What can I buy using my Bitcoin?
Why is it so popular? Because Bitcoin is really a decentralized network of peers engaging in transactions and trading value without the need for a central authority or intermediary. While Bitcoin’s original whitepaper does name an author/founder (an unknown individual that goes by the name Satoshi Nakamoto), the project itself is meant to empower the individual to act as his/her own bank. No governments, central banks or brokers control or take a cut of anything. The power to exchange value is in your hands, and only your hands, unless you decide otherwise.
That being said, anybody with a basic understanding of traditional banking or investing (and yes, gambling) can make a smooth transition into Bitcoin and other cryptocurrencies because a lot of the language used in the industry is similar.
Here are the basics of Bitcoin and how you’ll still benefit from having an online Bitcoin wallet and accessing a trading exchange.
Consider this your official welcome to the exciting world of Bitcoin and crypto! Don’t worry if this all sounds a bit daunting. This guide will break down everything to know about the Bitcoin crypto.
Buying Bitcoin: Step By Step
- Pick a wallet to deposit Bitcoin: Consider convenience, security, and cost. Options include paper, mobile, desktop, hardware and web-based wallets.
- Set up your Bitcoin wallet: This may include completing basic ‘Know Your Client’ verification, choosing a PIN number and registering banking and address details with providers.
- Pick an exchange: It can be a traditional stock-market like platform, a decentralized exchange or an easy-to-use retail purchasing platform. Consider privacy, convenience, and cost.
- Buy on the exchange: Pick a currency pair, select an order type and acquire the asset of your choosing.
- Transfer assets: Recommended for security. Send assets to an offline wallet you own to steer clear of hackers.
Step 1: Picking a Bitcoin Wallet
Let’s start by breaking down the different types of crypto wallets.
In the crypto world, a wallet is really just a string of characters that act as a reference, pointing to your digital assets on a public ledger known as a blockchain. So, a paper wallet is really just that string of characters printed on a piece of paper, often accompanied by a QR code so that you or a recipient you want to send crypto to can scan the address onto a phone.
Using a paper wallet is safe because you’re keeping it offline away from hackers (although wallet addresses themselves don’t reveal private keys directly. More on that in a little bit.) The downside of a paper wallet is that you can lose a piece of paper or damage it, and in crypto, using a paper wallet is the “snail mail” way of doing things if you want to call it that.
Mobile wallets are arguably the most popular among seasoned crypto enthusiasts who are on the go. Coinbase.com and Blockchain.info are two of the most popular wallet providers for storing both Bitcoin and alternative coins like Ethereum. The main advantage is the ease of use. You can use QR codes directly on your mobile device to send and receive crypto. No need to unfold a crinkled up piece of paper. The main downside is that you’re keeping your crypto online and leaving it exposed to hackers. Crypto and their blockchains can’t be counterfeited or hacked, but any website or app that acts as a focal point through an internet connection certainly can be.
Desktop wallets are pretty much exactly the same as mobile wallets. However, the main advantage of using your desktop is having a bigger screen to work with. This means sometimes, the desktop version of a mobile app like Coinbase or Blockchain.info may actually provide slightly more functionality on a computer. It is a great way to start a Bitcoin wallet.
When it comes to keeping your digital assets secure, I strongly recommend investing in a hardware wallet.
Hardware wallets are the best way to keep your crypto offline (or as they say in crypto speak, in “cold storage”). It’ll cost you a few hundred dollars, but it’s worth it in the long run. Hardware wallets look are basically secure USB keys. You plug it into your computer, set up a PIN number and keep a 12 or 24-word password given to you by default a secret to protect your private keys. The two most recognizable brand names in hardware are the Trezor and Nano Ledger respectively, but there are others. Security is the upside, cost and initial set up would be the only downside. It is worth the trouble for someone who wants a secure Bitcoin wallet.
If you don’t want to download an app or buy a hardware key, there are many websites that will allow you to buy and exchange crypto through a direct debit of your bank account. CanadianBitcoins.com is a good option for Canadians. Other options vary by country. The advantage of this method is you can avoid added convenience fees that exchanges might charge on a credit card. The disadvantage is that you may have to wait several business days to complete a transfer.
Step 2: Setting Up Your Wallet
The steps for setting up a crypto wallet depend again on the type and brand of wallet you select. But, the basic user experience of interacting with a wallet and the principle security measures in place for wallets are generally the same.
When you access a wallet, it’ll be secured with a private key. A private key is a string of 64 alphanumeric characters. Anybody who has access to these characters can send your crypto wherever they want before you even realize your coins are gone. Using a paper wallet can mean literally printing off the characters on paper, but it can also mean keeping a copy of a 12 or 24-word password given to you by your wallet provider. In fact, as long as you have the string of words at your disposal, you technically don’t even need to know the 64 characters that act as your digital signature.
While a private key is something you should definitely keep to yourself, a public key is something anyone can use to send crypto to you. Without getting too technical, a public key basically verifies that a transaction is attached to a specific private key (and thus a specific user) without compromising or revealing the private key.
Now that you know a little bit about private and public keys, just keep in mind if anyone other than you has access to your private keys, you don’t have sole ownership of your crypto and can have it stolen from you at any time. Keep your seed words and hexadecimal digits to yourself, or pay a steep price for a cold lesson learned. Period. Be smart with your Bitcoin wallet and Bitcoin.
Step 3: Picking a Cryptocurrency Exchange
Crypto exchanges function in much the same way a foreign currency exchange platform would. Currencies are organized in trading pairs and the overwhelming majority of traders use Bitcoin or Ethereum as the base pair. This means that if you’re buying BTC/LTC, you’re acquiring Litecoin and selling Bitcoin.
You can execute trades by placing market, limit or stop-loss orders. All of those order types exist in the stock market or foreign exchange markets too, so no deep dive in term is required.
Governments are having a difficult time regulating crypto exchanges. So, if you leave your investment on an exchange app or website, you can lose all of your cryptos. The good news is that exchanges like Coinbase’s Global Digital Asset Exchange (GDAX) or Binance.com have developed strong reputations in the industry and provide the highest volumes of asset liquidity in the industry. That means your trades execute quickly compared to other exchanges.
Other than being hacked, the major downside to using an exchange is that you have to complete ‘Know Your Client’ verification. That means handing over government ID and sacrificing anonymity. If you started trading crypto in the early days of the industry, you could have theoretically made millions of dollars in trades and got away with it. However, governments are getting wiser. In the last two years, major American exchanges have obliged in meeting the requests of the IRS, revealing information on individuals trading large sums of money.
Skirting the law and Uncle Sam is a big reason people turn to crypto, but it’s a little harder to do in 2019.
Step 4: Buying Bitcoin on an Exchange
As noted above, trading Bitcoin for other digital currencies is like trading traditional foreign currencies. Keep in mind however that in order to execute trades you first need to send coins from your Bitcoin wallet to your trading account. To do this, you’d simply log into your trading account and generate a Receive wallet address. Then you’d log into your wallet, app or key and paste the exchange wallet address in the Send field and confirm the transaction.
Knowing how to buy Bitcoins is important. There are a variety of ways to do so. In today’s market, it’s much easier to buy Bitcoin with a credit card. Visit an exchange that accepts credit card and deposit into your Bitcoin wallet. Sign up for the exchange, verify the account and enter necessary payment details. Deposits with a credit card should be instant.
What to keep in mind
There are a few things to keep in mind when making a transaction on the Bitcoin or blockchain network. While purchasing Bitcoin through a merchant with your credit card is instant, transferring between your own wallet addresses isn’t. This is because the Bitcoin network needs time to verify a transaction on the blockchain. Furthermore, your transaction has to wait in line to be registered. When Bitcoin’s hype reached its peak in 2017, it took some users anywhere from 30 minutes to several hours to complete a transfer. Today, thanks to several upgrades to the Bitcoin network transactions generally occur within seconds.
On a side note, you can actually make your transactions go through faster if you want to. But, you have to be willing to pay a higher fee for your transaction to skip the line. Most exchanges allow this.
Also if you plan on being a crypto Wolf of Wallstreet making power moves in large quantities, be mindful. You’ll be trading across a wide range of cryptos and the ones that aren’t as popular trade in lower volumes. This means your market order may not get filled at the price you want. You may end up with what you thought was a winning trade, but is actually a loser when it executes. That’s why learning to use a limit order is a worthwhile endeavor.
In comparison, there are also purchase limits on most exchanges. While you can measure traditional money in dollars and cents (to two decimal places), Bitcoins can be traded to twelve decimal places (known as satoshis rather than pennies). That being said, most online exchanges won’t actually accept such small trade orders. That makes sense given the fees for transferring from one wallet to another are usually significantly more than a single satoshi is worth.
Other Ways to Buy Bitcoin
Want to know how to buy Bitcoin in the USA, how to buy Bitcoin with PayPal? or how to buy Bitcoin with Cash? The process is legal but the way to do so varies.
Buying Bitcoin with cash is trickier, but it’s possible to buy Bitcoins with physical currency. ATM machines or a good old-fashioned peer-to-peer exchange are the two best ways to acquire Bitcoin if you really don’t want to use online portals or fancy hardware keys. A peer-to-peer exchange also keeps you from having to provide your ID to authorities if you really want to go rogue with your transactions.
LocalCoin ATM and Coinberry.io are just two of the many crypto platforms that offer ATM machines. You can find them in convenience stores close by, but there are many other companies out there. When you find a machine you want to use, you literally take paper bills out of your pocket and feed them into a machine. You then select which cryptocurrencies you’d like to purchase and transfer them to your wallet address. You won’t be able to plug a hardware key into an ATM machine to do this though. Printing off a QR code or providing one on your mobile phone that can be scanned is the best way to take possession of your coins.
The upside of using an ATM machine is that you acquire crypto instantly without having to go online. The downside is that you’ll probably pay a higher price for your crypto.
LocalBitcoins.com is your best bet if you don’t want to meet face-to-face with a person. The site allows you to accept or offer buy and sell prices on a marketplace. When you find a price you like, you interact with the user on the other side of the transaction. Then, you arrange to meet up in person to make the exchange. The advantage of doing this is you can keep your money and your name “off the grid”.
Other Bitcoin Buying Options
Purchasing with PayPal might be a slightly more challenging route to buy Bitcoin, however, exchanges like eToro and LocalBitcoins still take the payment option.
Don’t fret if you’re still a bit nervous about jumping into crypto. Dip your toe in the water with small transactions and try exchanging some value with friends to get the hang of it. That way, when the big game is on and you want to sprinkle some dough on the underdog, you’ll be confident you’re getting the right amount on the right bet card.