Buying Bitcoin: Things You Need To Know Before Taking The Plunge
Cryptocurrency advocate and analyst, growth hacker
Despite attracting unprecedented attention in the investment landscape, many people still find it difficult to buy bitcoin.
More often than not, people identify cryptocurrency as a complex investment niche, which is far from the truth. On the contrary, bitcoin’s decentralized economy relies on the ability of participants to retain autonomy over their finances.
For this to become a reality, stakeholders have ensured that crypto operations, particularly the ones involving the acquisition of crypto, are straightforward.
To prove this, I have decided to provide a comprehensive guide
on how to buy bitcoin and breakdown all the stages involved. Here, I will explore the fundamentals of bitcoin wallets as well as explain the core workings of crypto exchanges, bitcoin marketplaces, and bitcoin ATMs.
Before this, I will introduce you to some crucial factors that will aid your transition into the bitcoin market.
Some of these factors include the legal and tax implications of owning bitcoin in your jurisdiction, the security challenges of the bitcoin market, the volatility of the digital asset, and how to go about buying bulk bitcoin.
What Are the Things You Need to Know Before You Purchase Crypto?
The Legal Stance of Bitcoin in Your Country
The first bit of information you need to acquire is the legality of bitcoin in your county. Although a majority of governments have become receptive to bitcoin, some still have restrictions put in place to discourage their citizens from owning or participating in the crypto economy. It is, therefore, imperative to ascertain the stance of your government on the subject matter before buying bitcoin.
The Tax Regulatory Framework Governing Crypto in Your Country
Once you are sure that owning crypto is legal in your jurisdiction, the next step is to verify the tax class that crypto falls under. Depending on the crypto tax regulation at play in your country, you might need to pay tax on every bitcoin transaction you execute.
So, it is important to understand the tax requirements beforehand so as not to be found wanting when it is time to file tax returns.
Bitcoin Is Volatile
The unique nature of bitcoin has made it one of the most sought-after assets today. After exploring the price performance
of the digital asset, you will discover that it is normal for the value of bitcoin to fall and rise several times in a day.
Besides, the digital asset market is always active round the clock. Hence, short-term traders are constantly engaging with the market and capitalizing on price fluctuations.
Like fiat money, digital assets need storage infrastructures to enable the security and accessibility of purchased bitcoin. This right here is where digital wallets come in handy. Wallets provide the right tools to monitor and manage digital assets.
The security of these systems relies on cryptography by utilizing public and private keys – long strings of letters and numbers created by mathematical encryption algorithms – to ensure that the contents of wallets are secure and transferable. The easiest way to understand the technicality of these infrastructures is to compare the major components of digital wallets to traditional banking concepts.
For one, the public key functions similarly to conventional bank account numbers. Similar to a bank account detail, you can send anyone your public key to receive bitcoin without endangering the security of your asset.
On the other hand, you have a private key, functioning like a bank password, set as a defensive mechanism to ascertain that only permitted individuals can withdraw bitcoin from your wallet. While this is the basis of every crypto wallet, there are peculiar designs that separate these infrastructures from conventional banking systems.
Furthermore, wallets come in two different forms. We have custodial and non-custodial wallets. As their names suggest, the former are wallets disconnected from the internet and offering users uncontested autonomy over their assets.
Hardware wallets, which fall under the custodial category, are suitable for those who own a large number of coins and plan on holding on to their asset for a long time.
On the other hand, non-custodial wallets, allowing high accessibility, are considered susceptible to attacks because users depend on the security infrastructures of third-party apps or websites for the safety of their coins. Seeing that wallets are important components of your crypto journey, it is advisable to research the best bitcoin wallets before opting for one.
How to Buy Bitcoin - Crypto Gateways
After you must have understood the concept of a bitcoin wallet, the next stage requires you to familiarize yourself with crypto gateways as well as their strengths and weaknesses. Crypto gateways are platforms where you can buy bitcoin with conventional payment methods. These platforms include crypto exchanges, bitcoin ATMs, and bitcoin marketplaces.
Among other things, some exchanges provide brokerage services by buying or selling bitcoin on behalf of their clients for a fixed price. Even though these brokers sell bitcoin at a premium, the simplicity of the entire process has made them the appropriate options for new entrants.
Depending on your present location, you might have access to several reputable crypto exchanges with high liquidity and premium security infrastructures or be limited to a few. Some of the prominent crypto exchanges where you can buy bitcoin with fiat money are Coinbase
, and CEX.io
Alternatively, there are crypto exchanges that provide trading facilities for cryptocurrencies paired with fiat currencies. In other words, when a buyer enters an order to purchase bitcoin at a specific price, the bitcoin trading platform automatically matches the order with a suitable offer.
It is of the utmost importance to understand the workings of crypto exchanges and determine whether the functionalities made available suits your needs. One of the core things to consider is the platform’s supported payment methods. These exchanges commonly allow users to purchase bitcoin with debit or credit cards, bank transfers, and, in some cases, PayPal.
Note that each payment method usually comes with different transaction fees. While card transactions are the fastest, they are, however, expensive. Conversely, the transaction fees of bank transfers are not as high as that of card payments, but it might take some days before the completion of such transactions.
Another important detail is the security of the crypto exchanges. More often than not, exchanges offer wallet services to clients. It is your responsibility to determine the trustworthiness and quality of security infrastructures provided.
Likewise, it is advisable to set up a wallet with an independent provider to escape challenges like inaccessibility due to congestion and hacks. You can transfer your bitcoin into the external wallet as soon as the exchange releases the coin.
Apart from crypto exchanges, you can also access the bitcoin economy by opting for bitcoin peer-to-peer trading platforms. Unlike conventional exchanges functioning as brokers or intermediaries, these bitcoin marketplaces allow users to negotiate directly with sellers. Examples of such bitcoin marketplaces include LocalBitcoins, Paxful, and BitQuick.
Here, buyers have access to a wide array of payment methods and can assess multiple offers before choosing one that meets their requirements. Once the buyer and the seller agree to the terms and conditions of the trade, the platform immediately withdraws bitcoin from the seller’s wallet and locks it in an escrow.
The exchange will only release locked bitcoin when the buyer submits proof of payment. Have it on the back of your mind that each transaction comes with an extra fee set as escrow commission.
For those who would prefer to buy bitcoin with cash, using a bitcoin ATM is a viable option. These systems very much look like conventional ATMs. However, the only difference is that users deposit cash to have bitcoin transferred to their wallet.
While this is one of the easiest and most private ways to buy bitcoin, they are unavailable in some regions and are quite expensive.
KYC And AML Requirements
So far, we have discussed three major gateways for the buying and selling of bitcoin. Of the three, only one, which is the bitcoin ATM, guarantees a high degree of privacy.
Due to the increased regulatory scrutiny of the crypto industry, most crypto exchanges and p2p trading platforms now collect the personal details of their users to ensure that they are compliant with anti-money laundering rules.
Therefore, before you can buy bitcoin on these platforms, you must undergo KYC procedures, including the submission of the scanned copy of a government-issued means of identification. Depending on the policy of the bitcoin gateway you are considering, the number of KYC hurdles cleared determines the amount of bitcoin you can purchase.
What If You Want to Buy A Large Amount of Bitcoin?
For people interested in buying bulk bitcoin – let us say 25 BTC and above –, the ideal platforms to carry out such volume of transactions are brokers with high limits for bank or card purchases.
Likewise, you should adopt a platform with ready-made institution solutions like cold storage or advanced custody services. Some of the exchanges that enable these features are Coinbase, Gemini, and CoinMama.
Is It Possible to Buy Less Than One Bitcoin?
Unknown to many, it is possible to buy less than one bitcoin. 1 BTC is divisible into 100,000,000 pieces, and each piece, equivalent to 0.00000001 BTC, is known as 1 satoshi.
Just as every crypto exchange sets maximum buying limits, there is always a minimum amount of bitcoin purchasable. In most cases, an exchange will allow you to buy $5 worth of bitcoin.
When Should You Buy Bitcoin?
As earlier discussed, bitcoin is unlike relatively stable assets in traditional markets. Its value often experiences volatile movements that could cause extreme price changes within 24 hours. Therefore, if your primary reason for buying bitcoin is to make short-term profits, then you should closely analyze its price trends.
You would want to buy the dip and sell it at a higher rate. However, for those who plan on holding on to their asset for a while or desire to bask in the financial freedom that bitcoin offers, there is no bad time to enter the market.
How to Buy Bitcoin on Crypto Exchanges?
After you must have understood the fundamentals of bitcoin, set up a wallet, chosen a crypto exchange, and determined the right time to buy the digital asset, the next stage is to access bitcoin through your preferred crypto gateway.
Before you can buy bitcoin, you need to complete the registration process of your crypto gateway. And since some exchanges have strict KYC requirements, this process could take a long time. As such, it is important to factor in the registration technicalities of exchanges beforehand.
Subsequently, the next important step is the verification of your bank account or the set up a valid payment method. Afterward, you can navigate to the “Buy Bitcoin” tab of the exchange and enter the fiat equivalent of the amount of bitcoin you wish to purchase.
Depending on the exchange’s policy, you can enter an external bitcoin wallet address where you want to receive the coin or automatically have the bitcoin sent to the native wallet infrastructure of the platform. Immediately after you have specified your preferred bitcoin wallet, all that is left is for you to authorize the transaction and wait for a few minutes for the bitcoin to arrive at your designated wallet.
How to Buy Bitcoin on A P2P Exchange?
For the most part, the procedure for purchasing bitcoin on a crypto exchange is similar to that of a p2p exchange. The only difference is that users have the opportunity of choosing from a broad array of payment methods and can assess offers themselves. As it is with crypto exchanges, reputable p2p trading platforms also have KYC requirements.
However, the decision to or not to undergo identity verification does not automatically stop you from buying bitcoin on some marketplace. Individual sellers might decide to forego this condition for a successful transaction.
Nonetheless, to avoid murky situations, it is preferable to opt for sellers who have their identities checked and choose to only sell to verified buyers.
After registering on the bitcoin p2p exchange, click the “Buy Bitcoin” tab and select from the long list of payment methods. Next, scroll through and analyze the sell offers, which support your selected means of payment.
Once you have chosen a reasonable offer, agree to the seller’s terms and conditions, enter the amount of bitcoin you wish to buy, and start the trade. Normally, you will have a limited timeframe to make payments and submit proof so that the seller can release the bitcoin locked in the platform’s escrow into your wallet.
Beware of Security Threats Related to Bitcoin
Knowing fully well that it is impossible to reverse a bitcoin transaction or recover stolen coins, crypto scammers have employed various unscrupulous means to steal digital assets from unsuspecting individuals.
Thus, the onus falls on you to ensure that there are no security loopholes, which nefarious entities can capitalize on, during, and after the process of purchasing bitcoin. For one, you should carry out all your bitcoin-related activities on a secure network and device. Do not engage with your wallet or crypto exchange on a public device or Wi-Fi.
Secondly, try as much as possible to research every tool and service you will require to successfully buy and store bitcoin. Research the reputation of wallet providers and exchanges before subjecting your assets to their security infrastructures.
The best way to go about this is to ensure that these platforms have a squeaky-clean history as regards crypto hacks. Some of the features that show that a platform is serious about the security of its users are two-factor authentication and multi-sig storages.
And most importantly, you should only use custodial wallet services as a temporal storage facility for your digital assets. The best way to secure bitcoin is to hold it in cold storage or hardware wallets. After you must have read and followed all the procedures highlighted in this guide, you will conclude that buying bitcoin is relatively easy.
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