Ready to buy your first bitcoin? Fortunately, it’s much easier today than it was even a year ago, and thanks to innovative companies entering the market, it’s getting easier all the time.
There are multiple ways to get started: you can mine them yourself, trade goods for them, or apply for a loan in bitcoin. Some employers—especially those in the Bitcoin space—will even pay a portion of your salary in bitcoins. However, the simplest way to break into the world of Bitcoin is simply to purchase them. There are a variety of ways to do so, and this guide will walk through some of the most popular options.
Buy Directly Online
The simplest way to buy bitcoins online is by using a consumer site like Coinbase, companies will walk you through the process of setting up a wallet and linking your credit card or bank account to complete your purchase. However, the companies must verify your identity to comply with U.S. “Know Your Customer” (KYC) regulations.
The availability of these services varies worldwide due to regulatory restrictions, although Coinbase and Circle maintain a presence in multiple countries. In order to control fraud, these sites typically impose limits on the number of bitcoins you can buy, and they charge transaction fees.
The bitcoins you purchase through these companies are held in an online wallet linked to your account. From there, you can send bitcoins to another user, make an online purchase of items that sell in bitcoins, or transfer them to a different wallet. Many of these companies offer insurance for your bitcoins stored with their wallets, and they implement security features like two-factor authentication and multi-signature wallets to keep your account safe. If this is your first journey into the world of Bitcoin, consider these companies for a relatively quick and convenient way to get started.
Use a Traditional Bitcoin Exchange
Traditional exchanges such as Bitstamp or Bitfinex are the most common sources for traders or large investors. These sites allow you to create an account and fund it with a deposit of fiat currency such as U.S. dollars. (“Fiat” refers to a currency that is issued or considered legal tender by a government e.g., euros, pounds or dollars.) You can deposit your local currency into an exchange trading account using either a wire transfer or an ACH withdrawal directly from your bank account. The deposit options vary by exchange, and this process can take several days depending on the method you use.
Once you’ve moved money to your exchange account, you can buy and sell bitcoins with other traders using the exchange. The exchange doesn’t actually sell you bitcoins directly, instead it matches you with someone else who’s willing to trade at that price using an order book. Yes, that means it works essentially like a stock exchange that matches buyers with sellers at an agreed-upon price. The order book is a list of all the prices and amounts of bitcoins that other traders are willing to buy or sell. For example, if you want to buy bitcoins, you can either place an offer at the current market price (“market order”) or you can set the price you are willing to pay and wait to see if anyone else will sell at that price. Once someone decides to sell at your asking price, the exchange executes the trade, transfers the fiat currency to the seller, and credits your account with bitcoin.
Since exchanges are designed for professional trading, they offer advanced features like limit orders and margin trading. However, you must be careful to choose a reputable exchange since they maintain control of any bitcoin or currency held in your exchange account. Many exchanges are also required to comply with KYC and other anti-money laundering rules. These rules can require additional identity verification from users before they’re allowed to transact.
Modern technology and savvy entrepreneurs have made buying bitcoin easier and much more convenient than opening a bank account. If you own a cell phone, there are hundreds of ways you can start buying and spending bitcoin today.
Find An Over-The-Counter Seller
Another way to buy bitcoins is through an over-the-counter (OTC) trade, which is a direct transaction with another party instead of using an exchange. There are a number of website and apps that facilitate these transactions by helping you find other people interested in trading. You can often contact these people and negotiate a transaction directly, paying with PayPal, cash, gift cards or even gold depending on what the seller is willing to accept.
There are also brokers who will connect you directly with a seller if you’re looking to buy a large amount of bitcoins at once. These brokers, such as Binary Financial, itBit and Genesis Trading, specialize in transactions over $100,000.
In addition to matching you with other sellers, some of these brokers offer financial products that function similarly to buying bitcoins directly. For example, you can purchase shares of the Bitcoin Investment Trust, which trades with the ticker symbol GBTC on the OTCQX public exchange. These shares can be purchased with a brokerage account and held in some IRA and retirement accounts. The shares represent the underlying Bitcoin asset which is purchased and held on your behalf by the Bitcoin Investment Trust.
There are a growing number of locations worldwide where you can purchase bitcoins directly from a convenience store or ATM. A Bitcoin ATM will let you exchange local currency for bitcoins directly—often the fastest and most convenient option. A map of all Bitcoin ATM locations can be found online at http://bitcoinatmmap.com.
In addition to using an ATM, you can also trade directly with other people. For example, you can use the Facebook app Get Bits to find friends on Facebook who are willing to sell you bitcoins. This allows you to contact friends directly and negotiate a transaction without a middleman.
One of the most popular ways to find other people to trade with is the site LocalBitcoins.com, which allows you to search for people in your city who are willing to sell you bitcoins for cash. However, if you choose to meet someone for a transaction in person, be sure to take basic safety precautions like meeting in a public place.
Companies such as ZipZap in the UK and Ripio in Argentina allow you to purchase bitcoins through local convenience stores. This process is as simple as buying a gift card or telephone minutes; you receive a card that allows you to redeem it for bitcoins online. These services usually include substantial transaction fees, but are a convenient way to get started.
While this guide covers some of the most popular ways to buy bitcoin, it is not exhaustive: new options and marketplaces are springing up rapidly as the Bitcoin economy grows. Startups worldwide are building easier and more convenient ways to transfer value with bitcoin and increase investment opportunities, including the ability to buy bitcoin with your 401k or retirement account. In addition, exchanges and services are expanding worldwide as the global regulatory environment adapts to this relatively new player on the world financial scene.
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