Notes

How to Buy Bitcoin


Making investments in Bitcoin (BTCUSD) may seem complicated, but it is much easier when you cut it in smaller steps. Investing or trading Bitcoin only requires an account with a company or exchange, but further safe storage practices are advised.





There are many things future Bitcoin investors need an account with a cryptocurrency exchange and identification proof if you are using a Know Your Customer (KYC) platform with a secure connection the Internet as well as a method of payment. It is recommended that you keep a private bank account separate from the exchange account. Alternative payment options for this route include bank accounts, debit cards, and credit cards. You can also access bitcoin ATMs at special locations and also through P2P exchanges.





KEY TAKEAWAYS


"The worth of Bitcoin is derived from its use as a store of value as well as a payment system along with its limited supply and decreasing inflation.


* Although it is nearly impossible to for Bitcoin to be hacked but it's still possible that your bank or exchange system to suffer a breach. This is the reason why implementing proper storage and security precautions is crucial.


* You can also purchase bitcoin using mainstream services such as PayPal and Robinhood.


A way to buy bitcoin indirectly is by investing in businesses with bitcoin in their balance reports.


Before You Buy Bitcoin


The security and privacy of your information are critical concerns in the lives of Bitcoin investors. Anyone who acquires the private secret to an address on the Bitcoin blockchain can authorize transactions.1 Private keys must be kept hidden from thieves, as they could try to take them away after they learn about huge assets. Be aware that anyone may look up the balance for a public address you've created. Another benefit of having this kind of information is that anyone can establish multiple public address for themselves. Thus, they are able to distribute their wealth of Bitcoin over many addresses. A great strategy is to keep significant investments at public addresses that aren't directly connected to the addresses that are used in transactions.





Anyone can view a history in transactions done on blockchain -- even you. Even though transactions are recorded publically on the blockchainsystem, identifying details about the user is not. When using the Bitcoin blockchain only the private key appears in any transaction. This makes transactions safe however not completely in any way anonymous. In that sense, Bitcoin transactions can be more easily trackable than cash because all of transactions are public analysis, unlike private transactions. However, Bitcoin transactions also come with an element of anonymity built inside their code. It's difficult for anyone to identify the transacting parties--i.e. the sender and recipient of the bitcoin on the cryptocurrency's blockchain.





Researchers from around the world and the FBI have claimed that they can trace transactions that are made on the Bitcoin blockchain to users' other online accounts, which includes their digital wallets.2 For example, if somebody creates a Coinbase account Coinbase, they must provide their identification.3 In the future, when that person buys bitcoin, it can be traced back to their name. If they send it to another wallet, it can be traced to the Coinbase transaction that is tied to the identity of the account's owner. This should not worry the majority customers because Bitcoin has been legalized in U.S. and most other advanced countries.





Be sure to check out the legal, regulatory, and tax requirements for buying and selling bitcoins in the area you live before transacting.


Buying Bitcoin








We've detailed the steps to buying bitcoin below. You should remember to research the options and select the best option for the situation.





Step 1: Choose an exchange service for crypto or venue


First step in buying bitcoin is choosing an online crypto trading platform or a location. A variety of popular services and venues for purchasing cryptocurrency include transactions, payment options, and brokerages. From these, cryptocurrency exchanges are the best option due to their wide range of features and exchanges using cryptocurrencies.





Making an account with a cryptocurrency exchange allows you to buy, sell and keep cryptocurrency. It is usually best to select an exchange that allows its users to cash out cryptocurrency to their personal online wallets for safekeeping. For those who want to trade Bitcoin or other cryptos, this feature could not be of any importance.





There are many types of cryptocurrency exchanges. Since the Bitcoin philosophy is one of personal sovereignty and decentralization, certain exchanges let users remain anonymous and don't make users fill out specific personal data. They are independent and are often decentralized this means they don't have a central source of control.





Although these systems can serve harmful purposes, they help the worldwide population of people who have no bank accounts. Certain categories of people -- refugees and those living in countries that have no infrastructure for credit from the government or banking, anonymous exchanges could help move them into the mainstream economy.





At present, the most well-known exchanges aren't in a decentralized manner and are subject to laws that have users provide identification documents. To be specific, within the United States, these exchanges comprise Coinbase, Kraken, Gemini, FTX, and Binance.US Just to name a few. These exchanges have risen significantly with regards to the amount of features they provide.





The crypto universe has grown quickly in the past decade with a multitude of new tokens that are competing for dollars from investors. The exception is Bitcoin and some prominent coins, such as Ethereum, not all of the tokens listed are on all exchanges. Each exchange has its own set-of criteria which determine whether to add or restrict trading of specific tokens.





Coinbase, Kraken, and Gemini provide Bitcoin along with a growing selection of altcoins. They're the most straightforward on-ramps for crypto within the entire cryptocurrency industry. Binance is for an advanced trader, and offers greater trading capabilities and greater variety of cryptocurrency choices. FTX is a rapidly-growing crypto exchange that has a multibillion-dollar valuation, offers only a limited amount of altcoins for U.S. investors.4 However, traders outside those from the U.S. have a greater variety of coins available on its platform.





One important aspect to take into consideration when creating an account for cryptocurrency exchange is the need to employ secure Internet practices. This is done by using two-factor authentication. one long, unique password that includes a range of lowercase letters, capitalized or lowercase letters along with special characters and numbers.





El Salvador made Bitcoin legal tender on September 7, 2021. It was the first country to do so.5 Bitcoin can be used as a substitute for currency for any type of transaction that the company can accept it. A U.S. dollar continues to remain El Salvador's currency of choice.


Step 2. Connnect your exchange with your payment option


When you've selected an exchange, you will have to collect your personal documents. Dependent on the exchange, you may need to include images of your driver's license, Social Security card, as along with information regarding your employer as well as the source of money. The information you require may vary based on the state you reside and the laws that apply to it. The procedure is basically similar to opening a traditional brokerage account.





Once the exchange has confirmed the authenticity of your account, you will be required to connect to a payment service. On most exchanges you can connect to your bank account through the account or connect a credit or debit card. While you may use a credit card to purchase cryptocurrency, it is unwise because fluctuation in the price of cryptocurrency can raise the total cost of purchasing a coin.





Bitcoin can be legally used in the United States, but some banks may be reluctant to accept or prevent deposits to crypto related sites or exchanges.6 It is it's a good idea for yourself if your bank permits deposits to the exchange you prefer.





There are varying fees for the deposit of money through a bank account such as debit or credit card. It is imperative to find out fees for each payment option to help you choose an exchange, or select the payment method that works best for you.





Exchanges can also charge fees per transaction. These fees can be the form of a flat rate (if the amount traded is very low) or an amount that is a percentage of the trade amount. Credit card transactions incur a processing fee in addition to the transaction fees.





Step 3. Place an order


You can purchase bitcoin (or other cryptocurrency) after selecting an exchange and connecting to a payment method. In the past few years cryptocurrency exchanges have slowly becoming more prevalent. They have increased significantly in terms both of liquidity and their variety of features. Changes in the operations at exchanges for cryptocurrency are mirrored by the change in the way people perceive cryptocurrencies. An industry that was believed to be a scam or one that had questionable practices is now slowly becoming legitimate and has attracted attention from all major players in the industry of financial services.





Today, cryptocurrency exchanges have evolved to the point where they're equipped with the same range of features that they have as their counterparts who are stock brokers. These exchanges provide various types of orders and ways to invest. Most crypto exchanges provide both limit and market orders. Some also offer stop-loss order. Of the exchanges mentioned above, Kraken offers the most sorts of orders. Kraken accepts market, limit, stop-loss, stoplimit, take-profit, and take-profit limit orders.7





Apart from the various kinds of orders, exchanges provide the option of setting up ongoing investments, allowing investors to incorporate a dollar-cost average into their funds of choice. Coinbase is one example. It lets customers set recurring purchases to be made every day, week, or month.8





Step 4: Secure storage


Cryptocurrency and Bitcoin wallets provide a place to store digital assets more securely. When you store your cryptocurrency outside of the exchange and in your own wallet will ensure that only you have control over the private key to your money. Additionally, it gives you the ability to secure your funds from exchanges and eliminate the risk of your exchange getting hacked and the loss of your funds.





Although the majority of exchanges offer wallets to their customers, security is not their primary business. We generally don't recommend the use of an exchange wallet for larger or longer-term holdings in cryptocurrency.





Some wallets provide more features than other wallets. Some are Bitcoin only, while some are able to store multiple altcoins. Some wallets also provide the option of swapping one token for another.





When you're trying to decide on the right Bitcoin wallet, there are several choices. First, you'll have to be aware of about crypto wallets is the notion of hot wallets (online wallets) and cold wallets (paper or physical wallets).





Hot wallets


It is also referred to for their hot-looking wallets. Hot wallets operate using Internet-connected devices such computers, phones, or tablets. They can be vulnerable because hot wallets create private keys to the coins in these devices connected to the Internet. While a hot wallet could be extremely useful in the method that you can access and transact with your assets in a short time, storing your private keys in an internet-connected device can make it more susceptible to a attack.





This may sound farfetched even to some, but people who aren't putting in enough security risk having their money stolen. This is not an infrequent event, and it could be triggered in many ways. For instance, boasting in a public forum such as Reddit about the amount of bitcoin you've got while the wallet has little to no security and keeping it in a hot wallet might not be a good idea. Although, these accounts can be secured so that precautions are taken. Strong secure passwords, 2-factor authentication and secure Internet browsing should be considered essential necessities.





They are great for small amounts or any cryptocurrency that you're actively trading with an exchange. It is possible to compare a hot wallet to a bank account. Common wisdom on finance suggests to only put money spent in a checking or savings account while most of your money is stored in savings accounts or other investment accounts. It is the same in the case of wallets that are hot. Hot wallets can be described as mobile, desktop, web and exchange account custody wallets.





As mentioned previously, exchange wallets are custodial services provided by exchange. The owner of this form is not owner of the public key to the cryptocurrency held in this wallet. If an event should occur that the exchange breached or your account is compromised, then you'd lose your funds. The phrase "not your key, not your coin" is frequently repeated on cryptocurrency forums and communities.





Cold wallets


The simplest way to describe the cold wallet is that it is not tied to Internet and therefore stands at greater risk of being compromised. These wallets might also be described as offline wallets or even hardware wallets. These wallets store a user's private key on something that isn't connected to the internet. They can also come with software that works in parallel so that the user has access to their account without putting their private key at risk.





Perhaps the most secure way to keep cryptocurrency offline is using a paper wallet. Paper wallets are account that can be generated by visiting certain websites. It then produces both private and public keys that can be printed on a piece of paper. Access to the cryptocurrency stored in these accounts is only possible when you possess the piece of paper that is protected by the private key. Many people laminate these cash wallets with paper and store them in safe deposits at their bank or even in a secure in their home. These wallets are designed for more secure and long-term investments due to the fact that you are unable to swiftly sell or trade bitcoins stored in with these wallets.





A more popular kind of cold device is a hardware wallet. The typical hardware wallet is an USB drive device that stores the private keys of a user offline. Such wallets have serious advantages over hot wallets in that they are immune to viruses that could infect one's computer. Hardware wallets ensure that private keys never come in contact with your computer's network or potentially vulnerable software. These devices are also typically open source, allowing the community to gauge their security using audits of the code, not a company claiming they are reliable to operate.





It is believed that cold-money wallets provide the most secure way to store bitcoin or other cryptocurrencies. However, they require more technical know-how to set up.





A good method of setting the wallets you want to use is to have three things one of which is an exchange bank account that allows you to purchase and sell products an exchange account, a hot bank account to hold small to medium amounts of crypto that you intend to trade or sell or trade, and a cold bank account to store larger amounts for longer-term periods.





How to Buy Bitcoin With PayPal


Bitcoin can also be purchased through payment processor PayPal Holdings, Inc. (PYPL). There are two methods to buy bitcoin through PayPal. The first and simplest option is to purchase cryptocurrency with your PayPal account, which is linked to a financial institution like a check or debit card. Another option is to use the balance in your PayPal account to purchase cryptocurrencies through a third-party service. This isn't exactly as efficient as the other because few third-party websites allow users to purchase bitcoin with it's PayPal button.





Four cryptocurrencies--Bitcoin, Ethereum, Litecoin, and Bitcoin Cash--can be purchased directly through PayPal.9 With the exception of those who live in Hawaii, residents of all states can either use their existing PayPal accounts or set up new ones. You can also use your cryptocurrency to buy products or services using"Checkout With Coin "Checkout With Crypto" feature.10





To set up a crypto account with PayPal The following information is needed: name, physical address or address, birth date along with a tax identification number.11





It is not possible using a credit/debit card to buy Bitcoin using PayPal. While you are buying the Bitcoin, PayPal will display a price for the cryptocurrency. But , the price can be subject fluctuation due to the volatility of cryptocurrency markets. It is a good idea to be sure to have more than the cost which you budgeted in your account at the bank.





When you buy bitcoin directly via PayPal this company, you earn via the crypto spread. It is the gap between the price at which Bitcoin is traded and its exchange rate USD. PayPal is also charged a transaction fee per transaction. The amount of the fee depends on the amount in dollars of the purchase. For example the flat cost of $0.50 is due for purchases ranging from $100 to $200. After that, the fee is a percentage of the overall dollar amount. For instance, a fee of 2% of the amount total is due for transactions between $100 to $200.12





The main drawback of buying cryptocurrencies through PayPal is that you aren't able to transfer the cryptocurrency out of the processing platform of the payment processor. Thus, it's not possible to transfer your purchased bitcoin from PayPal's wallet to another crypto-wallet, or your personal wallet.11





Another disadvantage to using PayPal is that only a handful of exchanges and online traders allow you to make use of the payments processor to make payment. eToro is one of the few online retailers that allow users to use PayPal to purchase bitcoins on its platform.13





How to Buy Bitcoin With a Credit Card


The procedure for buying bitcoin with credit cards is the same as the method for purchasing it via debit cards , or through Automated Clearing House (ACH) transfer. You'll have to input your credit card information with the online trading or exchange firm and they will then authorise the transaction. The general rule is that it's not a smart idea to purchase bitcoin with credit cards. There are a few motives for this.





First of all, the majority of exchanges don't allow bitcoin purchase using credit cards due to processing fees and the risk of committing fraud. This could work to be in the best interest of the customers. This is because credit card processing might be able to add additional charges to transactions. Therefore, in addition to the transaction fee You will be charged with processing costs which the exchange can pass onto you.





The other reason is that purchase with credit cards can be costly. Credit card issuers consider bitcoin purchases as cash advances and charge high fees and interest rates for such advances. For instance, American Express and Chase both count purchases made with cryptocurrencies as cash advance transactions. If you purchase $100 worth in bitcoin using the American Express card, you have to pay $10.00 (current cash advance fee for the transactions) plus the annual percentage rate of 25%. Further, the credit card firm also limits the amount of bitcoin transactions per month.14





An alternative way to purchase bitcoin with a credit or debit card is to use one of the Bitcoin rewards credit card. These cards function in the same manner as your typical rewards credit credit card except they offer rewards in the way of bitcoin. Also, they invest cash back that is earned from purchases into Bitcoin. One illustration of a Bitcoin rewards credit card would be BlockFi Bitcoin Rewards Credit Card.15 Beware, however that the annual fees for the cards could be hefty and may also be added charges for the conversion of fiat currency into crypto.





Even though exchanges such as Coinbase or Binance remain among the most popular methods to purchase Bitcoin But they're by no means the only means.


Alternative Ways to Buy Bitcoin


Bitcoin ATMs


Bitcoin ATMs act like in-person bitcoin exchanges. You can use cash inside the machine which can then be used to buy bitcoin that is then sent to digital wallets for users. Bitcoin ATMs are more commonplace in recent years. Retail large Walmart Inc. (WMT) is trying out a pilot program that will give its customers the option to purchase bitcoin. Coin ATM Radar can help locate nearby ATMs.





However ATMs aren't cheap option. There are two charges that are associated with ATM bitcoin transactions in the form of a purchase fee as well as an expense to convert a fiat currency to bitcoin. The fees for both are quite steep when compared with other alternatives. For example, in the world, the average purchase fee that Bitcoin ATMs charge is 8.4% (of the amount of purchase) and 5.4 percent for sales at ATMs.16





Be aware, however, that Bitcoin ATMs increasingly require government-issued IDs beginning in 2020.


Exchanges between P2P


In contrast to decentralized exchanges that offer buyers and sellers a secure way to communicate and manage all aspects of the transfer, there's a few peer-to-peer (P2P) exchanges that facilitate a better connection between users. LocalBitcoins is an example of this type of exchange. Once an account has been created, users can send requests to buy or sell bitcoin. The request must include details about payment methods, as well as prices. Users then browse through listings of buy and sell offers before selecting the traders with whom they want to transact.





LocalBitcoins can facilitate certain aspects of trading. Although P2P exchanges don't provide the same anonymity as decentralized exchanges but they provide users with an opportunity to shop around to find the best price. Some of these exchanges have rating systems, so that customers can evaluate potential trade partners before making any transactions.





Mainstream brokerages


There are very few brokerages that offer bitcoin purchase and trading capabilities because of the uncertainty around the legal status of cryptocurrency. Robinhood Markets, Inc. (HOOD) the app, which is highly regarded by investors at retail, is one such exchange that provides cryptocurrency trading facilities. It charges 0% commissions on cryptocurrency trades as well as purchases . It earns its money through money received for order flow and transferring its trading volume to additional trading platforms as brokerages.17





The absence of a commission fee could be an attractive proposition for beginners, but there are some problems with this offering. To begin, Robinhood isn't equipped with the breadth of features and coins that are offered by the most prominent crypto exchanges like Coinbase. Robinhood has enabled trading on its platform for seven currencies: Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Dogecoin, and Ethereum Classic.18 However, Coinbase can exchange more than 100 cryptocurrency on Coinbase.19 It also offers different types of orders to reduce risk and mitigate losses during trading.





The Robinhood platform also does not have an online wallet. Therefore, if you intend to buy crypto through Robinhood, you will have add additional costs for an online wallet provider.





Bitcoin and other cryptocurrency investments aren't protected by insurance policies from the Securities Investor Protection Corporation (SIPC). In normal brokerages this insurance company protects against the loss of cash and securities brokerage accounts with an amount of up $500,000, with a $250,000 cash limit.20 This insurance option isn't available to customers at cryptocurrency exchanges. Cryptocurrency exchanges like Coinbase have crime insurance to guard their infrastructure against attacks. But , this type of insurance cannot shield individual customers from password theft.21


How to Sell Bitcoin


You can sell bitcoin in the same places where you purchased the cryptocurrency including cryptocurrency exchanges, and P2P platforms. Usually, the process of selling bitcoin through these platforms is similar to the buying process.





For instance, you might just need to click one button and indicate the type of order (i.e. and whether or not the cryptocurrency is sold immediately at the cheapest price or it is sold to prevent losses) to complete the sale. Based on the composition of the market and demand in the area, the offering price for Bitcoin could vary. For instance, exchanges in South Korea traded bitcoin at the so-called kimchi rate during the price increase in the year 2018.





Coinbase, a cryptocurrency exchange, charges a percentage of the cryptocurrency sale amount in fees. For example, Coinbase charges 2.49% of the transaction amount as fees.22





Exchanges typically have daily and monthly withdrawal limitations. Therefore, the proceeds from the sale of a significant amount may never be available immediately to the seller. There are no limits on the amount of cryptocurrency that you can sell, however.





What Are the Steps for Purchasing Bitcoin?



The process to buy bitcoin consists of four steps: choosing the appropriate venue or exchange for you for your order as well as selecting a payment option as well as ensuring safe storage for your cryptocurrency purchase. Depending on the location you choose in the initial step, there may be additional steps required in the process. For instance, if you purchase the cryptocurrency from Robinhood there may be a need to calculate additional costs for an online wallet or custody of your bitcoin , as it does not offer these services.





What Are the Most Popular Venues for Buying Bitcoin?


The most popular places for buying bitcoins are cryptocurrency exchanges and brokerages (crypto and standard) along with payment services such as PayPal. You can also buy Bitcoin through P2P exchanges. In order to acquire bitcoin in indirect form you can also invest in companies that have bitcoin on their balance sheets. For instance, Tesla, Inc. (TSLA) or MicroStrategy Incorporated (MSTR).2324





How Much Should I Expect to Pay to Purchase Bitcoin?


The typical cost for buying bitcoin is the cost of trading plus the cost for converting a foreign currency (generally dollars) to bitcoin. (Cryptocurrency exchanges and payment services make money out of this conversion spread.) The cost per trade is dependent on what amount in dollars is the trade. Higher amounts of trade carry higher fees. Cost of purchasing depends on features offered by the location. For example, Robinhood does not currently provide an online wallet that allows keeping bitcoin. Thus, you'll have to budget for costs associated with an online wallet purchase.





Besides Cryptocurrency Exchanges, Where Else Can I Buy Bitcoin?


Bitcoin can also be purchased at these locations:


* Through Bitcoin ATMs


• Online payment services such as PayPal


* At mainstream brokerages like Robinhood





Is My Bitcoin Purchase Protected by SIPC?


Your bitcoin purchase is not covered by SIPC.20 For certain exchanges like Coinbase account balances with fiat currencies in private accounts can be insured under FDIC to the tune of $250,000 per account.21





The Bottom Line


The process of purchasing bitcoin is slightly more complicated when compared to purchasing stock or shares in the normal way. This is mainly because the blockchain and cryptocurrency infrastructure aren't as well-developed as those of mainstream trading.





A bitcoin purchase process consists from four steps: choosing an option or a place to make this purchase. Connecting with a payment method, placing an order, as well as ensuring the safe storage of your purchased cryptocurrency. Each step requires extensive research and careful review of pros and pros of each service. You can also buy bitcoin at Bitcoin ATMs and from payment service providers like PayPal and more traditional brokerages like Robinhood.












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