5 Things to Consider If You Want to Buy Bitcoin
Before buying Bitcoin for the first time, it’s important to take some important factors into consideration. By doing so, you will help safeguard your transaction, and ensure that it can be completed as safely and quickly as possible.
Carefully choose your preferred secure payment method
Firstly, it’s important to note that different locations around the world have various payment methods available. It is impossible to account for all of these here. But what you do need to understand is that factors such as the speed and cost of each payment system should be taken into consideration during the purchasing process.
Will you need to set up your own wallet?
An independent and separate wallet is certainly advisable for customers. This is required in order to secure your funds. It should also be noted that wallets that are built into cryptocurrency exchanges tend to be more vulnerable to theft. However, there is no need to set up a wallet if a user is entering into a CFD agreement via a recommended broker. This effectively secures any transactions and funds.
It's also important to compare any fees or costs associated with transactions on the network, as opposed to other cryptocurrency systems that are available. One thing that should be noted is that using cryptocurrency as a means of payment and transfer is much more affordable than traditional alternatives. This fact has been instrumental in the lauding of cryptocurrency as an ideal medium for foreign exchange in particular.
Safety and security
Different cryptocurrencies use different protocols and methods in order to deliver safety and security to users. For example, decentralisation, cryptographic hash functions, P2P network, and private-and-public key encryption are all common security features.
This coin is based on the earliest public crypto blockchains, meaning that anyone can join and participate in transactions. The BTC protocol enables users to conduct non-reversible transactions without having to explicitly rely on a third-party. Each Bitcoin node contains a complete record of the transaction on the blockchain, making the network a decentralised system.
Transactions on the system contain unique transaction IDs, input addresses, the number of coins to be transferred, and the output address of the recipient. BTC relies on a proof-of-work system, which is extremely secure but has been criticised in some quarters due to the vast amounts of energy that it utilises. Other systems that have been put in place since this coin originated have attempted to improve on its methodology.
The consensus mechanism associated with Bitcoin is considered extremely secure, but it also creates scalability issues. BTC has recently implemented ‘Segregated Witness’ (SegWit) technology, in an attempt to address the scalability problems.
Can you understand and navigate the platform?
While it is clearly the most popular cryptocurrency platform, and as such, it is particularly user-friendly. This means that users can navigate around the platform and system with relative ease, and this is definitely one of the easier cryptocurrencies to understand.
Similarly, if you are choosing to trade through a broker or Bitcoin exchange, it is equally important that you are able to navigate the platform easily. Take some time to explore the software before committing to any investment to ensure that you fully understand all of the mechanics involved.
Ultimate Beginner’s Guide to Trading Bitcoin
What is a Bitcoin Broker?
Brokers are essentially intermediaries, who execute trades for investors. Brokers can be either individual people or companies. Because trading via the Internet has exploded in popularity, brokers have become far more commonly used than has been the case historically.
As BTC is the most popular cryptocurrency on the market, there are a large number of potential brokers available. Essentially, any broker willing to trade cryptocurrencies will work with Bitcoin, as it is by far the most traded digital currency.
What is CFD?
CFD is an acronym for Contract for Difference and describes one of the trading mechanisms available with cryptocurrencies. Bitcoin CFDs enable investors to speculate on a change in the price of the cryptocurrency; essentially entering into buying and selling positions.
CFD trading is advantageous as it enables you to benefit from all market conditions. Just buying BTC does not result in a profit, at least in the short-term, if the market is receding, whereas a correct CFD option will achieve this. Investing via CFD also makes it possible to trade via margin; ie. using money that you have borrowed.
What is the Benefit of Regulation?
As cryptocurrencies have become more commonly traded instruments, the worldwide financial regulators have made moves to legislate on them. Laws have been put in place in order to protect the interests of investors and to ensure that cryptos are safe trading platforms. This has undoubtedly lent credibility to brokers and helped secure platforms for investors.
What is the Best Payment Method for Buying Bitcoin?
There are several payment methods available for buying, which reflects the increasing popularity of this cryptocurrency token. However, it’s important to note that these can differ depending on your location, so you must take this into consideration.
The reputation of PayPal has soared in recent years, and the digital payment system is now entrenched as part of the mainstream financial architecture.
PayPal is fairly reasonable in terms of fees, but there might be cheaper options available, so you should certainly shop around. PayPal is great for bulk purchases if this is what you require.
Another issue with PayPal is that it will not necessarily be offered by all brokers. PayPal payment options are increasingly common, but the platform is not yet as ubiquitous as debit and credit cards.
Purchasing with Cash
Naturally, cash attracts absolutely no fees, and would, therefore, be an attractive option for purchasing Bitcoin. The problem is that it’s practically impossible! The only way that you could possibly do this would be entering into a private agreement with someone you know personally who already holds BTC. So this option is a bit of a non-starter.
Via Bank Transfer
Using a bank transfer to purchase Bitcoin will always be one of the most popular options available, as it rarely attracts any fees whatsoever. If you use this method then it also makes it easier to transfer funds back and forth when using a broker. However, this approach can be more time consuming than others, and for this reason, not all sources of BTC will accept this payment method.
Credit Cards or Debit Cards
This is the most convenient way to purchase Bitcoin and one that is pretty much universally accepted. The only disadvantage is that credit cards, in particular, tend to attract higher fees than other payment methods.
The Verification Process for Trading
When you sign up to a brokerage platform, there is usually a system of identification involved. This will usually entail providing some form of address confirmation, along with a government-approved form of ID. It is usually quick and relatively painless, but it is possible to purchase BTC anonymously, as discussed later in this article.
Long vs Short Term Investment
A short-term investment strategy in Bitcoin involves buying the digital currency when it has a dip in price and attempting to anticipate when it will increase in value. While a longer-term investment would involve buying and holding the currency, in anticipation of market fundamentals related to the coin being realised over a period of time.
Buying and selling of Bitcoin based on short-term fluctuations can deliver a quick profit but is also riskier. While a longer-term strategy requires an understanding of the markets and poses challenges in terms of timing and exit. However, the long-term strategy has the advantage of holding the digital currency as a physical medium, much as many people hold gold sovereigns and other gold-based products.
Why Buy, Rather Than Trade?
Many investors wonder how to buy Bitcoin, and whether purchasing the crypto coin is better than trading it. There are certainly advantages to purchasing, some of which are as follows.
By purchasing, an investor gains access to a physical commodity, which can then be used as a token of exchange. This is the longer-term plan for the cryptocurrency platform; for it to be accepted as money on a widespread basis.
It is also safer to purchase BTC as opposed to trading it, as holding the coin over a longer period of time means that you are less vulnerable to market fluctuations. Traders are typically interested in short-term gains, while those purchasing have made a more fundamental investment in the medium.
Purchasing also ensures that you retain control over your own tokens at all times. While many BTC and cryptocurrency exchanges are well-established by now, they are still vulnerable to the vagaries of the market, and as such can crash, potentially making it difficult to access one's assets. There are also fewer fees associated with directly purchasing and holding the currency, as opposed to holding it within a Bitcoin exchange.
However, it is also important to know that purchasing and holding cryptocurrency is an involved process that requires a significant amount of investigation and education. You must extensively research setting up wallets, understanding online security related to cryptocurrency, and check the compatibility of any systems and software involved before purchasing.
What Fees Are Involved?
Most purchases involve some form of fee, particularly when using popular exchanges. However, these are very negligible, particularly when you are purchasing BTC with the intention of holding it. But you might want to take some of the following into consideration before making your purchase.
There are fees associated with Bitcoin transactions, but these are very small. At the time of writing, the fee for each block is around 94 cents. Exchanges also use dynamic fees for those holding BTC in wallets, which tend to be minimal, but you may wish to investigate this before committing to a particular broker.
Deposit fees are dependent on the broker and do not vary from one cryptocurrency to another. It is thus incumbent on investors to research this matter diligently.
Again, withdrawal fees are dependent on the exchange in question, but many exchanges do not charge for withdrawals, so it’s better to seek these out.
Safely Storing Your BTC
Safely storing Bitcoin involves using online wallets, which are essentially forms of physical software designed to keep the coin and other cryptocurrencies safe from theft.
A web wallet is built into broker and exchange platforms. This is a convenient way of storing Bitcoin but does also involve a few inherent risks. It is not inconceivable that an exchange could be hacked, and some cryptocurrency exchanges have gone out of business. So this has to be factored into any decision.
Mobile wallets are designed to be used on mobile devices and have grown with the popularity of mobile platforms. These offer better security than exchanges, due to the layers of security built into modern mobile devices. However, they can also be vulnerable if another person gains access to your mobile device. Popular mobile Bitcoin wallets include Samourai Wallet, Mycelium, Airbitz, Edge and Abra.
Desktop wallets are held on desktop computers, and as such are considered less convenient than their mobile equivalents. But they are also preferable, owing to the fact that they are significantly more secure. A range of security enhancements can be installed into desktop wallets, providing almost uncrackable protocols, such as 2FA. Desktop wallet options include Exodus, Electrium and Armory.
Finally, a hardware wallet can be considered the most secure of all, as they are completely reliant on software, which can include vulnerabilities. Hardware wallets store private keys in secure hardware devices, making it impossible to transfer any information out of the device in plaintext. Hardware wallets are also immune to computer viruses while enabling users to validate the entire operation of the wallet. Two of the most popular hardware wallets for BTC are Ledger Nano X and TREZOR T.
What Other Coins Can I Trade or Use to Buy Bitcoin?
Aside from fiat currency, there is a range of other cryptos that can be used in order to trade and purchase this coin. The most commonly used is Ethereum, which began as a hard fork of Bitcoin. Ripple has also become regularly traded for BTC, while other offshoots of this coin, such as Bitcoin Cash, are also popular. Buying BTC with an altcoin is certainly a viable option.
What’s the Smallest and Largest Amount of BTC I Can Buy?
Many users want to know how much of it you can buy, and indeed what is the smallest amount that is possible to purchase. Technically, the smallest amount of BTC you can hold is one Satoshi. That is one hundredth million of a whole Bitcoin, or 0.00000001 BTC. But many exchanges will limit purchases at around $10, or 0.0001 coins.
Can I Buy Anonymously with no ID? Is it Safe and Legal?
Most exchanges require ID when purchasing BTC, but is it safe to purchase without this identification process? Well, Bitcoin was always intended to be an anonymous purchasing medium, so this is largely how the platform was intended to be used as well. And it is certainly safe to purchase coins this way; although the more reputable exchanges required ID. What you sacrifice in anonymity is more than compensated for the increased security of your investments.
What you should be careful with when purchasing anonymously is how you store the coin. The most secure way possible is to be recommended, as your transaction will not be traceable.
Will Buying it Make Me Money?
The question many are asking is…’does buying Bitcoin make you money?’ This obviously depends on how and when you invest. Many investors have made a lot of money with BTC, but this is dependent on understanding the platform and its underlying fundamentals. What is clear is that the role of Bitcoin, and other cryptos, in the world financial system, is growing and expected to grow more, and many believe that this is bullish for Bitcoin.
How to Spend Your BTC
A wide range of retailers are already accepting bitcoin as a payment medium and is becoming ever more popular in this niche. Many major retailers, such as Crate and Barrel, Nordstrom and Whole Foods will now accept BTC. And the token is widely used online as well, certainly more so than in the ‘real world’. Furthermore, BTC can easily be exchanged for fiat currency and used at the increasingly popular Bitcoin ATMs. So there are plenty of ways to spend this currency.
How to Sell Your BTC
Selling through a broker is relatively straightforward, with the easiest way to do it being via a brokerage or exchange platform. This is one of the most basic options on any exchange, and you can be walked through the process. BTC is also a medium of exchange, so you can arrange private transactions as well.
It is also more convenient to sell Bitcoin that is already held in a CFD, as these contracts are widely traded within the financial world.