Bitcoin, which is frequently referred to as a cryptocurrency, a virtual currency, or a digital currency, is a purely virtual form of money.
It’s similar to an online equivalent of cash. You can use it to purchase goods and services, but not many merchants accept it currently, and several nations have outright outlawed it.
Nonetheless, some businesses are beginning to see its growing significance.
For example, in October of last year, PayPal announced that it will begin allowing its clients to buy and sell Bitcoin.
The actual Bitcoins depicted in photographs are a novelty. They would be worthless if not for the confidential codes embedded within.
Bitcoin Overview – How Does Bitcoin Work?
Each Bitcoin is essentially a computer file that is stored on a smartphone or computer in a ‘digital wallet’ application.
Individuals can send you Bitcoins (or a portion of one), and you can send Bitcoins to others. Each transaction is recorded on a public ledger known as the blockchain.
This enables the history of Bitcoins to be traced, preventing people from spending coins they do not own, duplicating them, or undoing transactions.
How Are New Bitcoins Created?
To make the Bitcoin system work, individuals can instruct their computers to conduct transactions for everyone.
Computers are programmed to solve exceedingly complex mathematical problems. They are occasionally rewarded with a Bitcoin that the owner may keep.
Individuals build powerful computers only for the purpose of obtaining Bitcoins. This is referred to as mining.
However, the values required to prevent the creation of an excessive number of Bitcoins are getting increasingly complex to calculate.
If you begin mining now, it could take years before you receive your first Bitcoin.
You may wind up paying more for electricity than the Bitcoin is worth.
How To Buy Bitcoin Securely
Purchasing bitcoin and other cryptocurrencies in four simple steps
- Choose a location to purchase bitcoin.
- Consider how you will store your coin.
- Place your order.
- Take control of your investment.
Choose where to purchase bitcoin
There are other methods of purchasing bitcoin and other cryptocurrencies, including exchanges and traditional brokers.
Numerous cryptocurrency exchanges allow you to purchase bitcoin. Numerous service providers charge a percentage of the purchasing price. Conduct due diligence to determine which one is the best fit for you. Several of the most popular exchanges include the following:
- Coinbase: This is a popular choice for US bitcoin buyers. Partly because of the ease with which your bank account may be linked. Additionally, Coinbase supports Ethereum, litecoin, and other cryptocurrencies. Coinbase charges a spread (a change in the purchase or sale price of investment) of approximately 0.5 percent on each transaction, in addition to a fee. The cost is either a variable percentage based on region and payment method. For example, 1.49 percent for a transaction funded by a US bank account. Or a flat price ranging from $0.99 to $2.99, depending on the amount transferred. (Would you like to learn more? (For further information, see our Coinbase review.)
- Binance US: The US subsidiary of the world’s largest cryptocurrency exchange by volume, Binance.US charges a 0.1 percent fee on all crypto trades (some reductions are available), in addition to a withdrawal fee. The exchange’s selection of more than 50 cryptocurrencies, as well as a variety of crypto-to-crypto trading pairs, is far larger than that of many other US-based cryptocurrency exchanges. (For further information, see our Binance.US review.)
- Gemini: This cryptocurrency exchange situated in the United States trades bitcoin, ether, bitcoin cash, litecoin, and zcash. Transaction fees range from $0.99 to 1.49 percent of the value of your buy or sell, plus a fee of around 0.5 percent. (Learn more about Gemini in our review.)
- This exchange supports the trading of eight different cryptocurrencies, including bitcoin. Coinmama needs a minimum purchase of $60 and charges a 5.9 percent transaction fee (plus an additional 5 percent fee for credit card purchases).
There are currently few traditional brokers that allow consumers the ability to purchase and sell bitcoin. Robinhood was the first prominent investment broker to do so (Robinhood Crypto is available in most, but not all, U.S. states). As with its stock trading platform, Robinhood does not impose commissions on bitcoin deals. TradeStation and eToro both offer crypto trading, including bitcoin, as well as a unique social trading platform that enables users to mimic the actions of popular traders.
Other brokers have indicated that they want to include bitcoin trading in their offerings in the near future.
Additional methods of purchasing or investing in bitcoin
- Bitcoin ATMs. These work similarly to standard ATMs, except that you can use them to buy and sell bitcoin. Coin ATM Radar indicates that there are over 7,000 bitcoin ATMs located throughout the United States.
- Peer-to-peer Bitcoin Owners: You can purchase bitcoins directly from other bitcoin owners via peer-to-peer technologies such as Bisq, Bitquick, and LocalBitcoins.com, similar to how you would purchase products on Craigslist. When purchasing bitcoin directly from individuals, exercise extreme caution.
- Bitcoin Futures: TradeStation allows investors to trade bitcoin futures, but this is professional-level trading, not for the inexperienced. This is how to begin trading futures.
- Grayscale FUnds: Grayscale Investments is a manager of digital currency assets. Grayscale’s two investment trusts — Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Classic Trust (ETCG) — are traded over the counter, which means they can be purchased through a variety of discount brokers. There are fees, and GBTC frequently trades at a premium, meaning that GBTC shares frequently cost more than bitcoin, despite the fact that bitcoin is its sole asset. The reasoning is that some investors are ready to pay a premium to purchase bitcoin via a standard exchange, eliminating the need for wallets and storage.
What you should know before making a purchase
- Keep all necessary information on hand: While creating a cryptocurrency account takes only a few minutes, you will need to supply some information, like your Social Security number and the number for your bank account, debit card, or credit card used to fund your account. Additionally, some providers may require you to have a photo ID. Keep track of and protect any new passwords for your cryptocurrency account or digital wallet (more on those below).
- Avoid using a credit card: Although some providers allow for credit card purchases, investing via a high-interest product such as a credit card is never a wise choice.
- Bitcoin and other cryptocurrency investments are not protected against exchange failures or theft by the Securities Investor Protection Corporation, which insures traditional stock brokerage accounts up to $500,000. While some exchanges, such as Coinbase, offer private insurance, this does not cover specific internet breaches, such as someone obtaining your password.
- Whenever you make financial decisions online, it is critical to have a secure, private internet connection. Purchasing bitcoins while at a coffee shop, hotel room, or other public internet connection is not recommended.
Decide on a method for storing bitcoin
Bitcoins can be held in either a hot wallet or a cold wallet. Transactions are typically faster using a hot wallet, but a cold wallet frequently incorporates additional security measures that assist keep your assets safe but also add time to the transaction.
With a hot wallet, it is stored in the cloud by a reputable exchange or provider and accessed via an app or web browser. Any trading exchange you join will provide you with a free bitcoin hot wallet in which your purchases will be stored automatically. However, many users choose to send and receive bitcoin using a third-party hot wallet provider, which is often also free to download and use.
Why would you use a wallet provided by someone other than an exchange? While proponents assert that bitcoin’s blockchain technology is more secure than traditional electronic money transfers, it hot wallets are a tempting target for hackers. As Bitcoin.org notes, “several exchanges and online wallets have experienced security breaches in the past, and such services generally continue to lack the insurance and security necessary to be used to keep money in the same way a bank does.”
There are numerous hot wallet providers, each offering a different form of wallet. Here are a few examples:
- Coinbase: Coinbase, another well-known currency exchange, offers free online hot wallets and guarantees against losses caused by security breaches or hackers, employee theft, or fraudulent transactions.
- Electrum: Software that enables the storage of bitcoins on a laptop or desktop computer.
- Blockchain: like Coinbase, is an online hot wallet; but, unlike Coinbase, Blockchain is not a currency exchange, making it a less appealing target for hackers.
- Mycelium: A bitcoin wallet designed exclusively for mobile devices, with versions available for Android and iOS users.
While some hot wallet providers offer insurance against large-scale hack attempts, this insurance may not cover isolated instances of unauthorised account access.
A cold wallet is a compact, portable, encrypted device that enables you to download and carry your bitcoin. Although cold wallets can cost up to $100, they are regarded to be significantly safer than hot wallets.
Cold wallet providers include the following:
- Trezor: This startup sells compact, key-sized cold wallets that cost between $80 and $170.
- Ledger Nano: Resembling a thumb drive, Ledger Nano offers cold wallets priced between $60 and $120.
Use a strong password and two-factor authentication when creating accounts for your digital wallets and currency exchange.
Place your order
After connecting your bitcoin wallet to your preferred bitcoin exchange, the final step is the simplest. Which is determining the amount of bitcoin you wish to purchase.
Take control of your investment
If you enjoy day trading, one strategy is to purchase bitcoin today and then sell it if and when its value increases. However, if you believe bitcoin has a future as a digital currency, your investing strategy may be to buy and hold for the long term.
Summary – Is Bitcoin Safe
Each transaction is public, making it extremely difficult to forge Bitcoins, create phony ones, or spend ones you don’t own.
It is possible to lose your Bitcoin wallet or to permanently remove your Bitcoins. Additionally, thefts have occurred from websites that allow you to store your Bitcoins remotely.
The value of Bitcoins has fluctuated throughout the years since they were founded in 2009, and some believe it is risky to convert your real money to Bitcoins
Andrew Bailey, the Governor of the Bank of England, raised this worry in October 2020.
He expressed “great apprehension” about people using Bitcoin for payments. Noting that investors should be aware that the currency’s price is exceedingly volatile.
This meant that the value could plummet at any time and investors could lose a substantial amount of money.