How to Buy Bitcoin
An investment in Bitcoin (BTCUSD) may seem complicated, but it's much easier when you split it into steps. Investing or trading Bitcoin just requires an account at a service or exchange, but other safe storage practices are recommended.
There are a variety of things new Bitcoin investors require for their cryptocurrency investment: a cryptocurrency exchange accounts as well as personal identification documents, when you use an Know Your Customer (KYC) platform in addition to a secure connection the Internet and a method of payment. It is recommended that you establish your own personal wallet that is separate from the exchange account. Valid methods of payment using this approach include bank accounts, debit cards, and credit cards. There is also the option to cash out bitcoin at ATMs with specialized equipment and P2P transactions.
KEY TAKEAWAYS
* The value of Bitcoin comes from its adoption as a store of value and payment method along with its limited supply and declining inflation.
* Even though it's nearly impossible to for Bitcoin itself to be compromised in the event of a hack, it's nevertheless possible for your wallet or exchange account to be compromised. That's why using secure storage and security measures are imperative.
* You can also buy bitcoin with mainstream companies such as PayPal and Robinhood.
One way to get bitcoin indirectly is by investing in businesses that have bitcoin on their balance accounts.
Before You Buy Bitcoin
Security and privacy are essential security and privacy concerns when it comes to Bitcoin investors. Anyone who acquires the private secret to an address through the Bitcoin blockchain can approve transactions.1 Private keys should be kept in secret. Criminals may attempt to take them away when they discover huge amounts. It is important to be aware that anyone can be able to see the balance at a public account you've used. The downside to this kind of information is that one can create multiple public addresses themselves. They can then distribute their stash of Bitcoin across several addresses. One option is to protect investments that are significant at public addresses that aren't directly linked to those that are used in transactions.
Anyone can review a log of transactions completed on the blockchain, even you. Although transactions are publically recorded on the blockchain, identifying personal information of the user isn't. For the Bitcoin blockchain just a user's public key is shown next to any transaction. This makes transactions safe but not secretive. In this regard, Bitcoin is more transparent as well as trackable in comparison to cash, as all of them are public examination, unlike private transactions. But Bitcoin transactions also include elements of anonymity incorporated within their designs. It's difficult to locate the transacting parties--i.e. the receiver and sender of bitcoin - on the blockchain of the cryptocurrency.
International researchers as well as the FBI have said they are able to identify transactions made using the Bitcoin blockchain and connect them to other online accounts, including their digital wallets.2 In the case of someone registers on Coinbase they will need to supply their identification.3 When that person purchases bitcoin, it can be traced back to their name. If they send it to another account, it can be traced back the Coinbase transaction which is linked to the person who owns the account. This should not concern most investors as Bitcoin is officially legal within the U.S. and most other developed nations.
Be sure to check out your legal and regulatory, and tax laws for purchasing and selling bitcoin based on where you live prior to transacting.
Buying Bitcoin
We've detailed the steps to purchasing bitcoin in the following steps. Make sure to do your research and pick the right option for you based on your circumstances.
Step 1: Select a crypto trading service or a venue
The first step of buying bitcoin is choosing a crypto trading service or a location. Most well-known venues and trading services for purchasing cryptocurrency include exchanges, payment services, and brokerages. The cryptocurrency exchanges are the most efficient choice because they provide a broad range of options and cryptocurrencies for trading.
By signing up to a cryptocurrency exchange allows you to purchase, sell and hold cryptocurrency. It is generally recommended to sign up with an exchange that allows users to transfer cryptocurrency to their personal online wallets to ensure the safety of their. When it comes to trading Bitcoin and other cryptocurrencies this feature may not matter.
There are many kinds on cryptocurrency exchanges. Since the Bitcoin principle of individual sovereignty and decentralization some exchanges allow users to remain anonymous and don't require users to fill in particular information about themselves. They operate independently and are generally decentralized so they don't have a central source of control.
Even though these systems have some nefarious ends, they also provide assistance to the large majority of the population who do not have access to banking. In certain cases, people who are refugees or those who reside in countries with no infrastructure for government credit or banking--anonymous exchanges may help move them into the mainstream economy.
The moment is, however, that most of the popular exchanges do not uncentralized and do not require users to submit identifying documents. On the United States, these exchanges comprise Coinbase, Kraken, Gemini, FTX, and Binance.US among others. The number of exchanges has increased with regards to the amount of features they provide.
The world of crypto has expanded quickly in the past decade, with many new tokens in competition with investor dollars. Except for Bitcoin as well as a few prominent coins, such as Ethereum but not all of these tokens are available at all exchanges. Each exchange has its own set-of criteria for determining whether to accept or not allow trading of certain tokens.
Coinbase, Kraken, and Gemini provide Bitcoin and a rising number of altcoins. They're among the easiest on-ramps to crypto that exist in the market. Binance is for an advanced trader, and offers the most sophisticated trading features and an array of alternative currency choices. FTX has been a rapid-growing crypto exchange that has an impressive multibillion-dollar valuation, is offering only a limited amount of altcoins to U.S. investors.4 However, traders from outside in the U.S. have a greater variety of coins available on its platform.
One of the most important things to remember when setting up the account for a cryptocurrency exchange to make use of secure Internet procedures. This includes two-factor authentication as well as having a unique and long password that includes a range of lowercase letters, capitalized and capitalized letters along with special characters and numbers.
El Salvador made Bitcoin legal tender on September 7, 2021. It was the first country to do so.5 The cryptocurrency can serve as the currency of any transaction that the company can accept it. For now, the U.S. dollar continues to serve as El Salvador's main currency.
Step 2. Link your Exchange to any payment option
When you've selected the exchange option, you'll need to gather personal documents. According to the exchange you choose, this could include images of your driver's license or Social Security card, as plus information on your employer as well as the source of your funds. The information you may need will vary depending on the area your home is located in and regulations within it. The process is largely similar to the process of setting up a standard brokerage account.
After the exchange has verified your identity, you'll be asked to join to a payment service. For most exchanges, you can connect your bank account straight away or connect a debit or credit card. While you are able to use a credit card to buy cryptocurrency, it is not recommended as the price fluctuations of cryptocurrency could raise the cost of buying a coin.
Bitcoin can be legally used in the United States, but some banks may question or even stop deposits to crypto-related sites or exchanges.6 It's advised to look for yourself if your bank is able to accept deposits at your chosen exchange.
There are various charges for deposits to a bank account, debit, or credit card. It is imperative to find out the fees associated with each option of payment to help choose an exchange and select the payment method that works best for you.
Exchanges also charge fees per transaction. The fees could be an unrestricted fee (if the trading amount is relatively small) or some percentage of the trading amount. Credit card transactions incur fees for processing, in addition to transaction charges.
Step 3. Place an order
Bitcoin can be purchased (or other cryptocurrencies) after selecting an exchange and connecting a payment option. In the past few years Bitcoin exchanges have slowly become more widespread. They have grown dramatically by virtue of their liquidity, and the variety of features available. Changes in the operations at exchanges for cryptocurrency are mirrored by the change in how they are perceived by the public. One industry that was seen as a fraud or one with unsound practices is gradually becoming a legitimate business that is attracting the attention of every major player in the financial sector.
Now, cryptocurrency exchanges have progressed to the point where they are able to offer nearly the same feature set as their stock brokerage counterparts. They offer an array of different order types and methods to invest. A majority of cryptocurrency exchanges offer both market and limit orders. Some also provide stop-loss transactions. The exchanges listed above, Kraken offers the most possible types of orders. Kraken can accommodate market, limit, stop-loss, stop-limit taking-profit, and take-profit limit orders.7
Alongside a wide range of different types of orders, exchanges allow users to set up regular investments that allow clients access to a daily cost average of their chosen investments. Coinbase is one example. It lets customers set recurring purchases for each week, day or month.8
Step 4: Secure storage
Coins and crypto wallets can be a place to store digital assets more safely. Being able to store your cryptocurrency away from the exchange and within the personal wallet of yours ensures only you have control over the private key to your money. This also gives you the ability to secure your funds from an exchange and avoid the possibility that your exchange is hacked and the loss of your funds.
While many exchanges provide accounts for users, security is not their primary business. We generally don't recommend the use of an exchange wallet for big or long-term cryptocurrency investments.
Some wallets are more advanced than other wallets. Some are Bitcoin only, and some can be used to store various altcoins. Some wallets offer the ability to exchange one token for another.
When you're trying to decide on a Bitcoin wallet, you have a number of options. The first thing you need to understand about crypto wallets is hot wallets (online wallets) and cold wallets (paper or physical wallets).
Hot wallets
Online wallets are also referred to also as hot wallets. Hot wallets are ones that run on devices connected to the internet, such as computers, phones, or tablets. This poses a risk because these wallets generate the private keys for your coins when connected to the internet. Though a hot wallet can be extremely useful in the way you are able to access and transact with your assets swiftly, the fact that you store your private keys in an internet-connected device can make it more susceptible to a attack.
This may sound farfetched However, those with hot wallets with inadequate security could be at risk of having their money stolen. It's not a rare occurrence, and it can happen in a number of ways. You can, for example, brag on a platform like Reddit about the amount of bitcoins you've stored while you're using very little to the minimum security and stashing it in a hot account would certainly not be safe. In reality, the wallets are secure as when precautions are made. Strong authentic passwords with two factors of authentication, and safe Internet browsing should be considered essential requirements.
The best wallets for hot wallets are to store small amounts of cryptocurrency as well as cryptocurrency that you are actively trading on an exchange. A hot wallet to a checking account. A common sense financial advice is to put only money you spend in a checking account while most of your money is held in savings accounts or other investment accounts. Similar could be said regarding hot wallets. Hot wallets are mobile, desktop, web, and exchange accounts custody wallets.
As previously mentioned, exchange wallets are custodial accounts provided by exchange. The owner of this kind isn't the owner of the private key to the cryptocurrency in the wallet. If an event were to take place where the exchange is compromised or the account of yours is compromised, you would lose your funds. The phrase "not your key, not your coin" is heavily used on cryptocurrency forums as well as communities.
Cold wallets
The simplest way to describe an offline wallet is that it isn't connected to the Internet which means it is at much lower risk of being in danger of being hacked. These wallets might also be referred to as offline wallets or even hardware wallets. They are wallets that store a person's private key on something but isn't connected the internet. They can also come with software that operates in parallel, so the user is able to view their entire portfolio without putting personal key at risk.
The most secure way to store your cryptocurrency offline is to use a paper wallet. Paper wallets are wallet that can be created using certain websites. It will then produce both private and public keys that you print on a piece of paper. Access to cryptocurrency in these addresses is only possible when you've got the piece document with the private number. Many people laminate these money wallets made of paper and store them in safe deposit boxes at their bank or even in a safe at home. These wallets are intended for higher security and longer-term investments since it is difficult to sell or trade bitcoins stored in the way.
The most popular type of cold type of wallet is the hardware. A hardware wallet is generally an USB drive device that keeps users' private keys offline. Such wallets have serious advantages over hot wallets , as they are unaffected by viruses that could harm a computer. With hardware wallets, your private keys will not be in contact with your computer's network or other software that is potentially vulnerable. These devices are also typically open source, allowing the community to determine their safety via code audits , rather than a company claiming they are reliable to operate.
The cold wallet is the most safe way to store your bitcoin or other cryptocurrencies. But they require more technical expertise to set up.
An ideal way to set up your wallets is having three items: an exchange account for trading and buying and a hot wallet to keep small to moderate amounts of cryptocurrency you'd like to trade, or sell, and a cold hardware wallet to hold larger amounts for long-term durations.
How to Buy Bitcoin With PayPal
You can also buy bitcoin through the payment processor PayPal Holdings, Inc. (PYPL). There are two ways to purchase bitcoin using PayPal. The most popular and easiest method is purchasing cryptocurrencies through your PayPal account, which is linked to a financial institution like a cash card or debit card. The other option is to make use of the balance of account balances in your PayPal account to purchase cryptocurrencies from a third party provider. This isn't as easy as the first because a few sites permit users to buy bitcoin using it's 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 cryptocurrency to buy products or services using PayPal's "Checkout With Crypto" feature.10
To establish a Crypto account through PayPal it is necessary to provide the following details is required include: name, physical addresses as well as date of birth in addition to a tax-identification number.11
It isn't possible using a credit/debit card to buy Bitcoin using PayPal. During the buying process, PayPal will display a price for the cryptocurrency. However, this price is subject to rapid changes because of the volatility of cryptocurrency markets. It is a good idea to ensure that you've got more than you had budgeted to purchase in your bank account.
When you buy bitcoin direct via PayPal it earns you money from the crypto spread. This is the differences between Bitcoin's value plus its price of exchange USD. PayPal has a transaction fee per transaction. The amount charged is contingent upon the price of the purchase. For example the flat cost of $0.50 is paid for purchases between $100 to $200. The fee thereafter is an amount that is a percentage of the total dollar amount. In this case, for instance, a cost of 2 percent of the total value is applicable for purchases that range from $100 and $200.12
One disadvantage of purchasing cryptocurrencies via PayPal is the fact that you can't transfer the crypto outside the payment processor's platform. Thus, it's not possible move your bitcoin from PayPal's wallet into your external wallet for crypto or your personal wallet.11
The downside of using PayPal is that not many merchants and exchanges allow users to utilize the credit card processor in order to buy payments. eToro is one of the very few online traders that allow you to make use of PayPal to buy bitcoin through its platform.13
How to Buy Bitcoin With a Credit Card
The procedure of purchasing bitcoin with credit cards follows the same procedure for buying it with debit cards or Automated Clearing House (ACH) funds transfers. You will need to enter the details of your credit card with the exchange or online trading firm and sign the transaction. However, generally speaking, it is not a good option to buy bitcoin with credit cards. There are a couple of reasons.
First, many exchanges do not support bitcoin purchasing with credit cards due to processing charges and the chance of being a victim of fraud. This might be in the best interests of consumers. This is because credit card processing can be able to add additional charges to transactions. Therefore, in addition to the transaction fee the customer will be charged with processing fees that the exchange may pass onto you.
The second reason is because credit card purchases are expensive. Credit card issuers consider bitcoin transactions as cash advances and charge high fees and interest rates on these advances. For instance, American Express and Chase each count cryptocurrency purchases being cash advance purchases. So, if you buy $100 worth in bitcoin using the American Express card, you must pay an amount equal to $10 (current cash advance fee applicable to the transactions) and an annual percentage cost of 25%. What's more, the credit card company also limits the amount of bitcoin purchases per month.14
An alternative to buying bitcoin by using a credit card is to use one of the Bitcoin rewards credit card. These cards work like a typical rewards credit credit card except they offer rewards in the type of bitcoin. Therefore, they invest earnings from purchase into Bitcoin. One illustration of the Bitcoin reward card that is a rewards one would be the BlockFi Bitcoin Rewards Credit Card.15 Beware however, that the annual costs for these cards might be high and could also come with additional charges for the conversion of fiat currencies in crypto.
Although exchanges such Coinbase as well as Binance remain among the top methods to purchase Bitcoin however, they're not the only means.
Alternative Ways to Buy Bitcoin
Bitcoin ATMs
Bitcoin ATMs act like in-person bitcoin exchanges. You can use cash inside machines and use it for the purchase of bitcoin, which is later transmitted to web-based wallets for users. Bitcoin ATMs are becoming more frequent in recent years. Even the retail company Walmart Inc. (WMT) is conducting a test program that will provide customers with the option of purchasing bitcoin. Coin ATM Radar can help locate the closest ATMs.
However ATMs aren't cheap option. There are two costs associated with ATM bitcoin purchases which are a purchase charge and the cost of conversion for changing a fiat currency to bitcoin. Both costs are quite costly as compared to other options. For example, the worldwide average cost for purchases of Bitcoin ATMs is 8.4 percent (of the amount of purchase) and 5.4% for sales at ATMs.16
Be aware, however, that Bitcoin ATMs increasingly require government-issued IDs from early 2020.
Exchanges between P2P
As opposed to decentralized exchanges which offer buyers and sellers a secure way to communicate and facilitate all aspects of the exchange, there are peer-to-peer (P2P) exchange services that offer a closer link between users. LocalBitcoins is one such exchange. After registering an account, users can make requests to purchase or sell bitcoin. They can also provide information about payment methods and prices. Customers can then browse through lists of sell and buy offers as well as select the partner with whom they wish to trade.
LocalBitcoins provides a variety of benefits to the trading. While P2P exchanges may not provide the same level security and anonymity as traditional exchanges, they also give customers the option of shopping around for the best deal. Some of these exchanges have rating tools so that users can review potential trade partners before transacting.
Mainstream brokerages
A few major brokerages provide bitcoin trading and purchase options due to the uncertainty surrounding the legal status of cryptocurrency. Robinhood Markets, Inc. (HOOD) is an application popular with retail investors, is an exchange that has crypto trading capabilities. It charges 0% commission for crypto trades and purchases . The company earns money from the transaction flow that it receives, passing its trading volume onto various trading platforms and brokerages.17
The non-existence of a commission cost could be a compelling proposition for novices, but there are some negatives with this deal. To begin, Robinhood cannot offer the variety of features and currencies offered by prominent crypto exchanges like Coinbase. Robinhood offered trading on its platform, which supports seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Dogecoin, and Ethereum Classic.18 As a contrast, you can trade more cryptocurrencies than 100 with Coinbase.19 The exchange also has diverse order types that can help you minimize risk and offset losses during trading.
The Robinhood platform also does not offer a hosted wallet. In other words, if one wants to purchase cryptocurrencies through Robinhood and you want to purchase cryptocurrencies, you'll need to take into consideration additional expenses for an online wallet provider.
Bitcoin and the other crypto investments aren't covered by insurance offered by this organization. Securities Investor Protection Corporation (SIPC). For regular brokerages, the organization protects against the loss of cash or securities brokerage accounts that contain up to $500,000 with a $250,000 cash limit.20 This insurance option isn't accessible to clients of cryptocurrency exchanges. Coinbase and other cryptocurrency exchanges Coinbase are covered by insurance against crime to safeguard their infrastructure from attacks. However, this insurance doesn't safeguard individual customers against password theft.21
How to Sell Bitcoin
The ability to sell bitcoin is available at the same venues where you bought the cryptocurrency such as cryptocurrency exchanges and P2P platforms. In general, the procedure of selling bitcoin through these platforms is similar to the method of buying it.
For instance, you might only have to press in a button to specify the type of order (i.e. that you must specify whether the cryptocurrency will be sold immediately at the most competitive prices or it should be sold to stop losses) to conduct the sale. Depending on the market composition and the market demand at the event, the offering price for Bitcoin may vary. The example is that exchanges in South Korea traded bitcoin at an amount that was referred to as kimchi during the upswing in its prices in the year 2018.
A percentage of cryptocurrency exchanges will charge you a fraction of the amount sold as fees. For example, Coinbase charges 2.49% percent of total transaction amounts as fees.22
Exchanges generally have daily and monthly withdrawal limits. This means that the money earned from the sale may not be available immediately to the buyer. There aren't any limitations on the amount of cryptocurrency that you can sell, however.
What Are the Steps for Purchasing Bitcoin?
The process of purchasing bitcoin consists of four parts: choosing the best location or exchange to make your purchase choosing a payment method and ensuring that your data is safe for your newly purchased cryptocurrency. Based on how to buy a bitcoin online selected in the initial phase, there will be additional steps needed in the procedure. For instance, in the event that you acquire the cryptocurrency using Robinhood there may be a need to be aware of additional costs associated with the online wallet and custody of your bitcoin because it doesn't offer these services.
What Are the Most Popular Venues for Buying Bitcoin?
The most popular venues for buying bitcoins include cryptocurrency exchanges brokers (crypto and mainstream) and payment providers such as PayPal. There is also the option of buying Bitcoin through P2P marketplaces. To acquire indirect ownership of bitcoin, you can put money into companies that own the cryptocurrency in their balance sheets, for instance Tesla, Inc. (TSLA) or MicroStrategy Incorporated (MSTR).2324
How Much Should I Expect to Pay to Purchase Bitcoin?
Typically, the cost of purchasing bitcoin includes one fee per trade in addition to the cost of conversion of a cash currency (generally dollars) to bitcoin. (Cryptocurrency exchanges and payment service providers make money on this conversion spread.) The fee per trade will be a function of what amount in dollars is the trade. An amount that is higher will incur higher fees. The total cost for purchase depends on features offered by the venue. For instance, Robinhood does not currently offer an online wallet for saving bitcoin. Thus, you'll have to plan for costs associated with an online wallet purchase.
Besides Cryptocurrency Exchanges, Where Else Can I Buy Bitcoin?
Bitcoin can also be purchased at these locations:
* Through Bitcoin ATMs
* Through online payment providers like PayPal
* At mainstream brokerages like Robinhood
Is My Bitcoin Purchase Protected by SIPC?
It's true that your purchase made with bitcoin is not protected by SIPC.20 In certain exchanges, like Coinbase and Coinbase, the balances of bitcoin in individual accounts may be insured by FDIC to the tune of $250,000 per account.21
The Bottom Line
The process of buying bitcoin is more involved that the process of buying normal equity or stock. This is due to the fact that the crypto ecosystem and infrastructure isn't as well developed as those for traditional trading.
The bitcoin purchase process is made up of four steps: deciding on a service or venue for payment, connecting to the payment method, placing an order, and then ensuring secure storage for your bought cryptocurrency. Each of these steps calls for research as well as a careful analysis of the pros and negatives of each service. You can also buy bitcoin at Bitcoin ATMs or pay services such as PayPal and more traditional brokerages like Robinhood.