How to Buy Bitcoin
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What Is Bitcoin?
First, Bitcoin is a cryptocurrency or digital currency. It has a monetary value but no physical presence.
In 2008, Satoshi Nakamoto created Bitcoin in response to the money-printing policies used to bail out the banking system after the crash.
The idea was that Bitcoin would be apolitical, and therefore immune to the needs and desires of global governments. No government can request it be printed, and it does not follow the same inflation as the currencies in circulation today.
Nakamoto also stated that there would be no more than 21 million Bitcoin, making it desirable and finite.
Second, Bitcoin is also an entire blockchain that securely oversees financial transactions.
Whenever you pay for something on your credit or debit card, the transaction is processed through:
- The card machine
- The payment networks like Visa and Mastercard
- Your bank
- The merchant bank
At each stage, communication and verification are required, meaning that information is shared.
Bitcoin aims to remove all these stages, making the process more secure, streamlined and cost-effective.
Why Should I Buy Bitcoin?
But for those wondering what investment to make next (or first), Bitcoin has several advantages.
Digital Currencies Are the Future
Any investment or trade comes with risk, and you should never invest what you can't afford to lose.
Bitcoin is known for its volatility – some days its value is $30,000; other days it's $300.
That being said, the blockchain technology behind Bitcoin is predicted to revolutionize industries such as supply chain, healthcare and banking.
By removing intermediaries and creating more secure networks, blockchain will enable new types of economic activity previously thought impossible.
This alone makes it a desirable investment.
For those who believe digital currencies are the way forward, investing in Bitcoin is a way of supporting the future of technology while potentially earning lots of money.
It's Free From Politics
Unlike fiat money, Bitcoin is capped at 21 million.
Yes, a single Bitcoin can be broken down into hundredths, but ultimately, cryptocurrency has a limit capped by mathematical algorithms.
This means that not only can governments not dilute the value, but they also can't tax it.
Mistrust in bankers and financial institutes grew exponentially after the 2008 recession.
Investing in Bitcoin removes the risk of banking failures and hyperinflation.
It's Proven and Secure
Bitcoin has a large lead and a proven usage case as a store of value, making it more secure than the altcoins available.
It is also more accessible, with a greater selection of merchants, exchanges, software and hardware.
Overall, the ecosystem that Bitcoin has created is far more superior compared to altcoins.
Bitcoin is more liquid with larger volumes compared to other cryptocurrencies.
Guide to Buying Bitcoin
Buying your first chunk of Bitcoin can be exciting, scary and possibly confusing.
Many people lose out on investment opportunities, not because of a lack of investment money, but because they find the process complicated.
Below is a guide to the steps you need to take to make your first Bitcoin investment.
Step 1: Choose Your Exchange
There are many factors you need to consider when choosing an exchange for your trades.
Before committing, research to ensure the exchange is:
- Legitimate and free from scams
- Is transparent with fees
- Allows you to withdraw your funds with ease
- Has good reviews and is user-friendly
Here are a few examples to get you started:
eToro is a global trading platform that offers a variety of trading options, including stocks, crypto, commodities, currencies and exchange traded funds (ETF).
It is popular among traders, as it offers commission-free trading. eToro is also regulated by two Tier-1 regulators, making it a reliable exchange.
For those planning on creating a diverse investment portfolio, eToro is an excellent choice.
Coinbase is considered one of the best for buying cryptocurrencies. It specializes in crypto only, and you can invest directly with USD.
It is user-friendly and offers a high level of security and trustworthiness. However, fees can be high if you are not using Coinbase Pro, and it is slow to sell new cryptocurrencies.
BlockFi is a US-based crypto-only platform that allows you to earn Bitcoin, as well as buy it.
It has no commission and fees and is regulated in the US.
BlockFi offers a Bitcoin credit card that allows you to earn up to 3.5% back on purchases. You can also earn interest on your holdings.
In terms of rewards and maximizing your Bitcoin investment, BlockFi is one of the best.
Step 2: Take Note of Trading Fees
Before making a trade or investment, double-check the associated fees.
Some trading platforms offer commission-free trading for some investments but high fees for others.
Read the fine print to ensure you have included all the appropriate fees in your calculations. You don't want to go overdrawn or lose money because you didn't confirm the trading fees.
Step 3: Register and Verify Your Account
Setting up a trading account is usually straightforward, but it can take one or two days to verify.
All platforms and exchanges will ask for your name, contact details and date of birth.
You will also need to verify your email address.
Depending on who you register with, you may also need to provide your current occupation and tax status.
Step 4: Supply Additional Information
In some cases, you will have to submit additional information, such as a copy of your photo ID and a utility bill. This is for regulation purposes and is a legal requirement.
Step 5: Choose Payment Method
Depending on the exchange you choose, there may be several payment methods, including:
- Debit card
- Credit card
- Bank transfer
Before choosing your method, check the transaction fees and transfer time.
At Coinbase, there is a small fee for using your debit card, but the transaction is instant. A bank transfer, on the other hand, can take several days.
Step 6: Convert Cash to Bitcoin
Find the option that says buy/sell and select it.
Choose the option that says, ‘buy Bitcoin’, and enter how much you want to spend.
For some exchanges, the minimum is a small amount like $5; others will ask for $100.
Again, never spend more than you can afford to lose.
Step 7: Use Your Bitcoin
Once you have enough Bitcoin and are comfortable with the digital currency, you can begin buying using your digital wallet.
Step 8: Send and Transfer Your Bitcoin
The exchange you use will allow you to send your Bitcoin to another wallet.
For this, all you need is the Bitcoin (BTC) address of the wallet.
If you are taking advantage of sign-up offers from different exchanges, transferring all your BTC to one wallet at a later date will allow you to consolidate your coins.
Tips For Buying Bitcoin
- Bitcoin is not legal in every country, so check local laws before investing. Turkey, Russia, and China, for example, do not allow Bitcoin. There is also a growing list of countries that are either banning Bitcoin or limiting its use.
- Check the tax rules before cashing in. As BTC is not legal tender, you may be subject to capital gains tax when you sell. In the UK, cryptocurrencies cannot be held in an ISA.
- If you receive BTC as payment for a product or service you offer, you must declare it to your tax agency.
- Scams in the form of fake wallets or exchanges are becoming increasingly common. Before committing to one, do your research.
- Scammers draw people in by offering a great product. If an introductory offer seems too good to be true, it most likely is.
- Don't rule out other cryptocurrencies. Bitcoin is the strongest because of the network it has, but other cryptos also have value and may increase in popularity over time.
- Due to its volatility, Bitcoin and cryptocurrency should not be the central part of your investment portfolio.
The Difference Between Mining and Buying
You may have heard the term mining Bitcoin, and there is a difference between mining and buying.
Buying Bitcoin is instant as the coin already exists. Mining involves verifying lots of transactions on the blockchain and then releasing the new Bitcoin. The release is seen as a reward for your verification.
Depending on the network, mining can be very complicated and can take anything from a couple of hours to a few days or weeks.
Buying Bitcoin is easier than it sounds.
So long as you use a reputable exchange and only buy as much as you can afford to, Bitcoin can be a profitable investment.
It is also an exciting investment as the technology is new. There are so many opportunities for cryptocurrencies to make their mark.
WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.