Luke Conway has been following và researching the cryptocurrency & fintech space for over five years. Luke is an expert on blockchain & cryptocurrency.
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Investing in Bitcoin can seem complicated, but it is much easier when you break it down inkhổng lồ steps. Buying Bitcoin is getting easier by the day and the legitimacy of the exchanges và wallets is growing as well.
The value of Bitcoin is derived from its adoption as a store of value và payment system, as well as its finite supply và decreasing inflation.While it is nearly impossible for Bitcoin itself lớn be hacked, it is possible for your wallet or exchange account lớn be compromised. This is why practicing proper storage và security measures is imperative sầu.Investing or trading Bitcoin only requires an tài khoản on an exchange, though further safe storage practices are recommended.
Before You Begin
There are several things that every aspiring Bitcoin investor needs. A cryptocurrency exchange tài khoản, personal identification documents if you are using a Know Your Customer (KYC) platform, a secure connection lớn the Internet, & a method of payment. It is also recommended that you have sầu your own personal wallet outside of the exchange tài khoản. Valid methods of payment using this path include bank accounts, debit cards, and credit cards. It is also possible to lớn get Bitcoin at specialized ATMs and via P2P exchanges. However, be aware that Bitcoin ATMs were increasingly requiring government-issued IDs as of early 20trăng tròn.
To buy bitcoin you need a digital wallet, personal identifying documents, a secure mạng internet connection, a cryptocurrency exchange, and a khung of payment.Getty Images/sorbetto
Privacy & security are important issues for Bitcoin investors. Even though there are no physical Bitcoins, it is usually a bad idea lớn brag about large holdings. Anyone who gains the private key lớn a public address on the Bitcoin blockchain can authorize transactions. While private key should be kept secret, criminals may attempt to steal private keys if they learn of large holdings. Be aware that anyone can see the balance of a public address that you use. That makes it a good idea lớn keep significant investments at public addresses that are not directly connected to ones that are used for transactions.
Anyone can view a history of transactions made on the blockchain, even you. But while transactions are publicly recorded on the blockchain, identifying user information is not. On the Bitcoin blockchain, only a user"s public key appears next khổng lồ a transaction—making transactions confidential but not anonymous. In a sense, Bitcoin transactions are more transparent & traceable than cash, but Bitcoin can be used anonymously.
That is an important distinction. International researchers và the FBI have claimed that they can track transactions made on the Bitcoin blockchain to users" other online accounts, including their digital wallets. For example, if someone creates an trương mục on Coinbase they must provide their identification. Now, when that person purchases Bitcoin it is tied lớn their name. If they skết thúc it to lớn another wallet it can still be traced bachồng to the Coinbase purchase which was connected to the trương mục holder"s identity. This should not concern most investors because Bitcoin is legal in the U.S. & most other developed countries.
Step One: Choose an Exchange
Signing up for a cryptocurrency exchange will allow you lớn buy, sell, và hold cryptocurrency. It is generally best practice to lớn use an exchange that allows its users khổng lồ also withdrawal their cryplớn to lớn their own personal wallet for safer keeping. There are many exchanges và brokerage platforms that bởi vì not allow this. For those looking to consistently trade Bitcoin or other cryptocurrencies, this feature may not matter.
There are many types of cryptocurrency exchanges that exist. With the ethos of Bitcoin being decentralization and individual sovereignty, some exchanges allow users to remain anonymous và vì chưng not require users lớn enter personal information. Exchanges that allow this operate autonomously và are typically decentralized which means there is no central point of control. In other words, there is no CEO và no person or group for any regulatory toàn thân to lớn pursue should it have sầu concerns over illegal activity taking place.
While these types of systems vày have the potential lớn be used for nefarious activities, they also provide services lớn the unbanked world. People like this may include refugees or those living in countries where there is little khổng lồ no government or banking infrastructure khổng lồ provide a state identification required for a bank or investment account. Some believe sầu the good in these services outweigh the potential for illegal use as unbanked people now have sầu a means of storing wealth và can use it khổng lồ climb out of poverty.
Right now, the most commonly used type of exchanges are not decentralized and vày require KYC. In the United States, these exchanges include Coinbase, Kraken, Gemini, & Binance U.S., lớn name a few. Each of these exchanges has grown significantly in the number of features they offer. Coinbase, Kraken, và Gemini offer Bitcoin and a growing number of altcoins. These three are probably the easiest on-ramp to cryplớn in the entire industry. Binance caters to lớn a more advanced trader, offering more serious trading functionality và numerous altcoins lớn choose from.
An important thing to lớn note when creating a cryptocurrency exchange tài khoản is to lớn use safe mạng internet practices. This includes using two-factor authentication và using a password that is unique and long, including a variety of lowercase letters, capitalized letters, special characters, & numbers.
Step Two: Connect Your Exchange to a Payment Option
Once you have chosen an exchange, you now need khổng lồ gather your personal documents. Depending on the exchange, these may include pictures of a driver"s license, social security number, as well as information about your employer và source of funds. The information you may need can depover on the region you live in and the laws within it. The process is largely the same as setting up a typical brokerage trương mục.
By linking a bank tài khoản lớn your wallet, you can buy và sell bitcoin & deposit that money directly inlớn your trương mục.sorbetlớn / Getty Images
After the exchange has ensured your identity and legitimacy you may now connect a payment option. With the exchanges listed above, you can connect your bank tài khoản directly or you can connect a debit or credit card. While you can use a credit card khổng lồ purchase cryptocurrency, it is generally something that should be avoided due lớn the volatility that cryptocurrencies can experience.
While Bitcoin is legal in the United States, some banks vì not take too kindly lớn the idea và may question or even stop deposits lớn crypto-related sites or exchanges. While most banks bởi vì allow these deposits, it is a good idea khổng lồ check to lớn make sure that your bank allows deposits at your chosen exchange.
There are varying fees for deposits via a bank account, debit, or credit card. Coinbase, for example, which is a solid exchange for beginners, has a 1.49% fee for ngân hàng accounts & a 3.99% fee for debit and credit cards. It is important to lớn retìm kiếm the fees associated with each payment option to lớn help choose an exchange or khổng lồ choose which payment option works best for you.
Step Three: Place an Order
Once you have sầu chosen an exchange and connected a payment option you can now buy Bitcoin and other cryptocurrencies. Over recent years cryptocurrency và their exchanges have sầu slowly become more mainstream. Exchanges have grown significantly in terms of liquidity & their breadth of features. What was once thought of as a scam or questionable has developed into lớn something that could be considered trustworthy và legitimate.
Now, cryptocurrency exchanges have sầu gotten khổng lồ a point where they have nearly the same màn chơi of features as their stock brokerage counterparts. Once you have found an exchange & connected a payment method you are ready lớn go.
Cryplớn exchanges today offer a number of order types and ways to lớn invest. Almost all crypkhổng lồ exchanges offer both market and limit orders & some also offer stop-loss orders. Of the exchanges mentioned above sầu, Kraken offers the most order types. Kraken allows for market, limit, stop-loss, stop-limit, và take-profit limit orders.
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Aside from a variety of order types, exchanges also offer ways to lớn mix up recurring investments allowing clients to lớn dollar cost average inlớn their investments of choice. Coinbase, for example, lets users phối recurring purchases for every day, week, or month. Getting an account on an exchange is really all you need to bởi to lớn be able lớn buy Bitcoin or other cryptocurrencies, but there are some other steps lớn consider for more safety và security.
Step Four: Safe Storage
Bitcoin and cryptocurrency wallets are a place to lớn store digital assets more securely. Having your crypto lớn outside of the exchange và in your personal wallet ensures that only you have sầu control over the private key to your funds. It also gives you the ability to lớn store funds away from an exchange and avoid the risk of your exchange getting hacked and losing your funds.
Bitcoins are not physical coins, & they must be stored in digital wallets. GrafVishenka / iStoông chồng / Getty Images Plus
While most exchanges offer wallets for their users, security is not their primary business. We generally bởi vì not recommend using an exchange wallet for large or long-term cryptocurrency holdings.
Some wallets have sầu more features than others. Some are Bitcoin only & some offer the ability to store numerous types of altcoins. Some wallets also offer the ability khổng lồ swap one token for another.
When it comes khổng lồ choosing a Bitcoin wallet, you have a number of options. The first thing that you will need to lớn understvà about crypto lớn wallets is the concept of hot wallets (online wallets) and cold wallets (paper or hardware wallets).
Hot Wallets
Online wallets are also known as “hot” wallets. Hot wallets are wallets that run on internet-connected devices like computers, phones, or tablets. This can create vulnerability because these wallets generate theprivate keyskhổng lồ your coins on these internet-connected devices. While a hot wallet can be very convenient in the way you are able lớn access và make transactions with your assets quickly, storing your private key on an internet-connected device makes it more susceptible lớn a hachồng.
This may sound far-fetched, but people who are not using enough security when using these hot wallets can have sầu their funds stolen. This is not an infrequent occurrence & it can happen in a number of ways. As an example, boasting on a public forums like Reddit about how much Bitcoin you hold while you are using little lớn no security and storing it in a hot wallet would not be wise. That said, these wallets can be made lớn be secure so long as precautions are taken. Strong passwords, two-factor authentication, and safe internet browsing should be considered minimum requirements.
These wallets are best used for small amounts of cryptocurrency or cryptocurrency that you are actively trading on an exchange. You could liken a hot wallet khổng lồ a checking tài khoản. Conventional financial wisdom would say to lớn hold only spending money in a checking account while the bulk of your money is in savings accounts or other investment accounts. The same could be said for hot wallets. Hot wallets encompass di động, desktop, web, và exchange tài khoản custody wallets.
As mentioned previously, exchange wallets are custodial accounts provided by the exchange. The user of this wallet type is not the holder of the private key khổng lồ the cryptocurrency that is held in this wallet.If an event were lớn occur where the exchange is hacked or your account becomes compromised, your funds would be lost. The phrase “not your key, not your coin” is a heavily repeated concept within cryptocurrency forums & communities.
Cold Wallets
The simplest description of a cold wallet is a wallet that is not connected khổng lồ the internet and therefore stands at a far lesser risk of being compromised. These wallets can also be referred khổng lồ as offline wallets or hardware wallets.
These wallets store a user’s private key on something that is not connected to lớn the mạng internet và can come with software that works in parallel so that the user can view their portfolio without putting their private key at risk.
Perhaps the most secure way to store cryptocurrency offline is via apaper wallet. A paper wallet is a wallet that you can generate off of certain websites. It then produces bothpublicand private keys that you print out on a piece of paper. The ability to access cryptocurrency in these addresses is only possible if you have that piece of paper with the private key. Many people laminate these paper wallets & store them in safety deposit boxes at their ngân hàng or even in a safe in their home page. These wallets are meant for high security and long-term investments because you cannot quickly sell or trade Bitcoin stored this way.
A more commonly used type of cold wallet is a hardware wallet. A hardware wallet is typically a USB drive sầu device that stores a user’s private keys securely offline. This has serious advantages over hot wallets as it is unaffected by viruses that could be on one’s computer. With hardware wallets, private keys never come in tương tác with your network-connected computer or potentially vulnerable software. These devices are also typically open source, allowing the community to determine its safety through code audits rather than a company declaring that it is safe lớn use.
Cold wallets are the most secure way lớn store your Bitcoin or other cryptocurrencies. For the most part, however, they require a bit more knowledge to phối up.
A good way to phối up your wallets is khổng lồ have sầu three things: an exchange trương mục to lớn buy and sell, a hot wallet lớn hold small khổng lồ medium amounts of crypto lớn you wish to lớn trade or sell, and a cold hardware wallet lớn store larger holdings for long-term durations.
Alternate Ways of Buying Bitcoin
While exchanges like Coinbase or Binance remain some of the most popular ways of purchasing Bitcoin, it is not the only method. Below are some additional processes Bitcoin owners utilize.
Bitcoin ATMs
Bitcoin ATMs act like in-person Bitcoin exchanges. Individuals can insert cash inlớn the machine and use it to lớn purchase Bitcoin that is then transferred to a secure digital wallet. Bitcoin ATMs have sầu become increasingly popular in recent years;Coin ATM Radarcan help to trachồng down the closest machines.
P2Phường Exchanges
Unlike decentralized exchanges, which match up buyers và sellers anonymously and facilitate all aspects of the transaction, there are some peer-to-peer (P2P) exchange services that provide a more direct connection between users.Local Bitcoinsis an example of such an exchange. After creating an trương mục, users can post requests to lớn buy or sell Bitcoin, including information about payment methods & price. Users then browse through listings of buy & sell offers, choosing those trade partners with whom they wish to lớn transact.
Local Bitcoins facilitates some of the aspects of the trade. While P2Phường exchanges bởi vì not offer the same anonymity as decentralized exchanges, they allow users the opportunity khổng lồ shop around for the best deal. Many of these exchanges also provide rating systems so that users have sầu a way to lớn evaluate potential trade partners before transacting.