Notes

How to Buy Bitcoin


Investments in Bitcoin (BTCUSD) can seem difficult, but it's much simpler when you break it down into steps. When you invest or trade, Bitcoin only requires the creation of an account on a service or exchange. However, more secure storage practices are advised.





There are several items that potential Bitcoin investors should have in order to invest: a cryptocurrency-exchange account in addition to personal identification documents for those who use a Know Your Customer (KYC) platform and a secure connection to the Internet, and a method to pay. It is also suggested to have a private wallet, separate from your exchange account. Alternative payment options for this option include bank accounts that accept debit cards, as well as credit cards. You can also access bitcoin ATMs at special locations and via P2P exchanges.





KEY TAKEAWAYS


"The value" of Bitcoin is derived from the fact that it is a popular store of value as well as a payment system as well as its finite supply and decreasing inflation.


* While it's almost impossible to allow Bitcoin itself to be hacked but it's still possible for your exchange or wallet system to suffer a breach. That's why using secure security and storage practices are essential.


* You can also buy bitcoin through the main services like PayPal as well as Robinhood.


* One method to hold bitcoin in indirect ways is to invest in businesses with bitcoin in their balance sheet.


Before You Buy Bitcoin


Security and privacy is one of the major concerns when it comes to Bitcoin investors. Anyone who obtains the private password to a publicly accessible address using the Bitcoin blockchain can sign off on transactions.1 Private keys must be kept private as criminals could attempt to take them away once they know of your large accounts. Make sure that you are aware that anyone could observe the balance of the private address you've registered. However, the flip side of this kind of information is that you can make multiple public accounts for themselves. Therefore, they could distribute their stash of Bitcoin across several addresses. One option is to hold large investments at public addresses that are not directly linked to those that are used in transactions.





Anyone can review a log of transactions performed on blockchain -- even you. Although transactions are recorded publicly on the blockchain, identifying personal information of the user isn't. On the Bitcoin blockchain, only a user's private key appears in any transaction. This makes transactions safe however not completely confidential. However, transactions are not. In this regard, Bitcoin operations are more transparent and traceable than cash due to the fact that all of them are open for public viewing, in contrast with private cash transactions. But Bitcoin transactions also have some element of privacy built as part of their design. It's very difficult discover the transacting parties--i.e., the recipient and the sender of bitcoin--on the blockchain of the cryptocurrency.





International researchers and the FBI have claimed that they can verify transactions carried out on the Bitcoin blockchain with users' other online accounts, which includes their digital wallets.2 For example, when the user creates an account through Coinbase the account holder must verify their identification.3 Now, when that buyer purchases bitcoin, it is linked to their identity. When they transfer it to other wallets, it could still be traced back the Coinbase purchase which is tied to the account holder's name. This shouldn't cause concern to most investors as Bitcoin is legal in the U.S. and most other developed countries.





Make sure you check the legal, regulatory and tax laws for purchasing and selling bitcoin based on where you reside prior to completing transactions.


Buying Bitcoin








We've broken down the steps involved in purchasing bitcoin in the following steps. You should remember to research your options and decide on the best option for your situation.





Step 1: Choose an exchange service for crypto or a venue


The first step in buying bitcoin is to select a crypto trading service or venue. Most popular venues and trading services to buy cryptocurrencies include exchanges, payment services, and brokerages. The cryptocurrency exchanges are by far the most convenient option because they offer a wide range of features and different cryptocurrencies that can be traded.





Making an account with a cryptocurrency exchange lets you purchase, sell and hold crypto. It is generally recommended using an exchange service that allows users to withdraw crypto into their account online for safe keeping. For those who want to trade Bitcoin or any other cryptocurrency, this may not be a problem.





There are many types that offer cryptocurrency exchanges. Since the Bitcoin concept is about individual sovereignty and decentralization certain exchanges permit users to remain anonymous and do not have to require specific personal data. These exchanges operate as autonomous entities and are typically decentralized, so they don't have a central source of control.





Although these systems could serve harmful purposes, they also provide benefits to the majority of the world's population that is not banking. Certain categories of people -- refugees or those who reside in nations that have no infrastructure for government credit or banking, anonymized exchanges can bring them into mainstream economy.





At the moment, many of the major exchanges aren't decentralized , and they follow regulations that make users submit identifying documentation. In the United States, these exchanges include Coinbase, Kraken, Gemini, FTX, and Binance.US These are just a few. The exchanges have seen a significant increase in terms of features they provide.





The crypto universe has grown exponentially in the past decade With a variety of new tokens to compete for investors' dollars. With the exception of Bitcoin and a handful of other well-known coins like Ethereum but not all of these tokens are listed on all exchanges. Each exchange has their own set of rules for determining whether to accept or exclude trading of specific tokens.





Coinbase, Kraken, and Gemini provide Bitcoin and a broader range of altcoins. They're probably the easiest on-ramps to crypto that exist in the market. The Binance platform is targeted at an advanced trader, offering more robust trading functions and greater variety of cryptocurrency options. FTX is a rapidly expanding crypto exchange with the valuation of a multibillion dollar, provides only a limited amount of altcoins to U.S. investors.4 However, investors outside of to the U.S. have a greater option of tokens offered on its platform.





An important thing to note when setting up a cryptocurrency exchange account is to use safe Internet practices. This includes two-factor authentication and lengthy, unique password that comprises a variety 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 is able to serve as a form of currency in any transaction that a business is able to accept it. The U.S. dollar continues to serve as El Salvador's main currency.


Step 2: Link your Exchange to a payment option


If you've made a decision to go with an exchange, you'll need to gather your personal documents. If you are using an exchange, these may include pictures of a drivers license or Social Security card, as and information about your employer and source of money. The information you'll require could depend on the specific region you reside in and the laws in it. It's basically similar to creating a typical brokerage account.





Once the exchange has confirmed the authenticity of your account, you will be asked to connect an option for payment. Most exchanges can connect your bank account with a single click or connect a debit or credit card. Although you can use a credit card to buy cryptocurrency, it is not recommended because the price fluctuations of cryptocurrency could raise the price of buying a coin.





Bitcoin is legal within the United States, but some banks may not allow or prevent deposits to crypto related sites or exchanges.6 It is it's a good idea to see if your bank is able to accept deposits at the exchange you have chosen.





There is a variety of fees that apply to the deposit of money through a bank account, debit, or credit card. You should research the costs that come with each option of payment to help you choose an exchange, or choose which payment option works most effectively for you.





Exchanges can also charge fees per transaction. These fees can either be an all-inclusive fee (if the trading value is minimal) or some percentage of the trading amount. Credit cards are charged an additional processing charge as well as transaction fee.





Step 3: Place an order


Bitcoin can be purchased (or other cryptocurrencies) after selecting an exchange option and connecting a payment option. In recent years cryptocurrency exchanges are slowly become more commonplace. They have grown substantially with regard to liquidity and the variety of features available. Changes in the operations at bitcoin exchanges are similar to the change in the perception of cryptocurrency. An industry that was once thought of as a scam or with questionable practices is slowly morphing into legitimate and has attracted the attention of all the big players in the industry of financial services.





These days, cryptocurrency exchanges have gotten to a point where they are able to offer nearly the same amount of features as their counterparts in the stock brokerage industry. The cryptocurrency exchanges of today provide different types of orders and ways to invest. A majority of cryptocurrency exchanges offer both market and limit orders, and some also offer stop-loss order. Of the exchanges listed above, Kraken offers the most order types. Kraken supports market, limits, stop-loss orders, stop limit as well as take-profit and limit orders.7





In addition to a range of sorts of orders, exchanges provide options for setting up the possibility of recurring investments. This allows customers to create a dollar-cost-average into their investment options. Coinbase, for example, lets users set up recurring purchase to be made every day, week, or month.8





Step 4: Secure storage


Blockchains, cryptocurrency or Bitcoin provide an ideal place to store digital assets with greater security. A crypto wallet that is separate from the exchange and stored in your personal wallet makes sure that only you are the only person who has control over the private key to your money. Also, it gives you ability to keep your funds separate out of an exchange. This will help you avoid the possibility of your exchange being hacked and causing loss of funds.





While most exchanges provide wallets to their customers, security isn't their main business. We do not generally recommend the use of exchange wallets for significant or long-term investments in cryptocurrency.





Some wallets are more advanced than others. Some are Bitcoin only, while some are able to hold multiple types of altcoins. Certain wallets also have the ability to exchange one token with another.





When it comes to selecting an Bitcoin wallet, you have several options. The first thing you will need to learn about crypto wallets is hot wallets (online wallets) and cold wallets (paper or physical wallets).





Hot wallets


Internet-connected wallets have also been referred to as "hot wallets. Hot wallets operate on Internet-connected devices such as computers, phones, or tablets. This is a security risk since hot wallets create private keys to your bank accounts through these internet-connected devices. Although a hot-wallet can provide convenience in the manner that you can access and transact with your assets rapidly, storing your private key with an internet-connected device makes it more susceptible to a attack.





It might sound like a lot of work, but hot wallet holders who don't have enough security could be at risk of losing money to theft. It's not a rare situation and it could occur in several ways. For example, you could boast on a popular forum such as Reddit about how much bitcoin you've got while you are using little to none security and storing it in a hot bank account would not be sensible. The fact is, these wallets can be secured as that precautions are taken. Strong usernames, two-factor authentication and secure Internet browsing should be considered the minimum specifications.





These wallets are suitable for smaller amounts or cryptocurrency that you're engaging in exchange trading. You can compare a hot wallet to a bank account. Conventional financial wisdom would say that you should keep your money only for spending in a savings or checking account, but most of your money is stored in savings accounts or other investments accounts. The same is true regarding hot wallets. Hot wallets can be described as mobile, desktop, web and exchange accounts custody wallets.





As stated previously, exchange clients are custodial wallets that are offered by the exchange. The owner of this sort is not holder of the private key for the cryptocurrency stored within the wallet. In the event of an event to occur , where the exchange becomes hacker-proof or your account is compromised, it would be lost your money. The phrase "not your key, not your coin" is heavily repeated on cryptocurrency forums and communities.





Cold wallets


The most simple way to describe an offline wallet is that it isn't associated with the Internet and is therefore at a far lesser risk of being in danger of being hacked. These wallets could also be called offline wallets or hardware wallets. They save the user's private keys on a device that isn't connected to the internet. They are also equipped with software that works in parallel, so that the user is able to see their portfolio , without putting their personal key at risk.





Perhaps the most secure way to save cryptocurrency offline is via a paper wallet. Paper wallets are wallet that can be created on certain websites. It then generates public and private keys that are printed out on paper. Access to the cryptocurrency stored in these accounts is only possible when you have the piece of paper that contains the private key. Many people laminate these plastic wallets to store them in safe deposit boxes in their banks or even in a secure at home. These wallets are made for long-term investments and high security because they are not able to quickly sell or trade bitcoin stored through this method.





A more popular kind of cold cash wallet is a wallet made of hardware. Hardware wallets are generally comprised of a USB drive that holds personal keys of the user offline. The benefits of such wallets are substantial over hot wallets since they are immune to malware that could affect a computer. With hardware walletsyour private keys never come into contact with your network-connected computer or other software that is potentially vulnerable. These devices are also typically open source, which allows people to check the security of their devices through code audits , rather than a firm declaring that they're safe to use.





In fact, cold wallets can be described as the best and most secure way to store bitcoin or other cryptocurrencies. However, they require more technical expertise to setup.





An effective way to set the wallets you want to use is to have three things: an exchange account for selling and buying the hot wallet, which can store small or medium amounts of crypto you want to trade or sell and a cold hard-copy wallet for holding larger sums with a longer time-frame.





How to Buy Bitcoin With PayPal


Bitcoin can also be bought via the payment processor PayPal Holdings, Inc. (PYPL). There are two options to purchase bitcoin using PayPal. The most efficient and convenient method is purchasing cryptocurrencies with your PayPal account that is connected to a payment method like a checking account with a debit or credit card. The second option is to use the balance in account balances in your PayPal account to buy cryptocurrencies from a third-party company. This isn't more convenient than the first since very few of the third-party sites allow customers to purchase bitcoin by using that 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. It is also possible to use the cryptocurrencies you have to buy items and services through PayPal's "Checkout With Crypto" feature.10






To create a crypto account through PayPal it is necessary to provide the following details is required include: name, physical addresses and birth date as well as a tax ID number.11





It isn't possible to use a credit card to buy Bitcoin using PayPal. When you purchase, PayPal will display a price for the cryptocurrency. The price, however, is subject change rapidly due to the volatility of cryptocurrency markets. It is a good idea to ensure you have more money than the amount you estimated for the purchase in your savings account.





When you purchase bitcoin from PayPal it earns profit from the spread of crypto or the difference between the market price of Bitcoin or exchange rates USD. The company will also charge a transaction fee for each purchase. These fees depend on value of the purchase. For example, a flat charge of $0.50 is paid for purchases between $100 to $200. After that, fees are proportional to the overall dollar amount. For instance, a charge of 2 percent of the purchase price is payable for purchases of crypto between $100 and $200.12





A disadvantage to buying cryptocurrency via PayPal is that you can't transfer the crypto outside the payments processor's system. So, it's not possible for you move your bitcoin from PayPal's wallet to your external wallet for crypto or your personal wallet.11





Another disadvantage of using PayPal is that only a few online and offline traders permit you to make use of the payments processor to purchase payments. eToro is one of the few online marketplaces that allow it to utilize PayPal to purchase bitcoin through its platform.13





How to Buy Bitcoin With a Credit Card


The procedure of purchasing bitcoin using credit cards is similar to the process for purchasing it using debit cards or through computerized clearinghouse (ACH) transactions. You'll have to input your credit card's details into the exchange or online trading firm and then authorize the transaction. In general, , it is not a good decision to buy bitcoin using credit cards. There are a few factors to consider.





First of all, not all exchanges allow bitcoin purchases with credit cards due to processing fees as well as the risk of fraud. The decision could be in the best interests of consumers. This is because credit card processing could be able to add additional charges to transactions. Therefore, in addition to paying transaction fees, you will end up with processing charges that the exchange will pass on to you.





The second reason is because credit card purchases can be costly. Credit card issuers treat bitcoin purchases as cash advances, and apply hefty fees as well as high interest rates on advances. For example, American Express and Chase both treat purchases of cryptocurrency to be cash advance payments. Thus, if it is possible to purchase $100 worth in bitcoin using the American Express card, you are required to pay just $10 (current cash advance fee applicable to these transactions) and the annual percentage rate of 25%. In addition, the credit card's provider limits you to making $1,000 worth of bitcoin transactions per month.14





An alternative method of purchasing bitcoin using credit cards is by acquiring an Bitcoin rewards credit card. These cards function similar to your usual rewards credit card but they grant rewards in way of bitcoin. So, they invest the earnings from purchase into Bitcoin. One illustration of an Bitcoin rewards card is the BlockFi Bitcoin Rewards Credit Card.15 Be aware that the annual fees for these cards can be very high as well as the costs associated to the conversion of fiat currencies to crypto.





Although exchanges , such as Coinbase or Binance remain among the most used methods to buy Bitcoin but they're not the only method.


Alternative Ways to Buy Bitcoin


Bitcoin ATMs


Bitcoin ATMs act like in-person bitcoin exchanges. Customers can simply insert money into machines and then use it to purchase bitcoin. It is then transferred to online wallets for users. Bitcoin ATMs are becoming more commonplace in recent years. Retail massive Walmart Inc. (WMT) is trying out a pilot program that offers customers the possibility of buying bitcoin. Coin ATM Radar can help to locate the closest ATMs.





However ATMs aren't cheap alternative. There are two charges that are associated with ATM bitcoin transactions that include a fee for purchase and an exchange fee to convert an exchange rate from fiat to bitcoin. The fees for both are quite steep as compared to other alternatives. For instance, the global average cost for purchases 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 are increasingly requiring government-issued IDs from early 2020.


Exchanges P2P


Instead of decentralized exchanges, that connect sellers and buyers anonymously and handle all aspects of the trade, there's peer-to-peer (P2P) exchanges that allow a much more direct link between users. LocalBitcoins is an example of such an exchange. Once an account is created, users can make requests to buy or sell bitcoin. This includes details about payment methods and prices. They can then peruse listings of buy and sell offers, choosing the trading partners with whom they wish to do business.





LocalBitcoins aids in some aspects of the trading. While P2P exchanges do not offer the same anonymity as decentralized exchanges, they also give customers an opportunity to shop around to find the best price. Most of these exchanges have rating systems in place so that buyers have a way to evaluate potential trade partners prior to transacting.





Mainstream brokerages


Very few mainstream brokerages offer bitcoin trading and purchase capabilities due to uncertainty about the legality of cryptocurrency. Robinhood Markets, Inc. (HOOD) is an application widely used by retail investors is an exchange that provides cryptocurrency trading facilities. It charges 0% commissions for cryptocurrency trading and purchases . It makes money from the payment of order flow, passing its trading volume onto various trading platforms and brokerages.17





The absence of a commission charge may be an enticing prospect for newbies, but there are some catches to that offer. To begin, Robinhood doesn't have the number of features or coins offered by prominent crypto exchanges such as Coinbase. Robinhood allowed trading on its platform to trade seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Dogecoin, and Ethereum Classic.18 As a contrast, you can trade more cryptocurrencies than 100 with Coinbase.19 It also offers different types of orders to reduce the risk and minimize losses when trading.





The Robinhood platform doesn't have an online wallet. Therefore, if you want to buy crypto through Robinhood the platform, you'll have to account for additional costs to an online wallet service.





Bitcoin and the other crypto investments aren't covered by insurance under an insurance company like Securities Investor Protection Corporation (SIPC). In regular brokerages the organization protects against the loss of cash and securities in account with brokerages that are up to $500,000, and has a $250,000 cash limit.20 The insurance isn't accessible to clients who use cryptocurrency-related exchanges. Exchanges for cryptocurrency like Coinbase have insurance for crime to safeguard their infrastructure from hacks. However, the insurance does not guarantee protection for individual customers against password theft.21


How to Sell Bitcoin


You can sell bitcoin at the same locations where you bought the cryptocurrency like cryptocurrency exchanges or P2P platforms. In general, the procedure of selling bitcoin on these platforms is similar to how you purchase it.





In this case, for instance, you could just need to click the button and choose an order type (i.e. what type of order, whether the cryptocurrency is sold immediately at available prices or whether it should be sold in order to be able to limit losses) in order to conclude the sale. Based on the composition of the market and demand at the time of the sale and location, the sale price for Bitcoin can differ. Exchanges for example in South Korea traded bitcoin at Kimchi's premium, also known as the upswing in Bitcoin's prices in the year 2018.





Exchanges for cryptocurrency charge a percentage percent of the price for crypto as fees. For example, Coinbase charges 2.49% from the total transaction amount as fees.22





Exchanges generally have daily and monthly withdrawal limits. Therefore, cash from an extensive sale may not be immediately available to the trader. There are no restrictions on the amount of cryptocurrency you are able to sell, however.





What Are the Steps for Purchasing Bitcoin?


The procedure to buy bitcoin is comprised of four steps: selecting an exchange or a location for your order as well as selecting a payment option and ensuring that your data is safe for your purchase. The type of place you have chosen for the first process, there may be more steps involved in this procedure. For instance, if you make a purchase of the cryptocurrency through Robinhood you may need factor in additional costs for an online wallet and custody for your bitcoin because they do not provide these services.





What Are the Most Popular Venues for Buying Bitcoin?


The most popular options for buying Bitcoin are cryptocurrency exchanges brokers (crypto and conventional) and payment companies such as PayPal. You can also purchase Bitcoin from P2P exchanges. To acquire indirect ownership of bitcoin You can invest in businesses that hold bitcoin on their financial statements, like Tesla, Inc. (TSLA) or MicroStrategy Incorporated (MSTR).2324





How Much Should I Expect to Pay to Purchase Bitcoin?


Typically, the cost of purchasing bitcoin consists of fees per trade, plus charges to convert cash currency (generally dollars) to bitcoin. (Cryptocurrency exchanges and payment processing services make money on this conversion spread.) Fees per trade are dependent on the dollar amount of the trade. Higher amounts of trade bring higher costs. The cost of the purchase depends on the services offered by the provider. For example, Robinhood does not currently provide an online account for the storage of bitcoin. So, you'll need to budget for costs associated with an online wallet purchase.





Besides Cryptocurrency Exchanges, Where Else Can I Buy Bitcoin?


You can also buy bitcoin at the following locations:


* Through Bitcoin ATMs


* Through online payment providers such as PayPal


* At mainstream brokerages like Robinhood





Is My Bitcoin Purchase Protected by SIPC?


Your bitcoin purchase is not protected by SIPC.20 On certain exchanges such as Coinbase account balances with fiat currencies in individual accounts may be insured by FDIC to the tune of $250,000 per account.21





The Bottom Line


The process of purchasing bitcoin is a bit more complex that the process of buying the stock or equity that you normally purchase. This is due to the cryptocurrency ecosystem and infrastructure are not as well-developed that those of traditional trading.





The process for buying bitcoins consists of four phases: selecting an appropriate location or service for payment, connecting with an acceptable payment method, making the order, and also ensuring secure storage for the purchased cryptocurrency. Each step needs research and an in-depth evaluation of the pros and pros of each option. You can also buy bitcoin through Bitcoin ATMs or pay companies like PayPal and traditional brokerages like Robinhood.












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