How to Buy Bitcoin
The process of investing in Bitcoin (BTCUSD) may seem complicated, but it's easy to reduce it into smaller steps. Trading or investing in Bitcoin just requires an account at a third party or exchange. However, additional storage methods that are safe are recommended.
There are many things aspiring Bitcoin investors require in order to invest: a cryptocurrency-exchange account as well as personal identification documents, that you can use with a Know Your Customer (KYC) platform with a secure connection the Internet and a method of payment. It is recommended that you establish your own individual wallet apart from the exchange account. Methods of payment that work with these options include bank account that accept debit cards, as well as credit cards. There is also the option to get bitcoin at specialized ATMs and through P2P exchanges.
KEY TAKEAWAYS
"The worth of Bitcoin comes from its acceptance as a currency of value, as well as a payment method and its limited supply and decreasing inflation.
It is almost impossible for Bitcoin itself to be compromised but it is still possible for your wallet or exchange bank account to have been compromised. This is the reason why implementing proper security and storage practices are essential.
* You can also buy bitcoin through services that are widely used, like PayPal or Robinhood.
* One method to hold bitcoin in indirect ways is to invest in companies that hold bitcoin in their balance statements.
Before You Buy Bitcoin
Privacy and security are important aspects concerning security and security for Bitcoin investors. Anyone who acquires the private key to a public address through the Bitcoin blockchain can then authorize transactions.1 Private keys must be kept private as criminals could attempt to take them away when they discover large amounts. Be aware that anyone will be able to view the balance of a public address you use. But the upside to this information being public is that an individual can establish multiple public address for themselves. They can then distribute their stash of Bitcoin across multiple addresses. One option is to hold large investments at public addresses that are not directly tied to the ones that are used in transactions.
Anyone can view a history of transactions completed on the blockchain--even you. Although transactions are publically recorded in the blockchain, data about users isn't. While on the Bitcoin blockchain there is only one public key is shown next to an activity, which makes transactions secret however not completely untraceable. In this regard, Bitcoin the transactions appear more clear and trackable than cash since all of them are open to public analysis, unlike private transactions. However, Bitcoin transactions also have elements of anonymity incorporated as part of their design. It's very difficult trace the transactions of the parties--i.e., the party who sent and received Bitcoin--on the cryptocurrency's cryptocurrency's blockchain.
Researchers from around the world and the FBI claim to be able to verify transactions carried out on the Bitcoin blockchain back to users' other accounts online, which include their digital wallets.2 As an example, if the user creates an account through Coinbase the account holder must verify their identification.3 In the future, when that buyer purchases bitcoin, it can be traced back to their name. In the event that they transfer it another wallet, it may be traced to the Coinbase transaction which is linked to the account owner's identity. This shouldn't cause concern to most investors as Bitcoin is lawful in U.S. and most other advanced countries.
Be sure you know what is legal, regulatory, and tax implications of buying and selling bitcoin in the region where you are located prior to conducting transactions.
Buying Bitcoin
We've simplified the steps of buying bitcoin below. Always remember do your research to select the best option depending on the situation.
Step 1: Choose one of the crypto trading services or a venue
The first step in buying bitcoin consists of choosing a crypto trading company or a location. A variety of popular services and venues to buy cryptocurrency include exchanges, payment services and brokerages. In all of them, cryptocurrency exchanges are the most reliable option due to their array of features as well as more cryptocurrency options for trading.
Signing up for a cryptocurrency exchange lets you purchase, sell and hold cryptocurrency. It is usually best to select an exchange that allows users to withdraw cryptocurrency into their private online wallet to keep safe. For those who want to trade Bitcoin and other cryptocurrencies this feature isn't crucial.
There are various kinds and types of crypto exchanges. Since the Bitcoin principle is the individual sovereignty and decentralization, certain exchanges let users remain anonymous and do not require users to fill in personal information. They are independent and are usually decentralized which means that they do not have a central source of control.
Although these systems could serve harmful purposes, they also provide benefits to the world's unbanked population. For certain groups of people, such as refugees or people living in countries without a sufficient infrastructure for government credit or banking -- anonymous exchanges can bring them into the mainstream economy.
Right now, however, many of the major exchanges aren't centrally managed and have laws that require users to provide identifying documentation. As for the United States, these exchanges comprise Coinbase, Kraken, Gemini, FTX, and Binance.US among others. They have also grown in the number of features they provide.
The cryptocurrency universe has grown exponentially in the past decade with numerous new tokens fighting for the investor's dollars. With the exception of Bitcoin and a few of the more well-known ones such as Ethereum, not all of these tokens are accessible on all exchanges. Each exchange has different criteria to decide whether to allow or restrict trading of specific tokens.
Coinbase, Kraken, and Gemini provide Bitcoin and a growing number of altcoins. They're probably one of the most simple on-ramps that crypto has across the whole industry. The Binance platform is targeted at an advanced trader, offering higher-quality trading features as well as more altcoin choices. FTX is a booming crypto exchange that has achieved an estimated value of more than a billion dollars, provides a restricted number of altcoins to U.S. investors.4 However, users outside in the U.S. have a greater range of cryptos available on its platform.
One thing you should remember when creating an account with a cryptocurrency exchange company is to adhere to safe Internet methods. This includes two factor authentication and an extensive, unique password that includes a variety of lowercase, capitalized, and capital letters, special characters, and numbers.
El Salvador made Bitcoin legal tender on September 7, 2021. It was the only country to do so.5 The cryptocurrency is used as a payment method for any transactions where a business can take it. For now, the U.S. dollar continues to be El Salvador's principal currency.
Step 2: Link your Exchange to any payment option
When you've selected the exchange option, you'll need to gather personal documents. In accordance with the exchange, you may need to include images of a driver's licence or Social Security card, as plus information on your employer and source of funds. The information you need could depend on the specific region which you reside and laws in it. The procedure is basically the same as opening a traditional brokerage account.
After the exchange has verified your identity, you will be asked to connect with a payment option. Most exchanges can connect your bank account straight away or connect a credit or debit card. Although you can use a credit card to purchase cryptocurrency, it's not advisable because it could cause volatility in the price of buying coins.
Bitcoin remains legal across the United States, but some banks might be suspicious or stop deposits to crypto-related sites or exchanges.6 It is recommended that you check for yourself if your bank accepts deposits to the exchange you have chosen.
There are various costs for payments made via bank accounts such as debit or credit card. It is essential to study fees for each option of payment to help pick an exchange option or decide which option is most effectively for you.
Exchanges can also charge fees per transaction. how to buy bitcoin with your 401k can be in the form of a flat charge (if the trade amount is minimal) or as a percentage from the trading amount. Credit card transactions incur fees for processing as well as transaction fee.
Step 3. Make an order
You can buy bitcoin (or other cryptocurrencies) when you select an exchange as well as connecting to a payment method. In the past few years crypto exchanges have slowly became more accepted. They have grown dramatically by virtue of their liquidity, and their features. The technological changes occurring at bitcoin exchanges are similar to the change in the perception about cryptocurrencies. The industry was considered a fraud or with questionable practices is slowly morphing into legitimate and has attracted the attention of the top players in the field of financial services.
Nowadays, cryptocurrency exchanges' have been able to reach a point at which they have nearly the same quantity of features available as their counterparts with stock brokerages. Today, cryptocurrency exchanges offer a number of order types and methods to invest. Nearly all exchanges allow both market and limit orders. A few provide stop-loss orders. From the above exchanges, Kraken offers the most orders of all types. Kraken permits market, limit, stoploss or stop-limit take-profit, and take profit limit orders.7
Along with a variety options for orders, the exchanges provide options for setting up regular investments that allow clients to dollar-cost average into their investment of choice. Coinbase, for example, lets users make recurring purchases for every day, week, or month.8
Step 4: Safe storage
Blockchains, cryptocurrency or Bitcoin can be places to store digital assets in a more secure way. Being able to store your cryptocurrency away from the exchange , and instead in your personal wallet means that only you hold the private key to your account. It also gives the ability to separate your cash out of an exchange. This will help you avoid the possibility of your account being hacked and the loss of your funds.
Though most exchanges provide users with wallets, security isn't their main business. We do not generally recommend using an exchange-based wallet for long-term or large-scale cryptocurrency holdings.
Certain wallets offer more features than other wallets. Some are Bitcoin only, and others have the capacity to store multiple types of altcoins. Some wallets even offer the option of swapping one token for another.
If you're looking to pick the right Bitcoin wallet, there are several options. First, you'll have to know about crypto wallets is the idea of hot wallets (online wallets) and cold wallets (paper or physical wallets).
Hot wallets
It is also known also as hot wallets. Hot wallets operate on internet-connected devices like phones, computers, or tablets. The risk of vulnerability is that hot wallets create private keys for your coins using these devices that are connected to the Internet. While a hot wallet could be extremely useful in the ways that you can access and conduct transactions on your assets swiftly, the fact that you store your private key on a device connected to the internet makes it more vulnerable to hack.
It may sound absurd it's not, but those who haven't set up enough protection run the risk losing money due to theft. This is not an infrequent occasion, and could happen in a number of ways. For example, you could boast on forums like Reddit about how much bitcoin you hold while you're using very little to no security and keeping it in a hot vault would not be smart. In reality, the wallets could be secure so it is taken care of. Secure encryption, strong passwords and two factor authentication and safe Internet browsing are as minimum necessities.
They are great when you have a small amount of cryptocurrency or any cryptocurrency that you're engaged in trading on an exchange. A hot wallet to a bank account. Conventional financial wisdom would say to hold only spending money in a savings or checking account, but the majority of your savings is kept in savings accounts, or other investment accounts. Similar advice can be made to hot wallets. Hot wallets are mobile, desktop, web, and exchange account custody wallets.
In the past, exchange wallets are custodial accounts offered by the exchange. The user of this wallet particular type of wallet is not holder for the secret key for the cryptocurrency held in the wallet. If an event should occur where the exchange hacked or your account becomes compromised, you'd have to forfeit your funds. The expression "not your key, not your coin" is often repeated within cryptocurrency forums and communities.
Cold wallets
The most straightforward description of cold wallets is that it's not connected to the Internet and therefore is at the lowest risk of being in danger of being hacked. These wallets could also be described as offline wallets or even hardware wallets. These wallets store a user's private key in a device which is not connected to the internet and can come with software operating in parallel so that users can see the portfolio of their choice without putting their private keys in danger.
Perhaps the most secure option to save cryptocurrency offline is through a paper wallet. Paper wallets are wallet that you can create by visiting certain websites. It can then generate both private and public keys which you print on paper. Access to crypto currency in these wallets is only possible if you own the piece of document with the private number. A lot of people laminate their paper wallets , and then store them in safe box at their bank or in a safe at home. They are intended for the highest security and for long-term investments, as it is difficult to sell or trade bitcoin stored this way.
The most popular type of cold card is a a Hardware wallet. It is one that is a USB drive device that keeps one's personal keys offline. Such wallets have serious advantages over hot wallets in that they are immune to viruses that could harm a computer. With hardware walletsyour private keys will not be in contact with your network-connected computer or software that might be vulnerable. The majority of these devices are open source, allowing the community to judge their safety through code audits , rather than a firm declaring that they're appropriate for usage.
The cold wallet is the most secure way to store bitcoin or other cryptocurrencies. But they require more expertise to setup.
A good way to set your wallets is to have three items: an exchange account that allows you to purchase and sell products with a hot or hot wallet that will store small or moderate amounts of cryptocurrency you would like to trade or sell, and a cold hardware account to store bigger amounts that will last longer.
How to Buy Bitcoin With PayPal
Bitcoin can also be purchased through a payment processor PayPal Holdings, Inc. (PYPL). There are two ways to purchase bitcoin using PayPal. One, and probably the easiest way is to buy bitcoin through your PayPal account, which is linked to a payment system like a cash card or debit card. Another option is to use the balance on account balances in your PayPal account to buy cryptocurrencies from a third party provider. This option is not so convenient as the former because very few third-party providers allow users to buy bitcoin by clicking their 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. It is also possible to use your cryptocurrency to purchase goods or services by using"Checkout with Crypto" feature "Checkout With Crypto" feature.10
To open a crypto account through PayPal it is necessary to provide the following details is required: name, physical address as well as date of birth and tax identification number.11
It isn't possible to make use of a credit card to buy Bitcoin through PayPal. During the purchase process, PayPal will display a price for the cryptocurrency. However, this price is subject to rapid change due to the fluctuation of markets for cryptocurrency. It is a good idea to ensure you have more than you set for the purchase in your account at the bank.
When you buy bitcoin directly through PayPal they earn money on the crypto spread or the differences between Bitcoin's value plus its price of exchange with USD. The company will also charge a transaction cost for every purchase. These fees depend on the amount in dollars that the purchase is. For instance an all-inclusive fee of $0.50 is paid for purchases between $100 to $200. After that, the charge is an amount of the total dollar amount. For instance, the fee of 2 percent of the amount total is applied to purchases made with cryptos between $100 to $200.12
A disadvantage to buying cryptocurrency via PayPal is the fact that you can't move the crypto beyond the company's platforms for payment. Therefore, it's possible move your bitcoin from PayPal's wallet into any other crypto account, or your personal wallet.11
The second disadvantage of using PayPal is that very few sites and exchanges support users to utilize the credit card processor to make payments. eToro is one of the very only a few online sellers that allow users to use PayPal to purchase bitcoins through its platform.13
How to Buy Bitcoin With a Credit Card
The process of buying bitcoin using credit cards is similar to the process for purchasing it via debit cards or via automatized clearing house (ACH) transactions. You'll need the details of your credit card with the exchange or online trading company and then approve the transaction. The general rule is that it's not a wise idea to purchase bitcoin with credit cards. There are a couple of reasons why this is.
First of all, certain exchanges are not able to allow bitcoin buying with credit cards due to associated processing fees and the risk of fraud. This can be in the best interests of customers. This is since credit card processing is able to add additional charges on transactions. In addition to the transaction fee it will also leave you being charged processing fees which the exchange might pass onto you.
The third reason is that purchase with credit cards can be costly. Card issuers see bitcoin transactions as cash advances and charge substantial fees and rates on advances. For instance, American Express and Chase both consider purchases of cryptocurrencies in cash-advance transactions. So, if you buy $100 worth of bitcoin on the American Express card, you must pay at least $10 (current cash advance charges for the transactions) plus an annual percentage fee of 25%. What's more, the credit card company limits your purchases to a maximum of $1,000 in bitcoin purchases per month.14
An alternative method of purchasing bitcoin using a credit card is to acquire a Bitcoin Rewards credit card. These cards function in the same manner as your typical rewards credit , but they grant rewards in Bitcoin form. Also, they invest cash back from purchases into Bitcoin. One example of the Bitcoin Rewards card to use is BlockFi Bitcoin Rewards Credit Card.15 Be aware that the annual fee for these cards could be expensive and may also be added cost associated with conversion of fiat currencies into crypto.
Although exchanges , such as Coinbase and Binance remain among the most popular options to purchase Bitcoin However, they're not the only option.
Alternative Ways to Buy Bitcoin
Bitcoin ATMs
Bitcoin ATMs act like in-person bitcoin exchanges. The user can add cash to an ATM that can be used to purchase bitcoin that is then stored in online wallets for users. Bitcoin ATMs are more famous in recent months. Retail industry giant Walmart Inc. (WMT) is trying out a pilot program that offers customers the option of purchasing bitcoin. Coin ATM Radar can help to find the closest ATMs.
However ATMs are a costly alternative. There are two costs associated with ATM bitcoin transactions such as a transaction fee and an additional fee for conversion of a fiat currency to bitcoin. Both costs are quite costly when compared to other options. For example, the worldwide average price of purchases for Bitcoin ATMs is 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 identification cards from the government since early 2020.
P2P exchanges
Instead of decentralized exchanges, that provide buyers and sellers with anonymity while facilitating all aspects the transaction, there are peer-to-peer (P2P) exchange services which provide a direct connections between users. LocalBitcoins is one such exchange. After registering for an account users can post requests to purchase or sell bitcoin. The request must include information on payment methods as well as prices. After that, they can browse through the lists of deals to buy and sell to select the trading partners with whom they want to conduct business.
LocalBitcoins allows for certain aspects of trading. While P2P exchanges do not have the same level of anonymity as decentralized exchanges, they give users the ability to shop around to find the best price. Many exchanges have rating tools so that users are able evaluate potential trade partners before making any transactions.
Mainstream brokerages
Very few mainstream brokerages offer bitcoin trading and purchase capabilities due to the uncertainty surrounding how cryptocurrencies are regulated. Robinhood Markets, Inc. (HOOD) which is an app widely used by retail investors is one such exchange that provides crypto-based trading. It charges no commission for crypto trades and purchases . The company earns money from the transaction flow that it receives, transferring its trading volume to other trading platforms or brokerages.17
The absence of commission fees might be an appealing option for newbies, but there are some catches to that offer. One is, Robinhood doesn't have the wide range of features or coins offered by well-known crypto exchanges like Coinbase. Robinhood has enabled trading on its platform to trade seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Dogecoin, and Ethereum Classic.18 In contrast, you can trade more than 100 cryptocurrencies with Coinbase.19 The exchange also has various order types to minimize risk and mitigate losses during trading.
The Robinhood platform does not offer an online wallet. Therefore, if you want to buy cryptocurrency on Robinhood and you want to purchase cryptocurrencies, you'll need to take into consideration additional expenses to an online wallet service.
Bitcoin and other cryptocurrency investments , however, are not covered by insurance offered by The Securities Investor Protection Corporation (SIPC). The regular brokerages of the insurance company protects against the loss of cash and securities in brokerage accounts that contain up to $500,000with a maximum of $250,000 cash limit.20 This isn't accessible to clients who use cryptocurrency-related exchanges. The cryptocurrency exchanges such as Coinbase have crime insurance to safeguard their infrastructure from hacks. However, that policy does not cover individual customers from password theft.21
How to Sell Bitcoin
Bitcoin is sold on similar places to where you bought the cryptocurrency for instance, cryptocurrency exchanges and P2P platforms. Usually, the process of selling bitcoin through these platforms is the same as the procedure for buying it.
In this case, for instance, you could only have to press on a button and select the type of order (i.e., whether the cryptocurrency should be offered immediately at the lowest price, or whether the sale should be made to limit losses) to make the sale. Based on the composition of the market and demand at the place the cost of selling Bitcoin can be different. For instance, some exchanges in South Korea traded bitcoin at the kimchi price during the upswing in Bitcoin's prices in the year 2018.
Exchanges for cryptocurrency charge a percentage of the cryptocurrency sale amount in the form of fees. For instance, Coinbase charges 2.49% of the transaction total as fees.22
Exchanges typically have monthly and daily withdrawal limits. This means that the money earned from an enormous transaction may not be accessible immediately to the buyer. There are no limits on the amount of bitcoin you can sell however.
What Are the Steps for Purchasing Bitcoin?
The process for purchasing bitcoin is made up comprising four steps: deciding on an exchange or venue to make your purchase, selecting a payment method and then ensuring a secure storage to store your bitcoin. The type of place you have chosen for the first step, there may be additional steps involved in the procedure. As an example, if purchase the cryptocurrency from Robinhood you may have to add additional charges for an online account as well as custody for your bitcoin because they do not provide these services.
What Are the Most Popular Venues for Buying Bitcoin?
The most popular options for purchasing bitcoins include cryptocurrency exchanges, brokerages (crypto and traditional) and payment companies such as PayPal. There is also the option of buying Bitcoin through P2P exchanges. In order to acquire bitcoin in indirect form you may invest in companies which hold the cryptocurrency on their balance sheets, like Tesla, Inc. (TSLA) or MicroStrategy Incorporated (MSTR).2324
How Much Should I Expect to Pay to Purchase Bitcoin?
Typicallyspeaking, the cost of purchasing bitcoin is one fee per trade in addition to the cost to convert a cash currency (generally dollars) to bitcoin. (Cryptocurrency exchanges and payment solutions make money from this conversion spread.) The price per trade is dependent on the amount in dollars of the trade. A greater amount of trades will be charged more. The total purchase price also depends on the features available by the store. For instance, Robinhood does not currently offer an online bank account for storage of bitcoin. So, you'll need to budget charges for your online wallet purchase.
Besides Cryptocurrency Exchanges, Where Else Can I Buy Bitcoin?
You can also purchase bitcoin at the following locations:
* Through Bitcoin ATMs
Payments can be made online using payment service providers such as PayPal
* At mainstream brokerages like Robinhood
Is My Bitcoin Purchase Protected by SIPC?
No, your bitcoin purchase is not protected by SIPC.20 For certain exchanges such as Coinbase bitcoin, balances in fiat on individual accounts can be insured by FDIC at $250,000 per account.21
The Bottom Line
The process for purchasing bitcoin can be a little more difficult than the process to buy stock or shares in the normal way. This is mainly because the cryptocurrency's ecosystem and infrastructure aren't as well-developed as the traditional trading.
A bitcoin purchase procedure consists of four phases: selecting the right service or location for making the transaction, connecting with an option for payment, placing an order, and making sure you have that your purchase is safe in cryptocurrency. Each step involves a lot of research and careful study of the pros & cons of each service. You can also buy bitcoin through Bitcoin ATMs or from payment services such as PayPal and more traditional brokerages like Robinhood.