Investing in Bitcoin can seem difficult at first, but it becomes much simpler once you break it down into stages. Purchasing Bitcoin is becoming easier by the day, and the trustworthiness of exchanges and wallets is increasing.
Key Notes on Bitcoin
- Bitcoin’s value stems from its widespread use as a store of value and payment mechanism, as well as its limited supply and low inflation.
- Although it is almost impossible to hack Bitcoin itself, your wallet or exchange account can be hacked. This is why proper storage and security procedures are important.
- The only requirement for investing or trading Bitcoin is an account on an exchange, though additional secure storage practices are suggested.
Before Buying Bitcoin: Get Acquainted;
Every aspiring Bitcoin investor requires several items. An exchange account for cryptocurrency, identification documents when you use the Know Your Customer Platform (KYC), a secure Internet connection and a payment method. It’s also a good idea to have your wallet separate from your exchange account. Bank accounts, debit cards, and credit cards are all acceptable payment methods on this route. Bitcoin can also be obtained via specialized ATMs and peer-to-peer (P2P) exchanges. Be conscious, however, that as of early 2020, Bitcoin ATMs were increasingly needing government-issued IDs.
For Bitcoin investors, privacy and security are major considerations. Even if there are no actual Bitcoins, boasting of big holdings is typically a bad idea. Anyone who obtains the private key to a Bitcoin public address can initiate transactions. Private keys should be kept hidden; once criminals learn of large holdings, they will try to steal them. Be aware that the balance of a public address that you use can be seen by anyone. As a result, it’s a good idea to keep large investments at public addresses that aren’t linked to the ones used for transactions.
Anyone, including you, has access to the blockchain’s transaction history. However, although transactions are publicly registered on the blockchain, personal information about users is not. Only a user’s public key appears next to a transaction on the Bitcoin blockchain, rendering transactions private yet not anonymous. Bitcoin transactions are more straightforward and traceable than cash transactions in some ways, but the cryptocurrency may also be used anonymously.
1. Find the Perfect Exchange
You can purchase, sell, and keep cryptocurrency by signing up for a cryptocurrency exchange. It is commonly recommended that users use an exchange that allows them to withdraw their cryptocurrency to their online wallet for safekeeping. This function may not be essential to those looking to trade Bitcoin or other cryptocurrencies.
Cryptocurrency exchanges come in a variety of shapes and sizes. Some exchanges enable users to remain anonymous and do not require them to enter personal details since the Bitcoin ethos is based on decentralization and individual sovereignty.
Such exchanges operate autonomously and are typically decentralized, which means there is no centralized point of control.
Although such exchanges can be used for malicious purposes, they are often used to provide services to the unbanked population of the world. Anonymous exchanges can help bring certain groups of people into the mainstream economy, such as refugees or those living in countries with little to no infrastructure for government credit or banking.
However, at the moment, the most popular exchanges are not decentralized and do require KYC. To name a few, these exchanges are Coinbase, Kraken, Gemini, and Binance. The number of features available on each of these exchanges has increased significantly.
While opening a cryptocurrency exchange account, it’s crucial to follow secure internet practices. This involves using two-factor authentication and creating a password that is both unique and long, with a mix of lowercase, capitalized, special, and numeric characters.
2. Connect a Payment Method to Your Exchange
You’ll need to gather your documents once you’ve decided on an exchange. This may include copies of your driver’s license, your social security number or BVN for Nigerians, and details about your employer and source of funds, depending on the exchange. The information you require may be influenced by your location and the laws that govern it. The process is similar to that of opening a traditional brokerage account.
You can now connect a payment method after the exchange has verified your identity and legitimacy. Most exchanges allow you to link your bank account or a debit or credit card directly. Although it is possible to buy cryptocurrency with a credit card, it is generally recommended to avoid doing so due to the uncertainty that cryptocurrencies can encounter.
Although Bitcoin is legal in some parts of the world, some banks are wary of the concept and may challenge or even refuse deposits to cryptocurrency-related websites or exchanges. It’s a good idea to double-check that your bank allows deposits at the exchange you’ve selected.
Deposits made with a savings account, debit card, or credit card have different fees. Coinbase is an excellent exchange for beginners, with a rate of 1.49 per cent for bank accounts and 3.99 per cent for debit and credit cards. It’s crucial to learn about the fees associated with each payment methods before deciding on an exchange or which payment method is better for you.
Exchanges also charge transaction fees. This fee may be a flat fee (if the amount traded is small) or a percentage of the amount traded. In addition to transaction fees, credit cards have a processing fee.
3. Place an Order
You can now buy Bitcoin and other cryptocurrencies after selecting an exchange and linking a payment method. Cryptocurrency exchanges have gradually become more mainstream in recent years. In terms of liquidity and feature set, they have greatly expanded. The developments in cryptocurrency exchange operations correspond to the shift in public opinion of cryptocurrencies. An industry that was once thought to be a scam or one with dubious practices is steadily transforming into a credible one that has piqued the attention of all of the financial services industry’s major players.
Cryptocurrency exchanges have now evolved to the point that they offer almost the same functionality as their stock brokerage equivalents. You’re ready to go once you’ve found an exchange and linked a payment method.
Today’s crypto exchanges have a variety of order forms and investment options. Almost all cryptocurrency exchanges accept market and limit orders, and some also accept stop-loss orders. Kraken has the most order types of the exchanges listed above. Market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders are all supported by Kraken.
Aside from various order forms, exchanges often provide ways for clients to set up recurring investments. For example, Coinbase allows users to schedule recurring purchases for every day, week, or month.
4. Storing Your Bitcoins
Wallets for bitcoin and other cryptocurrencies are a safe way to store digital assets. Keeping your crypto in your wallet rather than on an exchange means that only you have access to the private key to your funds. It also allows you to store funds outside of an exchange, reducing the chance of your funds being stolen if your exchange is hacked.
Although most exchanges provide their users with wallets, security is not their main business. For large or long-term cryptocurrency holdings, we don’t suggest using an exchange wallet.
Some wallets have a greater number of features than others. Some are Bitcoin-only, while others allow you to store a variety of altcoins. Some wallets also allow you to exchange one token for another.
You have a variety of choices when it comes to selecting a Bitcoin wallet. The definition of hot wallets (online wallets) and cold wallets is the first thing you can learn about crypto wallets (paper or hardware wallets).
How to Purchase Bitcoin Using PayPal
Additionally, Bitcoin can be purchased via the payment processor PayPal. There are two distinct methods for purchasing Bitcoin via PayPal. The first and most convenient method is to use your PayPal account to purchase cryptocurrencies. The second option is to use your PayPal balance to buy cryptocurrencies from a third-party provider. This is a less convenient option than the first because very few third-party websites allow users to purchase Bitcoin using the PayPal button.
PayPal supports the purchase of four cryptocurrencies directly. These are Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Residents of all states, except Hawaii, may use their existing PayPal accounts or create new ones.
The following information is required to open a cryptocurrency account with PayPal: Name, physical address, birth date, and tax identification number.
There are several ways to purchase Bitcoin using PayPal.
Among them are the following:
- Your PayPal account already has a balance.
- Debit card associated with your PayPal account
- Your PayPal account is linked to a bank account.
It is not possible to purchase Bitcoin through PayPal using a credit card. PayPal will display a price during the purchase process. However, due to the inherent volatility of cryptocurrency prices, those values are subject to rapid fluctuation. You should ensure that your account has sufficient funds to make the purchase.
When you purchase Bitcoin directly from PayPal, the company profits from the crypto spread or the difference between Bitcoin’s market price and the currency’s exchange rate in USD. Additionally, the company charges a transaction fee on each purchase. These fees are calculated based on the dollar amount of the purchase. For example, a $0.50 flat fee is applied to purchases between $100 and $200. Following that, the fee is calculated as a percentage of the total dollar amount. For crypto purchases between $100 and $200, for example, a fee of 2% of the total amount is charged.
One disadvantage of purchasing cryptocurrencies via PayPal is that the cryptocurrency cannot be transferred outside of the payment processor’s platform. As a result, you cannot transfer cryptocurrencies from PayPal’s wallet to an external cryptocurrency wallet or your wallet.
The other disadvantage of using PayPal is that only a small number of exchanges and online traders accept payment via the payment processor. eToro is one of the few online brokers that accept PayPal as a method of payment for Bitcoin purchases on its platform.
How to Purchase Bitcoin Using a Credit Card
Purchasing Bitcoin with credit cards is similar to purchasing it with debit cards or automated clearing house (ACH) transfers. You will need to enter your credit card information and authorize the transaction with the exchange or online trading firm. However, it is generally not a good idea to purchase Bitcoin using a credit card. There are a few possible explanations for this.
To begin, not all exchanges accept credit card purchases due to the associated processing fees and risk of fraud. Their decision may be in the best interests of their customers. This is because credit card processing companies can tack on additional fees to such transactions. Thus, in addition to transaction fees, you may be charged processing fees by the exchange.
The second reason is that purchasing with a credit card can be costly. Credit card companies classify Bitcoin purchases as cash advances and levy steep fees and interest rates on them. American Express and Chase, for example, both classify cryptocurrency purchases as cash advance transactions. Thus, if you use an American Express card to purchase $100 worth of Bitcoin, you will pay $10 (the current cash advance fee for such transactions) plus a 25% annual percentage fee.
Obtaining a Bitcoin Rewards credit card is an indirect method of purchasing Bitcoin with a credit card. These cards operate similarly to standard rewards credit cards, except that they offer rewards in the form of Bitcoin. As a result, they invest the cashback they earn on purchases in Bitcoin. The BlockFi Bitcoin Rewards Credit Card4 is an example of a Bitcoin Rewards card. Bear in mind, however, that the annual fee for these cards may be prohibitively high, and that there may be additional costs associated with the conversion of fiat currencies to cryptocurrency.
Alternative Methods of Purchasing Bitcoin
While exchanges such as Coinbase or Binance remain popular methods of purchasing Bitcoin, they are not the only ones. The following are some additional procedures that Bitcoin owners employ.
ATMs that accept bitcoin
Bitcoin ATMs operate similarly to physical Bitcoin exchanges. Individuals can use cash to purchase Bitcoins, which are then transferred to a secure digital wallet. Bitcoin ATMs have grown in popularity in recent years; Coin ATM Radar can assist in locating the nearest machines.
In contrast to decentralized exchanges, which connect buyers and sellers anonymously and handle all aspects of the transaction, some peer-to-peer (P2P) exchange services facilitate a more direct connection between users. Local Bitcoins is an illustration of this type of exchange. After creating an account, users can post requests to buy or sell Bitcoin, complete with payment information and the current price. Users then peruse listings of buy and sell offers, selecting trade partners with whom they wish to conduct business.
Local Bitcoins simplify certain aspects of the trade. While peer-to-peer exchanges do not provide the same level of anonymity as decentralized exchanges, they enable users to shop around for the best deal. Numerous exchanges also include rating systems that enable users to assess potential trading partners before transacting.
How to Sell Bitcoin
You can sell Bitcoin at the same exchanges and peer-to-peer platforms where you purchased it. Typically, the process for selling Bitcoin on these platforms is identical to the process for purchasing it.
For instance, you may be required to conduct the sale by simply clicking a button and specifying an order type (i.e., whether the cryptocurrency should be sold instantly at available prices or sold to limit losses). The offering price for Bitcoin may vary depending on the market composition and demand at the venue. For instance, South Korean exchanges traded Bitcoin at a Kimchi premium during the cryptocurrency’s 2018 price surge.
Cryptocurrency exchanges charge a fee based on the amount of cryptocurrency sold. For example, Coinbase charges a fee of 1.49 per cent of the total transaction amount.
Withdrawal limits on exchanges are typically set on a daily and monthly basis. As a result, cash from a large sale may not be available to the trader right away. However, there are no restrictions on how much cryptocurrency you can sell.