The objective of this guide is a simple one: to take a complete novice through the basic steps of buying Bitcoin or, indeed, any cryptocurrency.
- Buying Bitcoin
- Setting up a Wallet
- Understanding Cryptocurrency Exchanges
- Diversifying Your Portfolio
This is a practical guide that lays out the concrete steps that need to be taken to purchase Bitcoin. We will not be discussing here the advantages or risks of buying into Bitcoin. You should perform your own research on this matter and come to your own conclusions about how you want to proceed.
We will, however, hand out one piece of advice on the subject: do not invest into Bitcoin or any other cryptocurrency what you cannot afford to lose.
How to Buy Bitcoin
For many, the thought of buying Bitcoin is intimidating. If you can relate to this, fear not as the steps to be taken are actually quite simple.
Firstly, to buy Bitcoin you need to register with an exchange. For the purposes of the example which follows, we will work with CoinBase – a popular platform for buying Bitcoin and other cryptocurrencies. If you sign up here, you’ll get a $10 bonus if depositing over $10.
You may want to check initially if CoinBase are officially approved for Bitcoin purchases in your country of residence. You can consult the list of approved countries here.
If your country is not officially supported by Coinbase, that may mean that Bitcoin purchases are not allowed in your jurisdiction. Alternatively, Bitcoin purchases may be allowed but CoinBase may yet not have an exchange licence in your jurisdiction. In that case, you should be able to find another exchange provider – the steps to take will be similar to those outlined below.
When you register with CoinBase, you will be provided with the option to link your account to a debit card or bank account.
Once you have done this, you can proceed to buy some Bitcoin. Within the menu, you will have the option to either Buy/Sell Bitcoin or other cryptocurrencies.
Choose Bitcoin, specify your amount and then execute the purchase.
That’s it. You are now the proud owner of Bitcoin!
There are a whole host of exchanges out to choose from but we recommend CoinBase as a starting point for the following reasons:
- User-friendly and intuitive interface – makes it ideal for newcomers and, well, it just works.
- Assets held by CoinBase are stored offline so, in the event of a successful hack on the website, clients will be unlikely to lose their holdings. CoinBase are also insured for losses.
- Many exchanges do not offer the option to purchase Bitcoin with a credit or debit card.
That last point often confuses newcomers. Many exchanges only allow purchases of cryptocurrencies with Bitcoin which you need to transfer into the exchange, having purchased your Bitcoin elsewhere.
CoinBase, on the other hand, as we have seen, offers a service that allows a user to register a credit or debit card in order to buy Bitcoin directly on the exchange.
When you buy Bitcoin with traditional currency, the fees applied are relatively small. On the other hand, if you want to convert Bitcoin back into traditional currency, the fees applied are much higher.
Note that there will be a set limit on the amount of Bitcoin you can purchase at any one time – this is set by the exchange in accordance with the legislation of the country you are registering from.
Other Ways to Buy Bitcoin
One popular alternative to using Coinbase and exchanges in general is a site called LocalBitcoins.com which offers what is referred to as an ‘Over the Counter’ (OTC) service. Put simply, buying Bitcoin on LocalBitcoins means you as an individual are buying Bitcoin directly from another individual.
LocalBitcoins.com has what is known as a built-in escrow service – in other words, they act as an intermediary between sellers and buyers of Bitcoin to ensure that each party respects their end of the agreement.
Once the escrow services has confirmed that the seller has released their Bitcoin and that the buyer has executed a payment for the Bitcoin, the buyer will receive his or her Bitcoin immediately after.
Once again, the process of buying and selling on LocalBitcoins is straight-forward. Here are the steps:
- Go to LocalBitcoins.com and sign up for an account.
- On the home screen, use the dropdowns to specify your currency, country, and the method of payment.
- Look to see who is offering the best rate, then check out the reputation score of the seller along with any feedback they may have received. If you are happy to proceed, click on “Buy”. You will now be taken to another screen which will ask you to enter how much you wish to buy exactly. Enter the amount and click on “send trade request”.
- Wait for confirmation from the seller.
- Once the seller confirms that the payment has been received, your BTC will be released into your LocalBitcoins wallet.
There are a few things to consider when using LocalBitcoins.com:
- Only trade with sellers who have reputable feedback.
- If any seller suggests trading outside of the site in order to bypass the fees levied by LocalBitcoins, ignore them. If you trade outside of the site you will not be covered by the escrow service and have no guarantee that you will receive your coin. I learnt this the hard way by paying someone for a Bitcoin that they then refused to transfer to me. Their feedback score seemed good and I naïvely trusted them.
- When you first sign-up to the site, you will be a newbie so expect sellers to request that you send over a copy of your ID.
Digital Currency Wallets
Now that you know how to go about purchasing Bitcoin, we will now briefly touch on what a wallet is. A wallet is a piece of software that conceptually stores your Bitcoin [in reality it does not store your Bitcoin but rather stores the private keys which can subsequently give you access to your Bitcoin on the Bitcoin network].
A wallet also allows you to both send and receive your cryptocurrency. Your wallet will have an address comprised of letters and numbers that will look something like this: 0x276f43bc72673D2d1fCB16Fbc88420E6f601d6234.
We won’t go into the technical side of wallets or all the different types of wallets out there. If you would like to read a detailed guide then I would suggest checking out this article.
As a beginner, all you really need to know in general is:
- Do not keep your coins and tokens on an exchange for any longer than the time it takes to buy and sell your cryptocurrencies. Exchanges are regularly hacked. It is much safer to keep your cryptocurrency holdings in your own wallet offline.
- If you are buying Bitcoin, Etherium and tokens built on the Etherium platform (ERC20 tokens) you should look into purchasing a hard wallet. A hard wallet is simply a device that will store the private keys that control ownership of your coins and tokens, and hold them securely offline. Not only do they make cryptocurrency ownership more secure, but they are also highly convenient. There’s no need for storing seed phrases for multiple wallets – just plug in the device and select the app for the coin you wish to manage.
I personally use Ledger products and own both a Nano Ledger S and a Ledger Blue. The Blue is a bit more expensive but has more memory meaning you can manage more apps and coins than the cheaper version. You can buy your Ledger here.
Please note that hardware wallets do not support all cryptocurrencies – for these you will likely have to download the official wallets and manage them separately.
- Most coins will have an official wallet that is maintained by its development team. In my opinion, this should be the go-to option for storing your coins if they are not supported by your hardware wallet. The procedure for setting up each wallet differs slightly but will generally require a password or passphrase (also referred to as a seed key).
We will re-emphasise here the importance of keeping your keys offline. If you are using an online storage solution (e.g. exchange) which has a vulnerability, hackers will eventually be able to exploit it. You are always at risk of having your coin stolen if you leave it in an exchange or online wallet.
An alternative to using a hard wallet, which can be expensive, is to look into paper wallets. These are simply paper print-outs of your private keys. If you go down this route, you will then need to store these safely somewhere away from the risk of theft and fire. The following YouTube video is a pretty good starting point:
Now that you know how to buy Bitcoin and what a wallet is, we are going to touch on the subject of cryptocurrency exchanges. Most crypto enthusiasts do not simply have Bitcoin, they tend to hold a mixed bag of cryptocurrencies.
As of writing, there are around 1100 cryptocurrencies in existence. Each one addresses different needs and carries its own purpose. No single exchange will offer the ability to buy and sell all cryptocurrencies. However, if you visit CoinMarketCap, you can choose the currency of interest to you. Once you have brought up the relevant page for your cryptocurrency, you can then click on the Markets tab which will subsequently list the exchanges on which you can buy and sell the specified currency:
Bittrex.com is my own personal exchange of choice. Although its fees are slightly higher than some of its competitors, it has a few user benefits to compensate – a bug-free and intuitive platform which is not always the case for exchanges.
It also offers a vast array of tradable cryptocurrencies – pretty much every established coin/token that you can think of will be listed. Note, however, that on Bittrex you can only purchase other cryptocurrencies with Bitcoin or Ether. You cannot purchase any cryptocurrencies with cash on this exchange.
With there being hundreds of different digital currencies out there, and more being released daily, you will find that over time you will probably find yourself opening more accounts with other exchanges. For now, you should be pretty much good-to-go with purchasing your first Bitcoin, managing your wallet, and buying other cryptocurrencies.
Thanks for reading our Beginners Guide to Cryptocurrency investment. Please leave any feedback in the comments section below.
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The busiest cryptocurrency community in the world today.
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