How to Buy Bitcoin
Now that you know the bitcoin basics, you might want to jump straight to buying your first bitcoin. Hold on to your horses. Unlike flat currencies that you can buy from the bank, getting a bitcoin can be a bit more complicated.
First, you need to set up a bitcoin wallet. No. This is not your physical designer wallet. Getting your wallet is the first step in transacting using bitcoin and you’ll need whatever purchasing method you would prefer. The wallet could be online, desktop, mobile, or offline (a hardware device). These wallets may offer different services depending on the type. But, all of them are designed to keep your keys and passwords safe.
Bitcoin buying services will support at least one payment method in purchasing bitcoin. Each of these methods will have its own advantages and disadvantages.
- Buying with cash. Those who feel insecure with online transactions will be happy to know that they can buy bitcoin with cash. You may need to go to specific locations, but if it makes you feel more secure, do so. There are countries that have ATMs that sell bitcoin. Most of these ATMs are currently located in major cities in the US like New York, Chicago, Philadelphia, Atlanta, Los Angeles, and Miami.
Advantages: No risks of chargeback. More secure compared to other methods, and potentially faster.
Disadvantages: Local liquidity dependent. Due to security, regulatory, and liquidity issues, the transaction size can be limited. Fees in buying bitcoin with cash also tend to be higher because of the operational costs when dealing with cash.
- Buying with credit card. You can actually connect your wallet with you credit card. It’s convenient and quick. But, it may depend on the bank who issued your credit card if they will allot it. Some bitcoin sellers will allow some cards like MasterCard and Visa, but will not have an option for American Express, or vice versa. And it’s not even a guarantee. Some major banks like Bank of America, J.P. Morgan Chase, and Citigroup don’t allow the use of their credit cards for bitcoin purchase. So, before you use your credit card, you might want to talk with your bank first so you don’t waste your time and effort.
Advantages: It’s just like buying something online so it should be a familiar process for credit card owners. Transactions are fast and consumer adoption is ubiquitous.
Disadvantages: Credit cards are somewhat insecure so the risk for chargeback is higher than when you use cash. The same chargeback risk also causes the transaction fees to be much higher.
- Bank wire. This payment method is widely used by exchanges, OTC traders, and brokerages. It’s more secure than using credit cards since you pay directly from your bank account to the seller.
Advantages: Fast settlement for domestic transfer. It is recommended for large transactions.
Disadvantages: Poor user experience combined with unfamiliarity with the wiring process can prove to be expensive in some special cases. Settlements when done between two or more different countries can take a long time and will incur additional exchange costs and fees.
Where to Buy Bitcoin
Now that you have decided which payment method you’d want to use in purchasing your first ever bitcoin, we need to browse the available channels and markets.
- These are companies that set up live markets for selling and buying bitcoin. Customers can deposit flat currency or bitcoin into their accounts. They can then make different orders which will be recorded in a book handled by the exchange company. There are exchange companies that offer limit orders, while some offer stop loss orders, as well as margin trading. When you have an account with a bitcoin exchange, it feels like you have a seat in the New Your Stock Exchange. Buying for exchange companies is recommended for institutional and day traders who deal with bitcoin full time. These are for more advanced bitcoin traders.
- These are companies and individuals who take orders from bitcoin buyers or sellers, and then coordinate with exchange companies on the customers’ behalf. This will incur a fee which will be paid to the broker for handling the bitcoin transactions and the buyer gets the bitcoin which the broker ordered from an exchange. If having a bitcoin exchange account feels like you’re at the NYSE, the broker on the other hand, is like having a trader who handles your bitcoin transactions. Going through the broker is advisable for new comers in the bitcoin industry. As previously discussed, buying directly from exchange companies can be complicated so it’s better to let the experts do it in your behalf. The fees are worth the service.
- Over the Counter. For those who want to trade directly with a bitcoin buyer or seller but do not want the complexity of dealing with an exchange or paying for a broker, going OTC market is the way. This decentralized exchange is off the books and may require personal meetings or remote trades. Both the buyer and seller will meet at an agreed date, time, and place for the meeting. They will also agree about the rate before continuing with the transaction. This is a face-to-face deal. If both parties want to do a remote exchange, everything will be coordinated by email, telephone, or other means of remote communication. After agreeing with the price, the buyer transfers funds electronically to the seller and the seller then sends the bitcoin to the bitcoin address of the buyer. One of the main advantages of doing OTC bitcoin deals is that it’s great for large bitcoin blocks with a guaranteed price.
Wrapping it Up
Bitcoin might not be performing very well recently, but it can also be the best time to buy because of the lower price. Bitcoin has seen major dips in the past, but it has always jumped back into the limelight. This characteristic of bitcoin is what makes it attractive for people who want to take some risk and take part in the crazy cryptocurrency world. One thing is for sure. Bitcoin is here to stay and the earlier you learn how to tame this beast by dealing with it, the better your trading position will be in the future.
To uncomplicate things as far as buying bitcoin is concerned, it’s always the best option for beginners to get the services of a broker. These experts can help you get bitcoin at the lowest possible price during the time of purchase. You also don’t have to worry about which payment method you’d use. Going directly to bitcoin exchange companies can be a bit overwhelming, so let the brokers do it for you.