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 do I buy Bitcoin with PayPal? How do I buy Bitcoin with a credit card?
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 in four steps
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.
Choose a cryptocurrency exchange
Every new potential Bitcoin buyer will find an array of various exchanges competing for their business. Choosing the right one depends on many different factors, with its location being perhaps the most important one.
Exchanges worldwide fall under different government jurisdictions, requiring various Know Your Customer and Anti-Money Laundering practices, depending on the involved regions. This is why — to set up an account and start trading on certain centralized exchanges — you must provide personal information, depending on the exchange and your location.
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.
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 States.
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.
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.
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.