A Guide to Investing in Bitcoin: How to Buy, Tips & Tricks
Buying Bitcoins often comes off as a baffling and intimidating concept for new investors. Knowing when, how and what to buy is key knowledge in the cryptocurrency industry.
Preparing to Buy Bitcoins
To successfully ensure that any Bitcoin you buy is safely stored, a requirement of any potential cryptocurrency owner is what’s referred to as a “wallet”. These digital wallets contain a user’s Bitcoins and store them. Wallets differ in types based on security, storage capacity and other options they provide.
Wallets keep a user’s private keys stored safely – essentially, they act as ‘passwords’ used to access stored Bitcoins. Each of these keys is fundamental in completing transactions and allows a user to spend their funds as they please. No one can access a wallet without the proper keys, which is why it is crucial to safely and properly save a private key’s information to make sure that Bitcoins are never lost or inaccessible. As wallets vary in type, storage and efficiency, we’ll take a closer look at the most commonly known wallets:
Desktop wallets permit total control over a user’s assets and are installed on a home or office desktop. Two variations of desktop wallets consist of either thick or thin wallets. The former ones provide the maximum level of protection. But in return user have to download the whole chain of blocks to his PC. It takes a lot of time and resources. For example, to store Bitcoin user will need to download the entire block of cryptocurrency, which now occupies 210.9 GB.
Thin wallets are considered easier since they bypass the process of downloading blocks and thanks to that they can be installed on any mobile device.
Mobile wallets allow instant access to a user’s fund by keeping them readily available through the push of a button on any portable device. As an essentially mobile tender, this type of wallet provides the benefit of paying through QR-codes, sometimes by simply pressing your phone to the scanner itself, making payment methods a whole lot easier.
Unlike complete clients, mobile wallet users do not have to download an entire blockchain and take up massive amounts of storage space, making the mobile wallet a simple and convenient payment method.
Online wallets are another convenient, albeit risky storage services. Since online wallets are accessed through the internet, this allows users instant availability anywhere they are. Due to its online nature, these wallets are more susceptible to hacking attempts, and on some occasions, Bitcoins can even be taken or used by the entity providing the wallet service.
Hardware wallets consist of devices that a user can physically carry around and store as many coins as they want These wallets look just like ordinary USB Flash Drives.
Developed specifically to store assets and private addresses, hardware wallets help users to store and spend their coins while keeping them safe on a hard drive.
Considered one of the safer options for Bitcoin users, paper wallets consist of two QR-codes, with one code acting as a private key and the other as a public key. The private key allows users to accept Bitcoins while the private key allows users to spend their coins at the given wallet address.
While the cryptocurrency is open to any new investors or users, the process of buying Bitcoins is not as simple as many may think. Although methods of purchasing these coins are always increasing. Some options for buying cryptocurrencies even bypass the need for a wallet or an online connection.
Buying via ATMs
While the number of Bitcoin ATMs is constantly multiplying in cities around the world, a commission anywhere from 3 to 8 percent is charged upon use. Bitcoin ATMs however, provide the most personal experience when shopping for Bitcoins.
Purchasing can be done using one of two simple processes: either a user scans their mobile device QR-code against the machine to transfer the funds to a user’s wallet, or request a receipt from the machine with guided steps on transferring coins to a wallet. ATMs may possibly become the simplest way of purchasing Bitcoins as cryptocurrencies’ popularity continues to soar.
While many services can point you to the closest ATM, it's unlikely that these machines will operate, let alone exist in countries that have not yet regulated digital currencies.
Buying with Gift Cards:
Gift cards are often purchased by Bitcoin users given the cheaper price and anonymity behind it. Contrary to this, Bitcoins can also be purchased using gift cards. By simply acquiring a gift card and accessing a Bitcoin exchange, these cards can be traded in for any transaction that accepted by the merchant.
While some sellers simply require the online code of a gift card, others might ask to see a real picture of the gift card's code for further verification, in addition to asking a user to provide the receipt as proof of purchase. Providing sellers with the info on the card is considered safe due to the BTC purchase information that is saved on the website the moment a trade is initiated.
Buying on Crypto Exchanges:
Many exchanges around the world operate and often compete to draw in new and potential customers. Exchanges must abide by the rules of the native country in which it operates, and provide a KYC procedure to avoid money-laundering attempts. This often makes the process of signing up for an exchange a long and tiring one.
Anonymity is another issue given that most exchanges require customers to connect their exchange and valid bank accounts to initiate trading on the platform, which often results in a customer exposing their personal information.
Exchanges provide unique options to traders not found via other methods. Known to contain all the requirements and necessities that new and veteran traders require, exchanges offer services ranging from single trades to full-on corporate business agreements. They are also mostly accessible on portable devices to give users the choice to trade from any location.
Buying on Bitcoin Exchanges:
Exchanges sometimes offer Bitcoin wallets which include storage, although they are considered to be the worst in terms of asset storage. The protection provided by exchanges is much lower than any regulated bank would offer given that exchange platforms are often the victims of cyber-attacks.
This also results in an exchange claiming all of a user’s Bitcoin, with no way for a customer to retrieve these lost assets. As the leading choice for traders and investors, the risks associated with cryptocurrency exchanges might not be worth the effort for others.
Peer to Peer:
Given the volatile and untrustworthy history of online transactions, some Bitcoin users choose to maintain the anonymity of their transactions and skipping past tedious bank procedures which makes peer-to-peer transactions a much-preferred option for them.
Many websites online provide P2P transactions for customers and escrow services to ensure the security of user funds. With users taking more defensive measurements due to the constantly rising criminal activities regarding cryptocurrencies, most transactions occur in public areas as local get-togethers to exchange Bitcoins, although safety measures are still recommended.
Websites also provide information regarding the next or closest Bitcoin meet-up for those looking to trade or even learn more about cryptocurrencies in general.
Bitcoin sellers will charge a fee anywhere from five to ten percent, discussing the prices of a sale prior to the meeting, while some will only sell the currency at their current market price to take the necessary precautions given Bitcoins volatile value nature.
An investment trust is essentially a group investment funds formed into a pool from the sales received by a certain number of shares issued by the trust itself. After Bitcoin made its appearance, an investment trust based on Bitcoins was inevitable.
Bitcoin investment trusts (BIT) allow users to involve themselves in cryptocurrency without any transactions, and operates completely on the back of Bitcoins, receiving value only from BTC prices. Worth almost $2 billion on the market, many believe that BIT has a short life-span.
While the first investment to fully operate on Bitcoins, many believe BIT to be worth what it is due to the trust’s unique status. Others believe that more cryptocurrency trusts will emerge which will then normalize the current standing of BIT as the only investment trust of its kind.
Difficulties and Warnings
To this day, buying Bitcoins using a credit card is no easy feat. Banks often require a user to connect directly with his account to avoid purchasing digital coins through Paypal, credit cards and other services which offer a ‘chargeback’ option.
Due to the simplicity of chargebacks, which are often made by a simply contacting the company in charge of the card, quick transaction reversals can occur. Once a Bitcoin transaction is made, it’s impossible to reverse it, which is why many choose to forsake this method.
While Bitcoin and cryptocurrencies continue to implement themselves in today's financial industry, regulation authorities are shifting their attention towards the future currency. Most countries have already implemented proper regulations and laws to allow legal operation of crypto exchanges and Bitcoin transactions.
Some countries, like Russia and Thailand, initially banned all cryptocurrency activities before reversing their decisions, with Russia making announcements to utilize digital coins as a means to fight terrorism.
Even with identification authorization that exchanges and other cryptocurrency services require, these protective measures can't be compared to bank procedures. Should an exchange lose or misplace funds, whether by filing for bankruptcy or other means, reimbursement or insurance is almost non-existent.
Since Bitcoin has yet to receive a legal standing in many countries, cybercrime regarding stolen coins remains in a grey area. Although many exchanges have fully or partially refunded their clients for any mishaps, no law requires that they must. A few banks will not operate with digital funds given the unreliable nature of the coin.
A user's private address is incredibly vital since, without it, anyone that manages to steal a private key can automatically gain access to a user's funds. A user won't even be able to access their own storage and coins without their key, ensuring that the utmost protection is required. Some users implement secure passwords and store their wallets offline to avoid any hacking attempts, also known as cold storage.