How to Buy Bitcoin

Looking to get your hands on some bitcoin? Whatever you need bitcoin for, this guide provides the definitive information you need to be able to buy bitcoin like a pro.

First, get yourself a bitcoin wallet

The first thing you’ll need is a bitcoin wallet. You’ve got to put your bitcoin somewhere, right? A bitcoin wallet consists of the two most important items you need to make a transaction, your private key and your bitcoin address. These allow you to interact with the bitcoin network to be able to send, receive and store bitcoins.

Wallets come in two main forms – they’re either software or hardware wallets. Software wallets can be either ‘hot’ i.e. online or ‘cold’ i.e. offline. A hot wallet always maintains an active Internet connection, whereas a cold wallet does not. Therefore, an offline wallet prevents Web-based security breaches.

Hardware wallets are entirely offline wallets – generally in the form of a secure hardware device. These are considered the safest form of bitcoin storage. They are not prone to the types of attacks that software wallets are prone to and some devices even allow data recovery in the event of a lost or stolen device.

Paper wallets are a special case of offline wallets. Private keys can be printed in the form of a QR code, ready for transaction purposes. However strict security measures should be followed as printed wallets cannot generate unique private keys for each transaction as other types of wallets do.

Just like with fiat currency and bank deposits, it is recommended that you only store a small percentage of your bitcoin on an online wallet – enough bitcoin to cover any anticipated transactions. This limits risk of loss of all your bitcoins from Web-based attacks.

Some decision-making is required on your part to choose a wallet suited to your individual needs. A list of some of the more popular wallets can be found here.

Buying bitcoin from an exchange

Now that you have somewhere to store your money, let’s look at the most common way to obtain some bitcoin.

Exchanges are Web platforms that enable users to buy and sell bitcoin for fiat currency. Generally, you must sign up for an account with an exchange and undergo some process of verification (following regional legislation) before you can start buying bitcoin.

There are a great number of bitcoin exchanges out there – some noted exchanges are cex.io, Bitstamp and Cubits – each offering different variety of services you need to consider before choosing one that fits your needs.

These variable factors include: accepted fiat currencies, fiat payment methods offered, speed of transaction, fees charged by both the exchange and any third-party payment business, security and price. Note, you will see that bitcoin prices can vary between exchanges. This is due to the individual needs of each exchange to fill their order books and the regulatory restrictions placed on exchanges in certain jurisdictions.

A comprehensive list of bitcoin exchanges and price comparison can be found here.

Once you have signed up to a bitcoin exchange, just follow the exchange’s instructions to purchase bitcoin just like you would with any online shopping transaction. Depending on speed of transfer for the payment method you choose, your bitcoin will shortly arrive in your exchange hosted wallet. From here you can send your bitcoin directly to your desired wallet using your bitcoin address.

Exchanges generally come with wallet services, but the downside of using these is that they’ll control your private keys. Therefore, it is recommended you store most of your bitcoin in a wallet where you can control your own private keys, thus giving you full security over your own bitcoins.

Buying bitcoin from individuals

If for whatever reason you prefer to purchase bitcoins from an individual seller – e.g. to bypass the banking system or to keep full anonymity from exchanges – then you can make a transaction directly with a bitcoin seller, known as an over-the-counter (OTC) trade.

Individual sellers can be found online – through escrow-protected services such as LocalBitcoins – or offline through other personal means of locating sellers. Please be aware that by transacting offline you are exposing yourself to possible fraudulent transactions — the seller can double spend any coins up until transactions are broadcast to the bitcoin network. For this reason, you should be cautious until your transaction has been broadcast and confirmed by the bitcoin network.

Also, note that with face-to-face trades you pay a premium over the exchange price of bitcoins, generally for the convenience and privacy characteristics this kind of trade offers.

A few other ways to get some bitcoin

Buying bitcoins from exchanges or individuals is not the only way to obtain some precious bitcoins.

If you have one near you, you can buy bitcoins from a bitcoinATM – check out the map here. A bitcoinATM functions like an OTC trade, but with a machine. BitcoinATMs come in two varieties: a one-way machine, where you can only convert from fiat to bitcoin; or two-way machines which allow conversion in both directions. Rates vary between bitcoinATMs and machines charge variable fees on top of standard exchange prices.

You can also sell anything for bitcoin, as long as there is a buyer. For example, on Reddit’s BitMarket subreddit, users can list items they have for sale and other users can offer a price in bitcoin. This essentially is an OTC trade, except bitcoins are traded for any valued commodity.

If you are not new to cryptocurrencies and you’ve managed to obtain some of these by whatever means, you can use ShapeShift to convert those cryptocurrencies into Bitcoin. Alternatively, you can convert your acquired bitcoins into any other cryptocurrency you may require, such as Ether.

It is possible to ‘mine’ bitcoin – a reward of bitcoins for solving the cryptographic hash of new transaction blocks. Mining, however, requires a great deal of computing power and maintenance costs to run, which has made it much less economical for individuals nowadays due to competition from mining pools.

And that’s all there is to it

With all the options available, buying bitcoin has never been easier. By following these outlined steps, you too can get your hands on some digital gold.

Get started and join the rapidly growing bitcoin community.

Mary Ann Callahan is an expert on Bitcoin-related topics. She is a Journalist at Cex.io – cryptocurrency exchange, working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.

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