A Comprehensive Guide on How to Buy Bitcoin?!
Are you looking to join the bitcoin frenzy and buy your first bitcoin? Then, you are in the right place. This article is a comprehensive guide on everything you need to know to have your first experience as a bitcoin owner. To make this process easy, this beginner’s guide to buying bitcoin explores a simple step-by-step procedure that ensures safety.
But first, let’s take you through some information you need to know before buying bitcoin.
What things You Must Know Before Buying Bitcoin?
Bitcoin Is Volatile
Bitcoin is unlike any traditional asset you are used to. This assertion holds because it exhibits extreme volatility that causes its price to fluctuate several times a day. As expected, its propensity to hit price swings regularly has made it the go-to asset for investors who are interested in making profits off short-term trades. If you fall into this category, you should consider the present price of bitcoin before buying the digital asset. You do not want to buy at a price that will hurt your chances of making a meaningful profit.
On the other hand, if the long-term strategy is your game plan, or you finally see the truth in the financial freedom that bitcoin avails, then the present price might not matter.
Is Bitcoin Legal in Your Location?
Unfortunately, owning bitcoin is illegal in some countries. Therefore, you should check its legal standing in your location before going all out to purchase it.
Is Bitcoin Taxable?
It is important to have it at the back of your mind that every profit made from bitcoin activities is taxable. Depending on your location, you might need to identify the tax law governing bitcoin and ensure that your activities are recorded to fulfill your obligations. Better still, you could get help from a tax expert who could enlighten you on the entire process.
Bitcoin Does Not Provide Anonymity
One of the most popular misconceptions about bitcoin is that it offers anonymity to users. In its true sense, bitcoin only provides limited privacy. It utilizes blockchain technology to ensure that all the transactions recorded on its ledger are immutable. Also, each user owns an address that features on transaction details. Hence, it is possible to trace the activities of an address.
More importantly, an individual loses any shred of anonymity that bitcoin provides, once his/her identity is linked to the address.
KYC And AML Are Criteria
Know your customer practice has become a criterion for people looking to purchase bitcoin from licensed platforms. These platforms use this process to authenticate the identities of buyers to remain compliant with regulations and to reduce the risks that come with exchanging bitcoins for fiat currencies. More often than not, this procedure entails anti-money laundering requirements to ensure that transactions are legal.
Now that you have a little insight on some issues relating to the purchase of bitcoin, the next section will kick off your bitcoin experience.
Where to Access Bitcoin?
You can access bitcoin in a myriad of ways. Some are tedious, while others are quite easy. For this guide, we will try as much as possible to cover all the major methods of buying bitcoin and leave you to decide for yourself the one that best suits you. However, before choosing, you should consider the following factors.
Your Location: Most new entrants rely on exchanges for their first bitcoin purchase. That said, the current regulatory landscape of the crypto economy does not permit some exchanges to operate in certain regions. Therefore, it is your responsibility to ascertain whether the platform you are looking to patronize has the license to sell to people from your location.
Payment Method: Your payment method will, to an extent, determine the right platform for you to access bitcoin. Is it cash you have got, or are you willing to use a credit or debit card? Whichever you choose, you should pick exchanges or buyers based on the payment mode you are willing to utilize. In most cases, exchanges offer one or more payment options to make the process a lot easier. It is worth mentioning that your payment method would determine, to an extent, the exchange rate you access. In most cases, payment options that allow chargebacks carry higher transaction fees, and they are not easily accessible. In other words, platforms offering Mastercard, PayPal, or Visa are scarce. The few that do would enforce strict KYC procedures and offer bitcoin at a premium price.
As an alternative, you could opt for wired transfer, as it is quite popular with exchanges, and the cost of processing such transactions is low. This is because wired transfer does not support chargebacks. Also, you might need to consider the amount of bitcoin you are looking to buy when choosing an exchange. Some exchanges have limits and would not process your request once you exceed these limits.
You could as well buy bitcoins with cash by utilizing platforms that link buyers and sellers to transact physically. Nonetheless, this type of transaction is inadvisable, as it exposes both the buyer and the seller to risks.
The Transaction Charges: It is imperative to separate exchange rates from transaction charges when buying bitcoin. Some exchanges claim that their transaction fee is negligible compared to other platforms, but offer marginally high exchange rates. As such, you should ensure that you go for platforms that offer reasonable deals.
The Platform’s Reputation: Although searching for premium deals is the ideal thing to do, however, you should not let it sway you from utilizing a reputable exchange. Ensure that the platform you eventually adopt has shown that it is capable of offering quality services. Note that there are no exchanges with perfect reviews, nonetheless, you can gauge the credibility of a platform by weighing its pros against its downsides.
The Type of Platform: Different types of exchanges facilitate the buying and selling of bitcoin. We have trading platforms, P2P networks, and brokers. While the distinctions between these platforms might seem inconspicuous at first, a closer look, on the other hand, reveals the difference. Trading platforms are intermediaries between buyers and sellers, and they charge fees on each transaction. The drawback here is that many trading platforms are not beginner-friendly. Also, it may require that you wait till you find a seller who is willing to sell bitcoin at your specified price before you get to access bitcoin. Two platforms that fall under this category are Kraken and Bitstamp.
Unlike trading platforms, P2P exchanges enable an ecosystem where buyers and sellers can communicate directly and effect trades without the middleman factor. Alternatively, you could choose to use a broker, which typically offers users bitcoin at a fixed price. Although it costs more to use a broker, nevertheless, their simple business structure and ease-of-use make them the most popular choice for beginners. Some of the most commonly used brokers operating in the crypto market are Coinbase and Coinmama.
Now that we have examined important factors to consider when choosing a bitcoin exchange, the next step is to select a bitcoin wallet.
How to Choose A Bitcoin Wallet?
Wallets are tools or platforms that help crypto holders manage their coins. Simply put, they help secure cryptocurrency just as an email account would secure your mails. The same way an email account utilizes an address and password for its operations, a wallet issues a public key and a private key to the user immediately it is activated.
The public key functions like your email address and the private key is your password. Your wallet has become vulnerable, once the security of the private key is compromised. Unfortunately, there is no password retrieval process for wallets, as a lost private key renders the asset stored in the wallet irretrievable. While this analogy is not the most convincing, it does paint a relatable picture of what a wallet does.
A wallet could be universal – support several cryptocurrencies – or specially made for a coin. However, since bitcoin is one of the most popular cryptocurrencies in the market, the options are limitless. This brings us to the frequently asked question: which bitcoin wallet should I choose?
Note that each class of wallet comes with its downside. For this article, we will discuss three classes of bitcoin wallets – custodial wallets, non-custodial wallets, and multi-user wallets.
Custodial Wallets: Custodial wallets or third-party wallets are platforms that hold assets on behalf of their users. As its name implies, users would have to hand over their assets to these entities. On the upside, utilizing a custodial wallet is suitable for active investors in the crypto market, as the wallet is always online. On the downside, this type of wallet is prone to hacks and exit scams – a situation whereby the platform closes shop and carts away with users’ assets.
Non-Custodial Wallets: These are offline tools or hardware wallets that offer users full autonomy over their assets. Since you are responsible for the security of your asset, you cannot hold the companies offering these tools liable for breaches resulting from a compromised private key. Also, holding your assets offline could prove ineffective for active market participants.
Multi-User Wallets: With this, you can activate a multisig function that splits the private key between two or more individuals. In other words, when you operate a multi-user wallet, you would need the inputs of other authorized owners of the wallets before accessing the bitcoin held on the wallets.
Having understood the unique concept that defines each class of wallet, it is advisable to set a custodial wallet as a temporal wallet, while the non-custodial one should hold the bulk of your crypto asset. This way, you get to do your daily transactions without the need to expose your hardware wallet to nefarious entities lurking the internet. This assertion is even more vital for people that are planning to buy a lot of bitcoin.
How Much Bitcoin Can I Buy?
There are no limits as to how much bitcoin you can buy, except for the ones enacted on exchanges. For those that are looking to buy a large amount of bitcoin, some exchanges specialize in such volume of transactions. Furthermore, the lowest amount of bitcoin that you can buy is 1 Satoshi, which is equivalent to 0.00000001 Bitcoin. According to the current price of bitcoin, that is $0.00085 in fiat currency.
How to Buy Bitcoin on Exchanges?
Once you have picked a wallet, chosen an exchange, and determined the amount of bitcoin you want to buy, the next thing is to meet the registration requirements of the exchange. Note that this information is only valid for individuals that opt for brokers offering fixed prices and user-friendly designs.
As mentioned earlier, buying bitcoin might require KYC procedures to verify your identity. Some platforms could go as far as to ask for information about your income – this depends on the payment method chosen. Afterward, you might need to verify your payment account – that is if you are using a bank. Once you complete the registration and the authentication processes, navigate to the “Buy Bitcoin” tab on the platform, input the amount of bitcoin you want to buy in fiat currency, enter your wallet address, and authorize the transaction.
In some cases, you automatically get a wallet with the exchange as soon as your registration is completed. Recall that these are custodial wallets and it will do you good to get a non-custodial wallet for keeping your coin permanently, especially if you are buying a lot of bitcoin.
Are There Other Options?
Another option is to use a Bitcoin ATM. This machine allows users to buy and sell bitcoin for a fee. People utilize this machine because it accepts cash for bitcoin, provides anonymity, and overrides the long authentication processes found in conventional exchanges. However, the inaccessibility of these machines remains their core limitation. You might find that there are no Bitcoin ATMs around your location.
Additionally, you could buy from individuals, which is not advisable for the sake of the obvious – cash transactions are risky.
Having read this comprehensive guide on how to buy bitcoin for beginners, there is enough reason to believe that you are ready to own your first bitcoin. Remember, credibility is the watchword in the crypto space. Therefore, ensure that you do thorough research on the quality of services each platform is offering. That said, as you take your first step into the bitcoin market, do not forget to stay safe.