How to buy bitcoin in Easy Steps?
Cryptocurrencies, in general, are a very new concept for the world, however they have taken off and today almost everyone wants to learn how to invest/trade them. Bitcoin is the most preferred choice of cryptocurrency worldwide but it is also the most expensive.
Investing in bitcoin seems like a really good option right now, it has shot up immensely since last year and the future seems hopeful for all cryptocurrencies. If you are worried how to get started? We have got you covered.
How to buy Bitcoin?
Let’s start with the basics. The first thing you will need is a cryptocurrency exchange account, then you will need to submit personal details to a KYC (Know your customer) Platform and make sure you have set up a method of payment. The only thing that’s more important than all of this, is a stable internet connection!
Step 1 : Choosing a bitcoin exchange
This is the platform that you would use for trading/investing in bitcoin. A lot of research is recommended before you choose the exchange thats best for you. Good user interface, quality technical support, and ease of usage are some factors that you should keep in mind.
Always prefer exchanges that offer the best experience at a minimal trading fee, otherwise most of your gains (especially made via trading) will be lost in paying the trading fee itself.
Some exchanges charge a flat fee, i.e, a single fixed fee for a transaction as long as the trading amount is low. Some exchanges charge a percentage of the trading amount. And some exchanges work with a combination of both.
Also, do some research into making sure that your chosen platform is secure, cryptocurrency is an entirely digital asset and cybersecurity is of the essence whilst investing in it.
Creating an account
After selecting an exchange of your choice, make sure you create an account and submit all your identity proofs in order to legally own the assets you purchase. Do not engage with platforms without a KYC protocol, because even if the KYC system is a bit tedious and time-consuming it is secure and helps ensure that financial crimes and/or frauds can be prevented or tracked.
In India, Coinbase and Wazirx are some of the popular bitcoin exchanges.
Step 2: Connect to a payment option / Using money to buy bitcoin
Now that you have settled in on a bitcoin exchange and your identity has been verified, you will be required to connect your account to a viable payment option. It could be your bank account, credit card or debit card. The bitcoin exchange will take or deposit money in this account/card after your transaction.
A lot of banks have different policies regarding transactions of cryptocurrencies, and charge varying fees for deposits via a bank account, debit or credit card. Keep in mind that Credit cards also bear an additional procession fee. So, it is always recommended to choose the option which works best for you at a minimal fee.
Step 3: Place your order!
Now that you have successfully linked a payment option with your exchange account, you are free to place an order. Pay for your bitcoin and receive them in your digital wallet!
Today, almost all of the popular exchanges offer a variety of order types and ways to invest. That includes market orders, and limit orders. Some others like stop-loss, stop-limit, take-profit are also available on exchanges. But what do these orders mean?
1. Market orders : This means the sale/purchase of the entity immediately. The crypto transaction will take place immediately but the execution price is not guaranteed.
2. Limit orders : This means the transaction will occur at a specific price (or better).
3. Stop-loss: Stop order or stop loss order means to buy/sell an investment as soon as it reaches a specified price. This is done to reduce losses.
4. Stop-limit: In this order once the stop price is reached, a stop-limit order becomes a limit order that will be executed at a specified price (or better).
5. Take-profit: It is a type of limit order that specifies the exact price to sell an investment to ensure profit.
Exchanges these days also offer ways to set up recurring investments for the customers !
Step 4 : Storing in Bitcoin wallet
Now that you have completed the transaction you need to ensure that you store your bitcoins safely to prevent theft. A Bitcoin wallet is the place to store your bitcoin securely, as it allows you to store your funds away from an exchange. This way the risk of theft or of your exchange getting hacked is reduced significantly.
There are a lot of digital wallets with countless features to choose from. Some are only for bitcoin, some can store numerous other cryptocurrencies as well. To make the best choice, you need to first understand hot and cold wallets.
Hot wallets
These are virtual currency wallets that exist on the internet and can be accessed via phones, laptops or tablets. They allow quick and easy transfer of your digital assets by storing the private keys to your coins on the connected devices. But storing your private key on an internet-connected device is not very safe as these devices are prone to cyber-attacks.
Hence, strong passwords, 2-factor authentication, and safe browsing need to be followed as preventive measures to protect your hot wallet.
Cold wallets
These are mostly normal hardware wallets that are not connected to the internet and hence, at lower risk of compromise. These wallets can also be referred to as offline wallets or hardware wallets. These wallets store a user’s private key on something that is not connected to the internet.
The most secure form of a cold wallet is a paper wallet, these can be generated from certain websites and produce public and private keys that you can print out on a sheet of paper. You can access cryptocurrency in these addresses only if you have this paper. These however, cannot be sold off quickly and are meant for long term investments
What does your bitcoin wallet contain?
Your bitcoin wallet contains numerous pairs of keys, each pair consists of a private and a public key of every bitcoin purchase you have ever made. The private key is a randomly generated number which is used to generate a public key. This public key is used to generate a bitcoin address. Let’s understand how these terms are relevant to us.
The private key is used to create the digital signature that is needed for spending a bitcoin, and thus acts as the proof of ownership of funds. If anyone has access to your private key, it means they have access to your bitcoin. If it’s lost, it cannot be recovered (unless you made a back up) and that is equivalent to losing your investment. Forever.
The public key can be calculated from the private key using complex mathematics, in such a way that a public key can be calculated from the private key but we cannot calculate the private key using the public key.
The bitcoin address is shared with anyone who wants to send you money. It appears as the recipient in a fund transaction. It’s like the address of the person/entity selling the bitcoin. It is derived from the public key using one-way cryptographic hashing and represent the owner of a private/public key pair
Buying bitcoin with PayPal
You can very easily list your paypal account with your bitcoin exchange to buy/sell bitcoins via paypal. You can also use the balance in your PayPal account to purchase bitcoins from a third party. It is quite complex and cumbersome since not a lot of companies allow users to purchase bitcoin via PayPal. However, Bitcoin can be purchased directly through PayPal.
Other ways to buy bitcoin
1. Bitcoin ATMs
These are like an offline bitcoin exchange. Anyone can insert cash into a machine and actually buy bitcoin! The coins will be transferred to their online wallets without much hassle.
But, these ATMs are a rather expensive option, they charge a purchase fee and a conversion fee (to convert fiat currency to bitcoin).
2. P2P Exchanges
Most decentralised exchanges match buyers and sellers anonymously. However, some people feel uncomfortable interacting with absolute strangers and the P2P Exchange service allows a direct connection between the users. LocalBitcoins, located in Finland, is a popular example for this service. It allows the opportunity to shop around for the best deal.
3. Mainstream Brokerage
Mainstream brokerage companies (that trade in stocks, options, futures, etc) do not usually offer bitcoin purchase and trading, because the laws regarding cryptocurrency are not well-structured. But still some brokerages do allow crypto trading. These brokerages, however, do not offer as many features and options as prominent crypto exchanges.
Popular venues for buying bitcoin
The most popular venues for buying bitcoins are cryptocurrency exchanges, brokerages (crypto and mainstream), and payment services like PayPal. P2P Exchanges and Bitcoin ATMs are other alternatives.You can also invest in bitcoin indirectly by investing in companies (like Tesla) with large bitcoin holdings.
How much will I be paying
Aside from the cost of bitcoins, you will also have to incur the transaction costs and the cost to convert a fiat currency to crypto. Usually, the transaction or fee per trade is fixed upto a certain amount, but it can be charged percentage wise as well.
How to sell bitcoin?
Bitcoin selling is almost exactly similar to the purchase method and is done on the same platforms used to buy bitcoins. However, exchanges often have a daily and monthly withdrawal limit. Thus, cash from a large sale may not be immediately available. But, there are no limits on the amount of bitcoin you can sell.
Conclusion
In this article we focussed on all the major steps involved in buying bitcoin. Most of the steps are the same for buying any cryptocurrency in general. We also discussed hot wallets and ways to ensure secure storage of our bitcoins. At the end, some methods for buying bitcoins other than using a bitcoin exchange were also discussed.
Hope you enjoyed learning!