Investing in Bitcoin (BTC) may appear complicated at first, but it becomes more straightforward once you break it down into parts. For example, Bitcoin investment or trading BTC requires a service or an exchange account, while additional secure storage methods are advised.
A cryptocurrency exchange account, personal identification documents if using a Know Your Customer (KYC) platform, a secure internet connection and a payment method are all requirements for ambitious Bitcoin investors. It's also a good idea to have a personal wallet separate from your exchange account.
Bank accounts, debit cards and credit cards are all acceptable payment methods to buy Bitcoin. BTC can also be obtained through Bitcoin ATMs and peer-to-peer (P2P) exchanges. However, starting in early 2020, Bitcoin ATMs progressively required government-issued identities.
Furthermore, Bitcoin is incredibly volatile, but if you're willing to take the risk, make sure you know what you're getting into and have a crypto investment strategy in place. Also, make sure you're not investing just out of a fear of missing out.
This article will answer the most commonly-asked questions, such as how do I invest in Bitcoin? What is the best way to buy Bitcoin? How to safely invest in Bitcoin?
Before you buy Bitcoin
Investing in Bitcoin may appear difficult at first, but it becomes more straightforward once you break it down into steps. Buying Bitcoin is becoming easier by the day as the trustworthiness of exchanges and wallets is increasing. But before buying Bitcoin, you need a place to store it.
In the world of cryptocurrency, that place is called a “wallet” and crypto wallets come in a variety of forms. Different types of wallets provide BTC owners with many kinds of security, storage and access options. The five main types of BTC wallets are desktop, mobile, online, hardware and paper wallets.
It is important to mention, however, that your wallet doesn’t technically store your Bitcoin. Instead, it holds private keys, which are essential for accessing a Bitcoin address and being able to spend the funds. Those digital keys are required to sign transactions, and if a user loses them, they essentially lose access to their Bitcoin.
Types of wallets
A desktop wallet is installed on the user’s computer, providing control of funds they send to that wallet, and both thick and thin desktop wallets exist. Thick desktop wallets allow users to download the related blockchain in its entirety, and it provides independent security management of their funds. On the other hand, thin wallets don’t require users to download blocks and can be easily downloaded to a portable device.
The main advantage of a mobile wallet is that the user’s funds are always on hand. It can be a convenient way of paying for goods by scanning QR-codes. In some cases, users can take advantage of their smartphone’s near-field communication feature, otherwise known as NFC, which allows them to just simply tap their phone against a reader without entering any information at all.
One common feature of all mobile wallets is that it is not required to run a full Bitcoin node. This is because a full Bitcoin node has to download the entire blockchain, which is constantly growing and requires significant storage.
If using a web-based wallet, users’ private keys are stored on an online server controlled by someone else and connected to the internet. While it allows people to easily access their funds from any device from virtually anywhere in the world, there is always a risk of the server being hacked or even the organization running the service taking control of your Bitcoin. In general, there’s a lot to consider when buying and managing your Bitcoin.
Hardware wallets are dedicated portable devices that hold private keys offline. There are several different kinds of hardware wallets, but all of them allow users to carry essentially any amount of money in their pocket.
A paper wallet is two pieces of information expressed in characters — as well as QR codes — generated using a designated service. One of them is a wallet address that can be used to receive BTC. The other is a private key, through which you can spend Bitcoin stored at that address.
Other Bitcoin storage functionalities also exist. Multisignature, or multisig, wallets require confirmation from multiple sources to move or access funds. Some entities also offer Bitcoin custody services, which manage customers’ Bitcoin storage for them.
How to buy Bitcoin?
The number of avenues to BTC ownership is continually increasing, allowing people to choose the option of purchasing cryptocurrency that best suits their needs. So, if you want to understand how to invest in Bitcoin, please follow the steps as discussed in the sections below.
1. Choose a cryptocurrency exchange
This leads to the topic of exchange types. Several different crypto exchange types exist — centralized exchanges, decentralized exchanges, or DEXs, and peer-to-peer exchanges.
Centralized crypto exchanges are online platforms where you create an account with your chosen login details. You must also provide certain personal information, depending on the exchange and the region.
On centralized exchanges, you can send funds to that platform in the form of crypto or money from a bank account and can trade with those funds on the platform, including buying and selling Bitcoin. Depending on the exchange, you can trade numerous different crypto asset types, all on one main platform. One of the issues with this model, however, is that you do not technically hold your funds when they are on the exchange.
DEXs, on the other hand, allow you to make trades from your wallet. Essentially, DEXs are composed of groups of pooled liquidity for different assets on the blockchain where the DEX is based. DEXs based on Ethereum, for example, facilitate trading for Ethereum-based assets. Bitcoin, itself, cannot be traded on an Ethereum-based DEX, although certain workarounds exist for that.
Peer-to-peer, or P2P, trading also serves as an option for buying and selling Bitcoin. There are several platforms available for facilitating such transactions, providing an escrow service to protect both parties and their funds.
In addition to native crypto exchanges, customers can also buy Bitcoin on PayPal. The platform, however, does not allow users to send their Bitcoin outside of the platform’s ecosystem and does not give users control of their private keys.
2. Decide on a payment option
Exchanges also differ in terms of payment methods accepted. For example, the majority of big platforms allow you to link your bank account for wire transfers, as well as your debit card or credit card. Some accept PayPal payments, and Coinbase also accepts Apple Pay.
When you first sign up for an account and register a payment method, you must authenticate your identity regardless of whatever option you choose. For example, a scan of a state-issued ID, such as a driver's license or identification card, is usually required in the United State
You may also be requested to provide scanned copies of additional documents such as your passport and proof of address, depending on your jurisdiction and which platform you choose.
3. Place your order
You can start buying Bitcoin after you've been verified and deposited money into your account. This method varies depending on the exchange you choose, with some exchanges allowing you to purchase or sell BTC by just pressing an “Acquire” or “Sell” button and entering the amount you want to buy (or sell).
Most crypto exchanges, in general, provide at least three fundamental order types: market order, stop order and limit order. Clicking a Buy, Trade, or New order button on an exchange's home screen to execute any of these options. After that, you'll be able to select one of the three mentioned options before pressing a Submit button.
4. Store your Bitcoin
While larger exchanges are getting safer, the industry continues to be plagued by hacking and fraud. This is why Bitcoin investors with large sums of money should consider storing their BTC themselves. Experienced traders with strong cybersecurity skills may prefer to own their wallets, as this allows them to move their cryptocurrencies whenever they want without being bound by an exchange.
How to buy Bitcoin with PayPal?
It may come as a surprise, but no matter which exact trading method you’re using, it’s still not easy to buy Bitcoin via PayPal, depending on where you are in the world. Exchanges avoid those payment methods, requiring users to connect their bank account instead. Most private sellers tend to be wary of such transactions as well, preferring hard cash.
This is because of so-called “chargebacks.” Most transactions made using credit cards or PayPal can easily be reversed by simply calling the card-issuing company. Bitcoin transactions are irreversible, and since it can be extremely hard to prove that any goods changed hands in a transfer of Bitcoin, this payment method is generally avoided.
You'll need to create a PayPal account before you can buy cryptocurrency. If you already have a PayPal account, all you have to do to buy Bitcoin is click the "crypto" button and select BTC.
You'll need accessible funds, a linked debit card, or a linked bank account to make your purchase. You can spend as little as $1 each week or as much as $100,000. PayPal, like many other crypto exchanges, charges a fee for buying and selling cryptocurrency, which fluctuates based on the amount purchased.
How to buy Bitcoin with a credit card?
You can buy Bitcoin using a credit card on several crypto exchanges, but there are exchange fees involved. Transaction fees are how cryptocurrency exchanges make money, but using a credit card could cost you considerably more. If you choose to buy BTC with a credit card, you may be charged broker fees.
Moreover, your credit card may charge a foreign transaction fee for each purchase if the exchange is based outside of the United States. This cost could be anywhere from 1% to 3% of the total purchase price.
The ability to buy crypto with a credit card is also subject to the credit card issuer's policies. For example, American Express restricts the purchase of currency using their card but allows the purchase of cryptocurrencies for the time being.
If your preferred exchange and credit card provider allow it, the process for setting up these transactions is fairly similar to linking and verifying your bank account via ACH (automated clearing house).
How to safely invest in Bitcoin?
Please consider the following points before you want to invest in Bitcoin:
Legality and protection issues
Bitcoin, in general, has attracted interest from law enforcement agencies, tax authorities and legal regulators. They are trying to understand how cryptocurrency fits into already existing frameworks and what guidelines to put in place. Your legality in terms of your Bitcoin activities can depend on who you are, where you live and what you do with the asset.
It’s also worth remembering that crypto exchanges’ protection and security measures, as well as their legitimacy, vary from platform to platform. Different Bitcoin storage methods also have their pros and cons, which must be taken into consideration before committing funds to crypto investments.
Safety practices for protecting your Bitcoin depend on the storage type you choose, each having its preferred practices on how to buy and keep your Bitcoin. Researching these practices, as well as on the type of storage that best suits you, is a vital part of Bitcoin ownership. Bitcoin can offer fewer limitations than traditional siloed finance, although such abilities also come with responsibility.