How to Buy Bitcoin | A Complete Beginners Guide

Investing
Updated: 23rd Feb 2021
Written by Drew Cheneler
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Many aspiring investors who wonder how to buy Bitcoin are off put because it seems like there is a complex process behind purchasing highly valuable tokens.

This fear is misplaced, though, as purchasing Bitcoin has never been easier.

Thanks to the increasing availability of legitimate exchanges, wallets, and cryptocurrency trading platforms, you can now quickly get your hands-on Bitcoin and start investing today.

What is Bitcoin?

The complete origins of Bitcoin are unclear, though we know that this new form of digital currency was first created in January of 2009 by an unknown person who used the alias Satoshi Nakamoto.

The thing that sets Bitcoin apart from most other currencies is that Bitcoin operates as a decentralized digital currency.

This means that Bitcoin does not require management by banks or administrators. The tokens can be exchanged from peer-to-peer without any intermediaries’ intervention.

People who ask how to buy Bitcoin often wonder how cryptocurrencies like Bitcoin work. Because Bitcoin is a completely digital currency, there are no physical bitcoins to be had; instead, Bitcoin values are tracked using a public ledger that anyone can access.

Using this same ledger, people can view all transactions made using Bitcoin. The ledger is verified and authenticated using enormous computing power, ensuring that all transaction data is accurately stored within Bitcoin’s blockchain.

To completely understand what Bitcoin is, you must know what blockchains are and how they work.

Using Bitcoin as an example, you can imagine that a blockchain is a series of “blocks,” and each block represents a group of Bitcoin transactions.

A system of computers, or nodes, simultaneously process Bitcoin’s code and house its blockchain. Each transaction in every individual block is completely visible to all members of the network.

Thus, it is theoretically impossible to create fake transactions. To cheat the system, someone would need to operate 51% of the total computing power currently being used to keep Bitcoin’s blockchain running.

While someone could pull off this type of attack in theory, it would not be worthwhile for someone to put forth the effort, as if the attack did happen, all the members of the network could choose to alter course and fork Bitcoin to a new blockchain that doesn’t feature the illicit transactions.

In the worst-case scenario, a few transactions may be lost, but the blockchain could quite easily be recovered if necessary.

How to Buy Bitcoin (Step-by-Step)

Before getting started on how to buy Bitcoin, make sure you have internet access and an appropriate method of payment.

Cryptocurrency exchanges typically accept payments from bank accounts, debit cards, and credit cards. In some cases, you may also be able to purchase Bitcoin from one of the many Bitcoin ATMs that are available throughout the U.S.

Step #1. Choose a Cryptocurrency Exchange

To purchase Bitcoin, you will need to sign up for your preferred cryptocurrency exchange. The best cryptocurrency exchanges will offer secure transactions, storage, a robust platform, and low fees.

There are many kinds of exchanges available, so choose one that fits your specific trading needs. We recommend you select one of the exchanges featured in this article.

Step #2. Verify Your Account

In most cases, you must verify your identity to purchase Bitcoin in the U.S legally. This is due to Know Your Customer (KYC) legislation, which requires businesses to verify individuals who use their service.

The identity verification process varies from exchange to exchange. You can still expect to provide personal identifying information such as an address, phone number, email address, or proof of a government I.D.

Once you have completed the verification process, you will fund your account and take the next step towards purchasing Bitcoin.

Step #3. Fund Your Crypto Account

Now you need to put money into your account so you can buy Bitcoin. Most exchanges will allow you to enter your payment information and choose how much money you would like to fund your account with.

In most cases, there will be a limit set for how much you are allowed to fund your account in a given day. Some exchanges also have limitations for how much you can fund in a given month.

Step #4. Buy Bitcoin

Once your account is verified and funded, you can purchase bitcoins. Navigate the exchange to find the purchasing option, then enter the amount of Bitcoin you wish to buy.

This process is usually intuitive but make sure to consult the exchange you are using if you need help.

Step #5. Decide How to Store Your Bitcoin

Bitcoins are not physical objects; therefore, you don’t “store” them in the traditional sense. Instead, you will need to find the ideal place to keep your transaction I.D.

Your options include cold storage, which is offline wallets, and hot storage, which are connected to the internet.

Cold storage is the safest means of storage, as nobody has access to it but you, but hot storage may be more convenient.

Hot Wallets

Hot wallets are online tools that enable users to send and receive different cryptocurrency tokens.

They are generally more convenient, but they also come with more risk because hot wallets are more susceptible to being hacked.

Hot wallets are also at risk of other technical vulnerabilities, so use them with caution.

Cold Wallets

Cold wallets are offline storage options where your cryptocurrency is stored in a way that doesn’t involve the internet.

They typically don’t accept as many cryptocurrencies, and cold storage devices usually cost around $80-$100.

Cold wallets are the most secure option, so be sure to use one if you are purchasing large amounts of Bitcoin.

Step #6. Transfer Bitcoins to Your Wallet

Once you’ve chosen your wallet, you will need to transfer your Bitcoin to it. In the case of cold storage, this means moving the digital balance or private keys to your cold wallet.

You will do the same for hot wallets, but the private keys will be transferred using an online tool.

Personal Information You May Need to Buy and Invest in Bitcoin

KYC requirements mean you will need to provide some identifying information to the exchange before you are allowed to make purchases legally.

The information you provide may be used for tax purposes and to verify your identity. Some examples of personal information you may need to provide are:

  • Social Security Number
  • Driver’s License Information
  • Debit or Credit Card Details

Best Places to Buy Bitcoin

Now that you have been through a brief crash course on how to buy Bitcoin, it’s time to introduce you to the best online platforms to use for purchasing bitcoins.

To buy, store, or trade bitcoins, you will need to use a cryptocurrency exchange. There are currently many exchanges available, but it can be difficult to find one that is completely secure and has never been successfully attacked by a bad actor.

We believe that security should be your number one priority when choosing a Bitcoin exchange. With that in mind, we suggest that you use any of the following four cryptocurrency exchanges to buy Bitcoin:

#1. Gemini

Gemini is a New York-based cryptocurrency exchange started by the world-renowned Winklevoss twins, the creators of Facebook’s predecessor, ConnectU.

The exchange was created in 2014, and it is regulated by the New York State Department of Financial Services (NYDFS).

In addition to being well-regulated, Gemini is also FDIC protected for USD. The platform has never been successfully hacked.

This means you can trust that the Bitcoin you purchase on Gemini will be safe.

Learn More: Gemini Review

#2. BlockFi

BlockFi is a unique cryptocurrency trading platform, called a cryptocurrency custodian, that allows its customers to use their cryptocurrency as collateral for cash loans.

The company was founded by Flori Marquez and Zac Prince in August of 2017, and they are based out of New Jersey.

Apart from the popular loans they offer, BlockFi also stands out because they allow users to earn interest in their cryptocurrency stores.

Learn More: BlockFi Review

#3. Coinbase

Coinbase is one of the world’s most popular cryptocurrency exchanges. For people looking at how to buy Bitcoin quickly, this is one of the best options.

The company was founded in 2012 by Brian Armstrong and Fred Ehrsam in San Francisco, California.

Coinbase providers a wallet for their traders to use, and they also have their own currency, USD Coin (USDC).

You can also be confident that they are a trustworthy, secure site because they are currently one of the largest crypto exchanges on the market.

Learn More: Coinbase Review

#4. eToro

eToro was started in January of 2007 by several entrepreneurs who wanted to disrupt the world of trading. Since then, the company has steadily grown its repertoire of services, adding in cryptocurrency trading in February of 2017.

As of 2018, they allow U.S. citizens to trade various cryptocurrencies, and their platform is one of the most secure.

Users can begin trading with as little as $50. The system provides useful features that make trading easy for beginners.

For example, using eToro, you can mirror successful traders’ trades, allowing you to learn from the best. This explains why eToro has over 13 million users in 140 countries.

Learn More: eToro Review

Alternate Places to Buy and Invest in Bitcoin

You can also buy Bitcoin outside of traditional cryptocurrency exchanges, these are some alternative options for purchasing Bitcoin:

  • PayPal: Paypal is a fast, safe, and secure way to send money online and make payments. They recently added the ability to buy and sell popular cryptocurrencies.
  • Robinhood: Robinhood is a popular investment app that makes investing in stocks and cryptocurrencies easy. They currently allow users to buy and sell Bitcoin and Ethereum commission-free.
  • TradeStation: Tradestation is a commission-free trading platform that allows users to trade ETFs, stocks, options, futures, and cryptocurrency. They enable users to trade Bitcoin, Altcoins, Litecoin, Bitcoin Cash, XRP, and more!
  • Bitcoin ATMs: Bitcoin ATMs are physical ATMs that are located all over the world. You can use them to purchase Bitcoin in person, and you’ll be given the key to your Bitcoin on-site.
  • Grayscale Funds: Grayscale Digital Large Cap Funds enable investors to trade digital assets without having to buy, store, or secure them. This system is designed to satisfy customers until a Bitcoin ETF is approved.
  • Blockchain ETFs: Rather than purchasing cryptocurrency directly, you can purchase exchange-traded funds invested in a set of blockchain-based companies. This allows you to have a vested interest in the cryptocurrency without directly purchasing it for yourself. Though, with blockchain ETFs, you run the risk of investing in a tech company that has the potential to fail.

How to Stay Safe Investing in Bitcoin

If done correctly, trading Bitcoin is entirely safe to do. To maximize security, make sure you only use secure exchanges that have a good track record. Doing otherwise may put you at risk of falling victim to a scam.

Also, be wary as you invest; Bitcoin prices fluctuate regularly, so you are putting money on the line when you choose to purchase tokens. Lastly, keep your wallet safe.

Your Bitcoin wallet holds the keys to your funds, and if someone gets access to your wallet, they will also have access to your bitcoins.

For maximum security, keep your private keys offline in cold storage.

Can I Mine for Bitcoin?

Bitcoins are created through a process called “mining.” Mining is performed by powerful computers that are tasked with solving incredibly complex computational math problems.

Once the problem is solved on the bitcoin network, new bitcoins are produced. Each time a miner solves a problem, they create a new block that is added to the overarching Bitcoin blockchain.

Other nodes within the network verify the transactions within that block, preventing any transaction from being duplicated.

Through this process, Bitcoin’s payment network is also verified, ensuring that the network is trustworthy.

Advantages of Buying Bitcoin

  • Greater liquidity than other cryptocurrencies.
  • Bitcoin is become increasingly more accepted by businesses as an acceptable payment method.
  • Make international transactions easier than if you used traditional currencies.
  • Lower transaction fees than traditional currencies.
  • Bitcoin allows more anonymity than traditional currencies.

Disadvantages of Buying Bitcoin

  • Risk of being scammed or victim to fraud
  • Highly volatile prices
  • No chargebacks or refunds
  • Difficult to store securely without cold storage

Is it Safe to Buy Bitcoin?

While it is generally safe to buy Bitcoin, buying Bitcoin doesn’t come without risks. You can purchase Bitcoin then notice a drop in its value soon after, resulting in a net loss in your investment.

You may also purchase Bitcoin then forget where you stored it, leading to you not being to access it when you need it.

In the end, buying Bitcoin is as safe as you make it. As long as you choose a secure cryptocurrency exchange and properly store your private keys, you should be just fine.

Should You Buy Bitcoin?

Whether you should buy Bitcoin is a personal decision that you must make. If you have the liquid funds needed to purchase Bitcoin or have other cryptocurrencies, you will wish to trade, take the first step, and buy some.

If you feel that there is too much risk involved, you may want to wait sometime and see how the market performs before diving in.

To determine whether you weigh your interests against the risk, then decide.

Bottom Line: How to Buy Bitcoin

Buying Bitcoin does not have to be frustrating. In fact, it can be relatively easy. Simply follow all of the steps listed above, and you will soon be the owner of as much Bitcoin as you like.

Just beware of scams and fraudulent exchanges because if you fall victim to one, it may be difficult or likely impossible to get your money back.

More Resources:

Drew Cheneler
Drew Cheneler
Drew is a recognized Credit, Small Business, and Personal Finance Expert. He has been quoted in CNBC, Fox Business News Section, The Huffington Post, Business.com, Moneyunder30, US Chamber of Commerce, and more. He is known for breaking down complex personal finance topics into action-oriented advice, so you can make the most of your hard-earned money.