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The Basics Of Buying Bitcoin

The Bitcoin (BTC) bonanza is booming: The past year has seen the creation of more than 100,000 Bitcoin millionaires, and counting.

While plenty of people have jumped on the Bitcoin bandwagon, plenty of would-be Bitcoin enthusiasts have held back, fearing that they don’t know enough, understand enough, or have enough money to invest in cryptocurrency. But with a little knowledge that minimizes the mystery of cryptocurrency and a step-by-step guide that can help you safely invest, you might find yourself becoming a Bitcoin buyer.

Photo: Pixabay.com/MichaelWuensch

First, A Bit Of Information About Bitcoin

Created in 2009, Bitcoin is considered the original cryptocurrency. Bitcoin is powered by blockchain, which is essentially a database spread across many computers requiring no centralized oversight. Simply put, Bitcoin technology can operate independently of banks and governments. Essentially, it’s virtual cash you store in digital wallets. Some people purchase Bitcoin as an investment, while others prefer to use it for buying and selling goods.

Benefits of Bitcoin include accessibility, low fees, discretion. To access Bitcoin all you need is a smartphone and an internet connection, which makes the cryptocurrency available to millions of people who don’t have access to traditional banking systems. But since there are no banks or governments involved, there are no fees. Additionally, unlike standard bank transfers and credit cards, Bitcoin transactions aren’t directly linked to your personal identity; however, the transactions can be traced back to you.

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No Reward Without Risk

Before you take the Bitcoin plunge, know that buying the cryptocurrency does come with risks, including volatility, security risks, and fraud.

It’s not an exaggeration to say that Bitcoin may not be the investment of choice for the faint of heart, given its inherent volatility. Take an example from February 21, 2021: One bitcoin was worth $57,128.64, then a week later it plummeted to $45,092.81, and  two weeks after that it jumped back up to over $60,000. Clearly, Bitcoin can be a roller coaster ride with its share of ups and downs. It’s important to note that Bitcoin investing comes with fewer protections than other types of investments and is not insured by the government.

Before investing in Bitcoin, you might also want to consider the security risks. There is no shortage of hackers who will be looking for new and inventive ways of sneaking into and draining your accounts.

As Bitcoin’s popularity has grown, so has Bitcoin-related fraud, which can range from the simple to the complex, all with one goal in mind:  to separate you from your cryptocurrency.

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Bitcoin Buying Guide

The first step when it comes to buying Bitcoin: deciding where to purchase the cryptocurrency. The purchasing options include Bitcoin ATMS, traditional brokers, cryptocurrency exchanges, peer-to-peer exchanges. Bitcoin ATMs let you insert cash to buy bitcoins, which are then sent to a secure digital wallet. Investment brokers such as Robinhood allow you to purchase cryptocurrencies through their platform. Online cryptocurrency exchanges provide you with the opportunity to trade your assets (such as fiat money) for digital currencies.

P2P exchanges allow you to buy Bitcoin directly from other Bitcoin holders who set their own prices. These types of exchanges are one of the easiest places to buy bitcoin, making them ideal for beginners. You can choose from hundreds of different exchanges, but be aware that they’re not all created equal. As a cryptocurrency newbie, it might be best to stick to with well-known exchanges such as Coinbase, Gemini, and Kraken. Exchange fees can vary based on which exchange you select and the payment method you choose.

Consider the following criteria when selecting a cryptocurrency exchange:

What types of cryptocurrencies are offered on the exchange? Is it available in your state? Does your bank allow deposits to the exchange? What are the minimum requirements and fees? Do they offer insurance? What security measures are in place to protect your investments?

Getting Started

Many cryptocurrency exchanges have a simple sign-up process: Just visit the exchange’s homepage and click “Get Started.” At that point, you’ll need to set up your account and verify your identity.

The initial process varies based on the exchange you choose and where you live. Generally, you should be prepared to provide copies of your driver’s license, Social Security card, address confirmation, and employer information. After the verification process is complete, you’ll be ready to connect your payment method and fund your account, which can be done via debit cards, credit cards, ACH bank transfers, wire transfers, and even PayPal.

Technically, you can store your bitcoins on an exchange, but be aware that if the exchange gets hacked you could lose all of your money. For safekeeping of your Bitcoin, you can store your cryptocurrency in a digital wallet. There are two types of digital wallets:  a hot wallet and a cold wallet. A hot wallet runs  on your smartphone, tablet, or computer. Your private keys, used to access your cryptocurrency, are generated on your internet-connected device. This quick and access is great for active trading, but it’s also convenient for hackers.

Storying Your Cryptocurrency

A cold wallet, also known as a hardware wallet, is a physical device that stores your private keys offline, much like a USB drive. When you want to buy or sell Bitcoin, you’ll need to connect your cold wallet, which is less convenient than using a hot wallet. On the other hand, this storage methods offers better protection from hackers.

Each cryptocurrency exchange has a slightly different process for buying cryptocurrency, but most include the following steps:

  1. Log in and choose which type of cryptocurrency you’d like to buy (in this case, BTC).
  2. Enter the amount you’d like to purchase.
  3. Select your preferred payment method.
  4. Preview and confirm your order.
  5. Complete the purchase.

In just five steps, you’re on your way to being a Bitcoin buyer or investor and decrypting the world of cryptocurrency.