Buying Bitcoins

Our 5 Step Guide to Buying Bitcoins

Bitcoin is unlike other currencies in that it has no central governing agency, so you have to buy your way in. Here’s our 5 step guide to buying bitcoins.

Back in 2009 when bitcoin was first introduced, most people would had regarded it as a laughable investment. Another tech bubble, one might say.

Fast forward to the present days, many people have made a fortune out of trading bitcoins.

Over the past few years, bitcoin is perhaps the most talked about and celebrated digital currency among fin-tech lovers.

What makes bitcoin so special? What makes this virtual currency feel so real?

Bitcoin does not discriminate. It welcomes everyone, from professionals to the average Joe on the street. No central governments or corrupted politicians have control over it. It’s the gold of the internet.

On the other hand, bitcoin is notorious for its volatility. If you look at a bitcoin price chart between 2013 to 2016, you’ll see a roller coaster. It’s scary.

Yet the stark changes in bitcoin price at different periods of time is also what makes this virtual currency attractive to investors. Many people are in it for the thrill and excitement.

As bitcoin is becoming more universal, having a good understanding of this digital currency is extremely beneficial.

Here’s our 5 step guide to buying bitcoins.

1. Obtain Your Bitcoin Wallet

Before you can start buying bitcoins, you need to get a bitcoin wallet. This is a piece of software or a web browser that allows you to use the web for sending and receiving bitcoins.

More than 20 types of known bitcoin wallets exist in the market. When choosing your wallet, pay attention to these factors:

  • Frequency of use.
  • User interface/friendliness.
  • The amount of bitcoins you are planning to buy.
  • The degree of personal information you’re willing to give away.
  • With these in mind, have a few options for bitcoin wallets you might want to consider.

Independent Bitcoin Wallets

As the name suggests, independent bitcoin wallets are not managed by third parties. You are the sole owner of your bitcoins.

This type of bitcoin wallet is considered more secure than other types.

The downside is it’s more complicated to set up. If any technical issue occurs, you may lose your wallet and thus, lose all of your coins.

Remember to be thorough and careful if you decide to go it alone with your bitcoin wallet.

Third Party Bitcoin Wallets

If you choose to use third party bitcoin wallets (i.e. Coinbase, Electrum, BitGo), you’re putting your bitcoins in someone else’s hand. Your information will be stored in a remote server.

This means you need to trust your third partner wallet provider. Make sure you choose a secure, user-friendly, and reliable platform.

Third party bitcoin wallets are popular among new investors. Since everything is stored in the cloud, you can access your wallet from anywhere.

The good news is many third party providers are taking extra security measures such as 2 Factor Authentication (2FA) to help prevent potential hacking attempt.

Multi-user Bitcoin Wallets

Multi-user bitcoin wallet (i.e. Copay) has more than one owner. It’s a more secure version of third party bitcoin wallet.

The owners will need to establish specific rules beforehand. This means the wallet can only be accessed if a pre-determined number of owners authorize the transaction.

2. Choose Your Payment Method

Depending on where you live, buying bitcoins can get frustrating. UK banks for instance, are less inclined to service bitcoins companies.

Unless you’re buying bitcoins with hard cash, your viable payment options are credit/debit card and bank transfers.

The problem with using credit/debit cards is that it makes payment providers more vulnerable to fraudulent chargebacks. As a result, most companies are reluctant to accept this payment method.

This leaves you with only one option left — domestic bank transfer. This is considered to be the best method for buying bitcoins. It’s usually free and fast.

Credit/Debit Cards

When buying bitcoins with credit or debit cards, you might not get a favorable rate. However, it’s definitely a fast and easy form of payment.

Over the years, many bitcoin platforms have integrated credit/debit card payment option into their systems. Some popular platforms are Circle (U.S based), Coinfloor (UK based), and Coinjar (Australian based).

PayPal

PayPal is notorious for its cutthroat fee. The company still makes it very hard for bitcoin traders.

However, there’s a simple hack you can try if you don’t have any other option for buying bitcoins.

You can purchase bitcoins with PayPal through Circle.

You need to live in the US and have an US credit card/bank account linked to your PayPal account.

After opening a Circle account, you can connect it with your PayPal Debit MasterCard in the Settings section.

Once everything is linked, you’re ready to trade bitcoins using your PayPal balance. You can also withdraw the money to your card.

Wire Transfers

Wire or bank transfer is considered to be the most common method for buying bitcoins. Sellers like this option because once the money is transferred, there’s no going back.

3. Find An Exchange

An “exchange” is commonly understood as the place for selling and buying bitcoins. That said, there are a few types of exchanges you should be aware of.

Brokers

This is not like calling a real state or stock broker.

Think of bitcoin brokers as a shop which have their own supply of bitcoins. This means they can predetermine the price of bitcoin.

Most bitcoin brokers are optimized for user interface, ensuring easy, simple and fast transactions.

Trading Platforms

These platforms bring together buyers and sellers and charge them a fee out of every transaction.

Compared to brokers, trading platforms do not have other supply of bitcoins, only the amount deposited by the users. This means the bitcoin price on trading platforms often reflects the market demand.

For beginners, trading platforms can get a bit daunting. It may take some time to get yourself familiar with the system and terminologies.

4. Examine An Exchange

Since there’s no official site for bitcoin exchange, it’s up to you to choose the exchange that best meets your needs.

To help you get started, here are a few rules of thumb you should take into account.

Location

Make sure you pick an exchange that accepts payments from your country.

Fees

Find out the percentage charged for each transaction.

Regulation and trust

Find out how whether the exchange platform is reliable and trustworthy. Look for reviews from past and existing users.

The amount of bitcoins you are buying

For a large sum of coins, use wire transfer instead of credit card. This will save you a chunk of money. For small and medium amount of bitcoins, it’s OK to pay with credit cards or PayPal.

Available payment methods

Obviously the more options for payment available, the better. You can usually find the information about payment via the FAQ page.

Verification process

While some sites are uptight about the verification process, others are more lenient. More than often, you would be asked to submit some form of government ID. It usually takes 24 to 48 hours to verify your information.

The total time it takes to receive your bitcoins

Consider the time it takes for the exchange to verify your information, the deposit time, and the withdraw period.

Exchange rate

Do not underestimate the importance of exchange rate. You want to get the most out of your investment. Look around different exchanges, you’ll see the huge difference in the price.

Once you’ve taken everything into consideration, it’s time pick your exchange market.

To give you some idea, here are some of the leading players in bitcoin exchange market: Bitstamp, Coinbase, OKCoin (based in China), and Kraken (which is claimed as “the world’s largest bitcoin exchange in euro volume and liquidity”).

Now, you can start buying bitcoins!

5. Avoid Fraud

It’s an exciting time to get involved in the bitcoin market.

However, along with the thrill, there are inevitable risks associated with trading bitcoins.

Always watch your back.

If you’re new to bitcoins, make sure to do your due diligence.

Check the credibility of your bitcoin seller. Look at their social media channels, press, and reviews. Can you trust them? What have others said about them?

It’s a good habit to start documenting everything related to your bitcoin transactions. This keeps you on top of everything. In case a fraud happens, you’ll have some important evidence to fight back.

Every time you are about to submit a payment, make sure you get at least one confirmation first.

Last but not least, do not ever forget to take the money out of an exchange.

The moment you get the money in your exchange, move it to your bitcoin wallet. Failure to do so can lead to loss of your bitcoins.

A Final Look at Buying Bitcoins

Bitcoin is no doubt the hottest global digital currency at the moment. The market is young and fragmented. There are many opportunities to create wealth out of bitcoins.

We hope this simple guide to buying bitcoins will help you make the wisest, most well-informed decision to ensure every transaction is a successful one.

If you’re interested in learning more about bitcoin, you might want to know about bitcoin mining and how it helps keep a secure bitcoin network. Whenever you’re ready, visit here.

Written by Melvin Draupnir on June 5, 2017.

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