollars. Except for Bitcoin and a few well-known coins like Ethereum, not all of these tokens are available on all exchanges. Each exchange has its own set of criteria for deciding whether or not to allow certain tokens to be traded.
Bitcoin and a growing number of altcoins are available through Coinbase, Kraken, and Gemini. These three are probably the most straightforward crypto entry points in the entire industry. Binance caters to the more experienced trader, with more serious trading functionality and a larger selection of altcoin options. FTX, a rapidly growing crypto exchange with a multibillion-dollar valuation, only accepts a small number of altcoins from US investors. 2 Traders outside of the United States, on the other hand, have a larger selection of tokens on its platform.
When opening a cryptocurrency exchange account, it’s crucial to follow safe internet practices. This includes using two-factor authentication and creating a password that is both unique and long, with a mix of lowercase, capitalized, special, and numeric characters.
On June 9, 2021, El Salvador made Bitcoin legal tender. This is the first time a country has done so. Any business that accepts cryptocurrency can use it for any transaction. El Salvador’s primary currency is still the US dollar.
Step 2: Integrate Your Exchange with a Payment Method
You’ll need to gather your personal documents once you’ve decided on an exchange. These may include images of your driver’s license or Social Security number, as well as information about your employer and source of funds, depending on the exchange. The information you’ll need is likely to be determined by the region you live in and the laws that govern it. The procedure is similar to that of opening a traditional brokerage account.
You will be asked to connect a payment option after the exchange has verified your identity. Most exchanges allow you to connect your bank account or a debit or credit card directly. Although you can buy cryptocurrency with a credit card, this is not a good idea because cryptocurrency price volatility can inflate the overall cost of buying a coin.
Deposits made with a bank account, debit card, or credit card have different fees. Coinbase is an excellent exchange for beginners, with a fee of 1.49 percent for bank accounts and 3.99 percent for debit and credit cards. It’s crucial to learn about the fees associated with each payment option before deciding on an exchange or which payment option is best for you.
Exchanges also charge transaction fees. This fee can be a flat fee (if the amount traded is small) or a percentage of the amount traded. In addition to transaction fees, credit cards have a processing fee.
While Bitcoin is legal in the United States, some banks may question or even refuse to accept deposits to cryptocurrency-related websites or exchanges. It’s a good idea to double-check that your bank allows deposits at the exchange you’ve chosen.
Step 3: Make a Purchase
After selecting an exchange and connecting a payment method, you can purchase bitcoin (or other cryptocurrencies). Cryptocurrency exchanges have gradually become more mainstream in recent years. In terms of liquidity and feature set, they have significantly expanded. The changes in cryptocurrency exchange operations correspond to the shift in public perception of cryptocurrencies. An industry that was once thought to be a scam or one with questionable practices is slowly transforming into a legitimate one that has piqued the interest of all of the financial services industry’s major players.
Cryptocurrency exchanges have now progressed to the point where they offer nearly the same features as their stock brokerage counterparts. Today’s crypto exchanges provide a variety of order types and investment options. Almost every cryptocurrency exchange accepts market and limit orders, with some also accepting stop-loss orders. Kraken has the most order types of the exchanges mentioned above. Market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders are all available on Kraken.
Aside from a variety of order types, exchanges also provide ways for customers to set up recurring investments, allowing them to dollar-cost average into their preferred investments. For example, Coinbase allows users to schedule purchases for each day, week, or month.
Step 4: Proper Storage
Wallets for bitcoin and other cryptocurrencies are a secure way to store digital assets. Keeping your crypto in your personal wallet rather than on an exchange ensures that only you have access to the private key to your funds. It also allows you to store funds outside of an exchange, reducing the risk of your funds being stolen if your exchange is hacked.
Although most exchanges provide users with wallets, security is not their primary concern. For large or long-term cryptocurrency holdings, we don’t recommend using an exchange wallet.
Some wallets have a greater number of features than others. Some are Bitcoin-only, while others allow you to store a variety of altcoins. Some wallets also allow you to exchange one token for another.
You have a number of options when it comes to selecting a Bitcoin wallet. The concept of hot wallets (online wallets) and cold wallets is the first thing you should learn about crypto wallets (paper or hardware wallets).
Hot wallets are another term for online wallets. Hot wallets are digital wallets that operate on internet-connected devices such as computers, smartphones, and tablets. Because these wallets generate the private keys to your coins on these internet-connected devices, this can pose a risk. While a hot wallet can be very useful for quickly accessing and transacting with your assets, storing your private key on an internet-connected device makes it more vulnerable to hacking.
This may seem unlikely, but people who do not use adequate security when using these hot wallets risk having their funds stolen. This isn’t something that happens infrequently, and it can happen in a variety of ways. It would not be wise to brag on a public forum like Reddit about how much bitcoin you have while using little to no security and storing it in a hot wallet. However, if precautions are taken, these wallets can be made secure. Minimum requirements should include strong passwords, two-factor authentication, and safe internet browsing.
Small amounts of cryptocurrency or cryptocurrency that you are actively trading on an exchange are best stored in these wallets. A hot wallet is similar to a checking account. According to conventional financial wisdom, you should keep only your spending money in a checking account and put the rest of your money in savings or other investment accounts. Hot wallets fall into the same category. Mobile, desktop, web, and exchange account custody wallets are all examples of hot wallets.
Exchange wallets, as previously stated, are custodial accounts provided by the exchange. The private key to the cryptocurrency held in this wallet is not held by the user of this wallet type. Your funds would be lost if the exchange was hacked or your account was compromised. Within cryptocurrency forums and communities, the phrase “not your key, not your coin” is frequently used.
A cold wallet, in its most basic form, is one that is not connected to the internet and thus has a much lower risk of being hacked. These wallets are also known as hardware wallets or offline wallets. These wallets store a user’s private key on a device that isn’t connected to the internet, and they can include software that runs in the background so that the user can view their portfolio without risking their private key.
A paper wallet is perhaps the most secure way to store cryptocurrency offline. A paper wallet is a wallet that can be printed from a variety of websites. It then generates both public and private keys, which you can print out on paper. You can only access cryptocurrency in these addresses if you have the piece of paper containing the private key. Many people laminate these paper wallets and keep them in their bank’s safe deposit box or even in their home safe. Because you can’t quickly sell or trade bitcoin stored in these wallets, they’re best for high-security and long-term investments.
A hardware wallet is a more common type of cold wallet. A hardware wallet is a USB drive device that securely stores a user’s private keys off the internet. Such wallets have a number of advantages over hot wallets, including the fact that they are not affected by viruses that may be present on the user’s computer. Private keys never come into contact with your network-connected computer or potentially vulnerable software with hardware wallets. These devices are usually open-source, which allows the community to determine their safety through code audits rather than a company declaring them safe to use.
Cold wallets are the safest way to keep Bitcoin and other cryptocurrencies. However, setting them up necessitates a higher level of technical knowledge.
A good way to set up your wallets is to have three of them: a buying and selling exchange account, a hot wallet to hold small to medium amounts of crypto you want to trade or sell, and a cold hardware wallet to store larger holdings for long periods of time.
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