How to Buy Bitcoin
An investment in Bitcoin (BTCUSD) might seem complex, but it's simpler when you reduce it into smaller steps. When you invest or trade, Bitcoin just requires access to a bank account or exchange. However, other safe storage practices are recommended.
There are a variety of things future Bitcoin investors need in order to invest: a cryptocurrency-exchange account for personal identification to use the Know Your Customer (KYC) platform in addition to a secure connection the Internet, and a method for payment. It is also recommended to have a personal wallet outside of the exchange account. Payment methods that are accepted on this approach include bank accounts or debit cards as well as credit cards. It is also possible to cash out bitcoin at ATMs with specialized equipment and via P2P exchanges.
KEY TAKEAWAYS
* The value of Bitcoin is derived from its adoption as a source of value and payment method, as well as its limited supply and decreasing inflation.
While it's nearly impossible to for Bitcoin itself to be hacked yet, it's possible for your wallet or exchange account to be compromised. This is the reason proper safe storage and security measures is imperative.
* You can also buy bitcoin using mainstream services like PayPal or Robinhood.
* One option to acquire bitcoin indirectly is by investing in companies that have bitcoin in their balance reports.
Before You Buy Bitcoin
Security and privacy are crucial aspects for Bitcoin investors. Anyone who obtains the private key to a public address in the Bitcoin blockchain may be able to sign transactions.1 Private keys should be kept confidential as thieves could try to take them away in the event of learning of huge amounts. Be aware that anyone could be able to see the balance at a public address you've created. On the other hand, this data being available to the public is that the user can establish multiple public address for themselves. They can then distribute their wealth of Bitcoin across several addresses. One good option is to protect investments that are significant at public addresses that aren't directly connected to addresses which are used for transactions.
Anyone is able to view a historical record of transactions performed on blockchain--even you. Although transactions are recorded publicly on the blockchain, identifying the user's information isn't. When using the Bitcoin blockchain, only a user's private key appears in the transaction, making transactions private but not anonymous. This is why Bitcoin is more transparent as well as traceable than cash due to the fact that all of their transactions are made available to public review, in contrast to private cash transactions. But Bitcoin transactions also have certain aspects of anonymity built by their very design. It's very difficult to locate the transaction parties--i.e., the sender and recipient of the bitcoin--on the cryptocurrency's blockchain.
International researchers and the FBI claim they are able track transactions made on the Bitcoin blockchain back to users' other online accounts, which includes their digital wallets.2 For example, when one creates an account with Coinbase it is required to provide their identification.3 In the future, when that buyer purchases bitcoin, it is linked to their identity. Should they transfer the bitcoin to an alternative wallet, it could be traced to the Coinbase transaction which is linked to the identity of the account's owner. The issue should not bother most investors as Bitcoin is officially legal within the U.S. and most other developed nations.
You should be sure to verify all the regulatory, legal, and taxation status for buying and selling bitcoin based on where you reside prior to making a transaction.
Buying Bitcoin
We've explained the steps for purchasing bitcoin in the following steps. Remember that you still need to research the options and decide on the best option for yourself based on your situation.
Step 1: Choose one of the crypto trading services or a venue
The first step in buying bitcoin is to select a cryptocurrency trading service or venue. Popular trading services and venues for buying cryptocurrencies are cryptocurrency exchanges, payment providers, and brokerages. From these, cryptocurrency exchanges are a good option since they come with a breadth of features and more different cryptocurrencies that can be traded.
Signing up for a cryptocurrency exchange lets you purchase, sell, and keep cryptocurrency. It is usually best to select an exchange provider that allows its users to transfer cryptocurrency to their personal online wallets for safekeeping. If you're looking to trade Bitcoin or other crypto currencies, this option may not be necessary.
There are a myriad from cryptocurrency-based exchanges. Because the Bitcoin philosophy is based on autonomy and decentralization, certain exchanges permit users to remain anonymous and do not require users to fill in specific personal data. Such exchanges operate autonomously and are usually decentralized, therefore, they do not have a central source of control.
Although these systems could serve harmful purposes, they also provide services to the people who are not banked. For certain groups of people, such as refugees or those who live in countries with little to no infrastructure for credit from the government or banking, anonymous exchanges could help bring them into the mainstream economy.
The moment is, however, that many of the major exchanges aren't centrally managed and have laws that require users to provide identifying documentation. For instance, in the United States, these exchanges include Coinbase, Kraken, Gemini, FTX, and Binance.US among others. These exchanges have risen significantly in terms of features they provide.
The cryptocurrency market has expanded rapidly in the last 10 years With a variety of new tokens competing for investor dollars. Except for Bitcoin and certain prominent coins such as Ethereum However, not all these coins are sold on all exchanges. Each exchange has their own set of rules to decide whether to allow or exclude trading in specific tokens.
Coinbase, Kraken, and Gemini offer Bitcoin and a rising number of altcoins. These three are the most accessible on-ramps into crypto within the entire cryptocurrency industry. Binance is designed for the more sophisticated trader, with advanced trading tools and a better variety of altcoin choices. FTX is a rapidly growing crypto exchange that has an impressive multibillion-dollar valuation, is offering limited amounts of altcoins for U.S. investors.4 However, investors from outside those from the U.S. have a greater choice of cryptocurrency options on the platform.
One of the most important things to remember when creating an account on a cryptocurrency exchange is to make use of secure Internet methods. This includes two factor authentication and an extensive, unique password that comprises a variety lowercase and capitalized letters along with special characters and numbers.
El Salvador made Bitcoin legal tender on September 7, 2021. It was the first nation to do so.5 Bitcoin can be used as a currency for any transaction that the company can accept it. However, U.S. dollar continues to remain El Salvador's currency of choice.
Step 2. Join your currency to any payment option
If you've made a decision to go with an exchange, you will need to gather your personal documents. According to the exchange you choose, they may require photos of your driver's license or Social Security card, as plus information on your employer and source of money. The information you'll require can depend on the region you reside and the laws that apply to it. The process is the same as setting up a typical brokerage account.
Once the exchange has confirmed your identity, you'll be required to connect an option for payment. In most exchanges, you can connect your bank account straight away or you can connect a credit or debit card. Although you can utilize a credit card to purchase cryptocurrency, it is unwise because it could cause volatility in the total cost of purchasing a coin.
Bitcoin has been legalized in the United States, but some banks may be reluctant to accept or restrict deposits to crypto-related sites or exchanges.6 It is it's a good idea to ensure that the bank you use allows deposits to the exchange you prefer.
There are different charges for payments made via bank accounts or debit card. You should research the costs that come with each option of payment to help make a decision on an exchange or determine which payment option is best for you.
Exchanges also charge fees per transaction. The fees may be the form of a flat rate (if the trading value is minimal) or a percentage of the trading amount. Credit card transactions incur fees for processing, as well as transaction fee.
Step 3: Place an order
It is possible to purchase bitcoin (or other cryptocurrency) when you select an exchange and connecting to a payment option. In recent times bitcoin exchanges have steadily become more widespread. They have grown dramatically in terms if liquidity and their number of features. The changes in the operation of cryptocurrency exchanges are in line with the shift in the perception about cryptocurrencies. A sector that was previously thought of as a scam or one that had questionable practices is gradually becoming an actual one that has drawn interest from all the big players in the financial services industry.
Now, cryptocurrency exchanges ' offerings have developed to a point where they're able to provide nearly the exact amount of features as their counterparts from stock brokerages. Today, cryptocurrency exchanges offer several types of orders and methods to invest. Many crypto exchanges have limits and market orders. Some provide stop-loss orders. Of the mentioned exchanges, Kraken offers the most possible types of orders. Kraken is able to accommodate market limit, stoploss, stop-limit take-profit, and take profit limit orders.7
Aside from a variety of order types, exchanges also allow users to set up recurring investments, allowing clients to add a dollar-cost average to their investment of choice. Coinbase is one example. It allows users to make recurring purchases to be made every day, week or month.8
Step 4: Safe storage
Blockchains, cryptocurrency or Bitcoin are an ideal place to store digital assets with greater security. With your cryptocurrency out of the exchange and within your personal wallet makes sure that only you have control over the private keys to your accounts. Additionally, it gives you the option to save your funds out of an exchange. This will help you avoid the possibility that your exchange's security being compromised and thereby losing your money.
While many exchanges provide wallets for their customers, security isn't their main business. We do not generally recommend the use of exchange wallets for larger or longer-term holdings in cryptocurrency.
Certain wallets feature more options than others. Some are Bitcoin only, and others are able to hold numerous types of altcoins. Certain wallets also have the possibility of swapping one token for another.
When it comes time to choose an Bitcoin wallet, you have several choices. The first thing you will need to understand about crypto wallets is the idea of hot wallets (online wallets) and cold wallets (paper or hardware wallets).
Hot wallets
Online wallets are also referred to as "hot wallets. Hot accounts run through Internet-connected devices like computers, phones or tablets. They can be vulnerable because these wallets produce key to your private coins on these devices with Internet connectivity. While a wallet that is hot can be extremely convenient due to the way that it allows you to access and transact with your assets in a short time, storing your private keys in an internet-connected device can make it more vulnerable to hack.
This may sound ridiculous yet hot wallet holders who haven't set up enough security are at risk of losing their money to theft. It's not a rare occasion, and could occur in several ways. For instance, boasting on a forum such as Reddit about the amount of bitcoin you own while you're using little to no security and storing it in a hot wallet would not be a good idea. The fact is, these wallets can be secured as it is taken care of. Strong credentials, two-factor authentication and safe Internet browsing are as minimum specifications.
These wallets are suitable for smaller amounts as well as cryptocurrency that you are engaging in exchange trading. One could compare a hot wallet to a bank account. Common wisdom on finance suggests to hold only spending money in a savings or checking account, but the majority of your cash can be found in savings accounts and other investment accounts. The same could be said about hot wallets. Hot wallets comprise mobile, desktop, web, and exchange accounts custody wallets.
As stated previously, exchange wallets are custodial accounts provided by the exchange. The user of this wallet of this type does not hold the owner to the encryption key to the cryptocurrency in this wallet. If an event should take place where the exchange is hacked or your account becomes compromised, you'd lose your funds. The expression "not your key, not your coin" is heavily utilized in cryptocurrency forums as well as communities.
Cold wallets
The most simple way to describe the cold wallet is that it's not tied to Internet and is therefore at greater risk of being susceptible to being compromised. These wallets may also be described as offline wallets or even hardware wallets. These wallets store a user's private key in a device that isn't connected to the internet. They may also come with software that works in parallel so that the user is able to see their portfolio , without putting their private keys in danger.
Perhaps the most secure way to keep cryptocurrency offline is by using a physical wallet. Paper wallets are wallet that can be created from certain websites. It will then produce both public and private keys that are printed out on a piece of paper. The ability to access bitcoin and other digital currencies is only possible if you own the piece of paper that has the private key. A lot of people laminate their paper wallets and store them in safe deposits at their bank or even in a secure in their home. These wallets are made for long-term investments and high security because you are unable to swiftly sell or trade bitcoin stored such a way.
A more frequent type of cold wallet is a hardware one. A hardware wallet is usually an USB drive that can store one's personal keys offline. They have a number of advantages against hot wallets due to the fact that they aren't affected by viruses that can infect a computer. Hardware wallets ensure that private keys will not be in contact with your network-connected computer or other software that is potentially vulnerable. The devices are usually open source, which allows people to check the security of their devices through inspections of their code rather than the company claiming they are completely safe for you to utilize.
They are by far the best and most secure way to store your bitcoin or any other cryptocurrency. However, they require a greater amount of technical knowledge to setup.
A good method of setting your wallets is to have three things including an exchange account that can be used for trading and buying as well as a hot wallet that can store small or medium amounts of crypto you would like to trade or sell and a cold physical account to store bigger amounts for longer-term periods.
How to Buy Bitcoin With PayPal
You can also buy bitcoin through payment processor PayPal Holdings, Inc. (PYPL). There are two ways to buy bitcoin through PayPal. The first and most convenient method is to purchase bitcoin using your PayPal account, which is linked to a payment mechanism such as a credit card, bank account or debit card. The other alternative is to use the balance of that PayPal account to purchase cryptocurrency via a third-party supplier. This option is not exactly as efficient as the other because very few third-party providers permit users to buy bitcoin by using this PayPal button.
Four cryptocurrencies--Bitcoin, Ethereum, Litecoin, and Bitcoin Cash--can be purchased directly through PayPal.9 With the exception of those who live in Hawaii, residents of all states can either use their existing PayPal accounts or set up new ones. You can also use your crypto to buy goods as well as services via"Checkout With Crypto. "Checkout With Crypto" feature.10
To establish a Crypto account through PayPal it is necessary to provide the following details is required for registration: name, physical address the date of birth plus tax identification number.11
It isn't possible using a credit/debit card to purchase Bitcoin using PayPal. In the course of purchasing, PayPal will display a price for the cryptocurrency. However, that price is subject change rapidly due to the volatility of the cryptocurrency market. It's best for you to check if you have greater than the price you planned for the purchase in your bank account.
If you purchase bitcoin straight from PayPal and it earns money via the crypto spread. It is the differential between Bitcoin's market rate along with its currency exchange with USD. The company will also charge a transaction cost for every purchase. These fees are contingent on the amount of money spent. For instance the flat rate of $0.50 is due for purchases ranging from $100 to $200. Thereafter, the fee is in the form of a percentage of total dollar amount. For instance, a charge of 2 percent from the total amount applicable for purchases that range from $100 to $200.12
One disadvantage of purchasing cryptocurrencies via PayPal is that you are unable to transfer the currency outside the processing platform of the payment processor. This means it's not possible to transfer the Bitcoin you bought through PayPal's bank account to an additional crypto wallet or your personal wallet.11
The third disadvantage of PayPal is that few exchanges and online traders allow the use of the payment processor to purchase payments. eToro is one of the very few online retailers that allow it to utilize PayPal to purchase bitcoin through its platform.13
How to Buy Bitcoin With a Credit Card
The procedure to purchase bitcoin using credit cards will be similar to the process for purchasing it using debit cards or via the automated clearing house (ACH) wire transfers. You'll have to input your credit card's details into the exchange or online trading company and also authorize the transaction. However, generally speaking, it's not a good option to buy bitcoin with credit cards. There are several factors to consider.
First of all, certain exchanges are not able to allow bitcoin purchasing with credit cards due to processing charges and the threat of fraud. This can be for the benefit of consumers. This is because credit card processing could charge additional fees to transactions. Therefore, in addition to paying transaction fees you'll be left having processing charges that the exchange may pass onto you.
Another reason is that transactions made with credit cards may be expensive. The credit card issuers regard bitcoin transactions as cash advances and charge hefty fees and interest rates on such advances. For example, American Express and Chase both consider purchases of cryptocurrencies for cash advance as. Therefore, if, for example, you purchase the equivalent of $100 in bitcoin using an American Express card, you are required to pay an amount equal to $10 (current cash advance charges for these transactions) and an annual percentage rate of 25%. What's more, the credit card company will also limit the amount you can spend on bitcoin purchases per month.14
Another way to buy bitcoin with a credit-card is to use the Bitcoin reward credit card. They function just like your typical rewards credit card except they provide rewards in the form of bitcoin. The cards invest profits from purchases into Bitcoin. One illustration of the Bitcoin cards that reward you is called BlockFi Bitcoin Rewards Credit Card.15 Beware, however, that the annual charges for these cards could be expensive and there could be additional costs associated with the transformation of fiat currencies to crypto.
Even though exchanges such as Coinbase as well as Binance remain among the most used methods to buy Bitcoin They aren't the only options.
Alternative Ways to Buy Bitcoin
Bitcoin ATMs
Bitcoin ATMs act like in-person bitcoin exchanges. Individuals can insert cash into an ATM and use it to purchase bitcoin. The bitcoin is then delivered to online wallets of users. Bitcoin ATMs are more well-known in recent years. Retail major Walmart Inc. (WMT) is testing a pilot programme that will give its customers the option of buying bitcoin. how to buy bitcoin before 18 can help locate nearby machines.
However, ATMs are an expensive option. There are two expenses associated with ATM bitcoin purchases including a charge for purchasing the item and one for conversion fees to convert one currency that is fiat to bitcoin. Both costs are quite costly in comparison to other alternatives. As an example, the average price for purchases made from Bitcoin ATMs starts at 8.4 percent (of the amount of purchase) and 5.4 percent for sales at ATMs.16
Be aware, however, that Bitcoin ATMs are increasingly requiring government-issued IDs from early 2020.
P2P exchanges
The decentralized exchanges match buyers and sellers anonymously and can facilitate every aspect of the transfer, there's a few peer-to-peer (P2P) exchanges which provide a direct relationship between users. LocalBitcoins is one such exchange. Once they have created an account, users can request to buy Bitcoin, or sell it, along with details about payment methods, as well as costs. After that, they can browse through the lists of offer to buy or sell, choosing the trading partners with whom they want to transact.
LocalBitcoins provides a variety of benefits to trading. Although P2P exchanges don't provide the same anonymity as decentralized exchanges do, they offer users the option of shopping around to find the best price. A lot of these exchanges offer rating system so that users are able evaluate possible trade partners before committing to.
Mainstream brokerages
A few major brokerages provide bitcoin purchase and trading capabilities due to the uncertainty of regulations for cryptocurrencies. Robinhood Markets, Inc. (HOOD) which is an app highly regarded by investors at retail, is one exchange that offers cryptocurrency trading services. It charges 0% commission for cryptocurrency transactions and purchases . It earns its money through the payment of order flow, transferring its trading volume to others trading platforms or brokerages.17
The absence of a commission fee could be an attractive proposition for newcomers, but there are a few limitations to the service. In the beginning, Robinhood doesn't have the range of features and currency offered by major crypto exchanges like Coinbase. Robinhood had made trading possible on its platform for seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Dogecoin, and Ethereum Classic.18 In contrast, you can trade more than 100 crypto currencies on Coinbase.19 The exchange also has different order types to help reduce risks and compensate for losses during trading.
The Robinhood platform doesn't have an online wallet. If you're looking the purchase of cryptocurrencies via Robinhood it is necessary add on additional costs to an online wallet service.
Bitcoin and the other crypto investments aren't insured by Insurance companies such as the Securities Investor Protection Corporation (SIPC). At traditional brokerages, this insurance company protects against the loss of cash and securities in brokerage accounts with up to $500,000with a maximum of $250,000 cash limit.20 This isn't accessible to clients on cryptocurrency exchanges. The cryptocurrency exchanges such as Coinbase are covered by insurance against crime to safeguard their infrastructure from hacks. However, that insurance won't safeguard individual customers against password theft.21
How to Sell Bitcoin
Bitcoin is sold on the same venues where you bought the cryptocurrency, for instance, cryptocurrency exchanges and P2P platforms. Typically, the process involved in selling bitcoin on these platforms is similar to the method of buying it.
For example, you may only need to click in a button to specify an order type (i.e. which cryptocurrency is sold immediately at available prices or whether it is sold to be able to limit losses) to conduct the sale. Depending on the market composition and demand at the time of the sale the cost of selling Bitcoin can vary. As an example, the exchanges in South Korea traded bitcoin at an amount that was referred to as kimchi during the time of the increase in prices back in 2018.
The cryptocurrency exchanges charge a portion of the cryptocurrency sale amount as fees. For example, Coinbase charges 2.49% of the total transaction amount as fees.22
Exchanges generally have monthly and daily withdrawal limitations. This means that the money earned from the sale may not be available immediately to the buyer. There are no limitations on the amount of cryptocurrency you are able to sell however.
What Are the Steps for Purchasing Bitcoin?
The process to buy bitcoin is made up with four main steps: selecting an exchange or venue to place your order by selecting a preferred payment method and ensuring secure storage for your newly purchased cryptocurrency. The type of location chosen in the very first section, there may be additional steps needed in the procedure. For example, if purchase the cryptocurrency through Robinhood you may need to factor in additional costs for an online account as well as custody of your bitcoins since Robinhood does not provide these services.
What Are the Most Popular Venues for Buying Bitcoin?
Most popular locations for buying bitcoins are cryptocurrency exchanges, brokerages (crypto and conventional) as well as payment solutions such as PayPal. You can also buy Bitcoin through P2P exchanges. In order to acquire bitcoin in indirect form you can invest in companies which hold bitcoin on their balance sheets, for instance Tesla, Inc. (TSLA) or MicroStrategy Incorporated (MSTR).2324
How Much Should I Expect to Pay to Purchase Bitcoin?
Typicallyspeaking, the cost of buying bitcoin is comprised of fees per trade and the cost of conversion of a traditional currency (generally dollars) to bitcoin. (Cryptocurrency exchanges and payment companies make money off of this conversion spread.) Fees per trade are a function of what amount in dollars is the trade. A greater value of trade will carry higher fees. Cost of purchasing is contingent upon the features offered by the company. For instance, Robinhood does not currently offer an online bank account for storing bitcoin. Thus, you'll have to budget costs associated with an online wallet purchase.
Besides Cryptocurrency Exchanges, Where Else Can I Buy Bitcoin?
Bitcoin can also be purchased at the following locations:
* Through Bitcoin ATMs
* Through online payment services like PayPal
* At mainstream brokerages like Robinhood
Is My Bitcoin Purchase Protected by SIPC?
No, your bitcoin purchase is not covered by SIPC.20 On certain exchanges like Coinbase Bitcoin, the balances of the fiat currency in individual accounts may be insured by FDIC at $250,000 per account.21
The Bottom Line
The process of buying bitcoin is slightly more complicated than buying ordinary equity or stocks. This is mainly because the ecosystem and infrastructure for bitcoin are not as well developed as the traditional trading.
A bitcoin purchase process consists of four steps: deciding on the right service or location for payment, connecting with an option for payment, placing an order, as well as ensuring an appropriate storage space for your cryptocurrency. Each of these steps requires extensive research and careful evaluation of the pros and pros of each service. You can also buy bitcoin through Bitcoin ATMs or by using payment services like PayPal and major brokerages such as Robinhood.