‘How to buy Bitcoin’ is a question asked only when prices rise and rarely when the perfect buying opportunity presents itself. Since Bitcoin started to offer numerous such opportunities lately, it is the ideal moment for beginners to learn how to invest in cryptocurrencies.
The year is 2021 and the most bearish outlook, in the midst of potential turbulence in the stock market, is that Bitcoin will face a mediocre correction before pulling off another push towards $100,000. Sounds crazy, right? Perhaps not now, but if you were to say something like that a couple of years ago, you would certainly become Crypto Twitter’s favorite laughing stock.
Times have indeed changed, and the onslaught of institutional investors last year has completely revised the way that we look at dips. Like a puddle, most investors expect them to be shallow. Such a line of thinking has not failed us so far, given that Bitcoin ‘chops’ the market at the moment rather than taking decisive turns.
Will that be the case even in the event of a global market correction? It is all speculation, no doubt, but the community has reached a consensus that Bitcoin has a higher chance of upholding its Store-of-Value status than normally.
To prepare you and those who have just recently joined us for the upcoming dip, we wrote a simple guide on how to buy Bitcoin. But before we head into that, we will first quickly explain how Bitcoin works and why it performs so well.
What is Bitcoin?
Bitcoin is a cryptocurrency designed as a peer-to-peer electronic cash system. It was created in 2009 by the anonymous developer Satoshi Nakamoto, who at the time published the famous Bitcoin whitepaper.
Nakamoto’s creation is completely decentralized and requires no intermediaries. For a quick comparison to legacy financial systems, there is no bank that carries out your financial transaction, nor is there any central figure that needs to verify it. With Bitcoin, you make transactions and payments with other people, and the entire process is handled by the blockchain network.
Although public, all users are anonymous on the blockchain. All recorded transactions are immutable, which means that no one can make changes to the network’s ledger.
The easiest way to understand Bitcoin is to view it as a public record of transactions set in a chronological order that cannot be edited. Since the system is decentralized and supported by an astonishing number of miners, there is really nothing that can ‘attack’ Bitcoin or destroy the blockchain.
How does Bitcoin work?
Bitcoin is a cryptocurrency powered by blockchain technology, a type of electronic infrastructure that processes transactions by utilizing computing power. So-called miners participate in the network to earn rewards, and in return, they confirm transactions and group them into blocks that are cemented forever in the ledger, forming a chain of blocks.
To simplify it, there are two groups of users on the Bitcoin blockchain: miners and users. While users employ Bitcoin to send transactions in a decentralized manner, miners earn rewards by approving these transactions. It is more complicated than that, but for beginners, it is enough to understand the fundamental symbiosis behind the largest cryptocurrency.
If you are a proponent of a decentralized way of living without any intermediaries, Bitcoin is the perfect payment vehicle. If you believe that Bitcoin’s limited supply makes it the perfect Store-of-Value asset, you should surely invest in it! There is a bit of everything for everyone, and the recent surge of demand is a strong indicator of why digital assets are so valuable.
How to acquire Bitcoin: Mining and Investing
There are two ways of how to acquire Bitcoin, which we have already mentioned in the previous section. One can either invest in it by buying BTC on an exchange or by mining BTC directly from the main network. Which option is wiser? Let’s find out!
How to mine Bitcoin
Bitcoin is based on proof-of-work, a consensus mechanism through which miners agree to a certain version of the blockchain ledger. An important part of this model includes the act of mining, in which miners utilize computing power to ‘mine Bitcoin.’
Mining Bitcoin is like solving complex mathematical problems with your computer. The better your hardware is, the higher the chance to earn a block reward - a type of income that miners receive for confirming a transaction block.
To do this, miners hold a full Bitcoin node that stores the ledger’s entire database. To mine, they have to dedicate their computer for the aforementioned task on a 24/7 basis if they wish to remain competitive. To increase his profits, an interested user can even join a mining pool where he participates in the activity with other fellow miners.
But the technicals are not so important in comparison to the big question that we all have: is mining profitable? It really depends. Is it profitable for the average individual? Most likely not. Is it profitable for a high net worth individual who has enough capital to buy dozens of ASIC machines and have them rented in an environment with low power costs? In that case, mining is definitely profitable.
You see, mining difficulty naturally increases as more miners join the network. Moreover, block rewards are halved every four years as a part of Nakamoto’s design. The end result is that mining becomes more competitive by each year. Obviously enough, this does not leave plenty of room for those looking to just start out with mining.
How to buy Bitcoin
There is really not much to be said about this method. Investing is simply an act of buying an asset in expectation of long-term growth. Once the asset reaches a certain profit margin, the investor will then sell it.
Buying Bitcoin is as easy as buying any other stock, especially in 2021. You can invest in cryptocurrencies through crypto exchanges, stock apps like Robinhood, and even from institutional ETFs. The choice is yours, and it entirely depends on your level of experience, personal preferences, and capital size.
If investing is too boring, you can even trade Bitcoin in highly liquid spot and futures markets. Although the risk is high, the amount of money you can make is even higher. Of course, we only recommend trading to users who are knowledgeable enough.
Buying Bitcoin: A step-by-step guide
Are you finally ready to buy your first Bitcoin(s)? You can follow along with our step-by-step guide to see all that you have to do in order to invest successfully.
Step 1: Pick a cryptocurrency exchange
There are numerous exchanges that offer crypto investing and trading services. Some of them are OG crypto exchanges, while others are stock markets that have recently begun to offer digital assets. You can even invest by using a decentralized exchange (DEX) but doing so would be tricky for beginners.
For the average joe, we recommend using a popular and safe crypto exchange like Binance, Coinbase, or Kraken.
Step 2: Create an account
Once you have made your decision, it is time to complete the second step: account registration. Registering an account on a crypto exchange is not as difficult as opening a bank account or dealing with other financial institutions. As a matter of fact, creating an account is as easy as opening an account on social media platforms.
The trick? You might have to verify your identity through the KYC process if you wish to have access to more advanced options and withdrawal/deposit limits. KYC entails verifying your identity to the exchange by providing legal documents and personal information. Exchanges also require ‘selfies’ in order to confirm that you are the real owner of your government I.D.
Once the verification process is complete, you have full access to the entire cryptocurrency exchange. Naturally, the next step is to wire money to the account so that you can actually buy Bitcoin.
Step 3: Deposit funds
Depositing funds is incredibly easy, and there are plenty of payment methods available. Investors can fund their accounts with either existing crypto assets or with fiat money. In the case of fiat, it is possible to transfer money via bank wire transfers, credit cards, and debit cards. Some exchanges, like FTX, even support PayPal funding.
Do note that there is a limitation on how much you can deposit, especially if your account is not KYC verified.
Step 4: Create an order and buy Bitcoin
After completing the previous two steps, it is time to purchase Bitcoin. If you were wondering how to buy Bitcoin so far, you have finally come to the grand conclusion.
On the crypto exchange of your choice, visit the spot market section and create an order. Investors can either create market orders and buy at the current market price, or create limit orders, and buy at lower prices.
With the first option, you are making sure that your order is instantly filled. With the second option, you might have to wait a couple of hours or even days for prices to reach the price level that you have set.
Not sure how this step works? We recommend that you consult with the exchange in order to figure out how trading works on that particular platform and how the user interface is designed.
Step 5: Withdraw your Bitcoin to a safe wallet
Now that you have pocketed some Bitcoins, we recommend that you withdraw them to a safe place. All cryptocurrencies are stored on the blockchain, but as long as you do not move your crypto assets to a personal crypto wallet, the exchange acts as the real custodian.
Is it better to store Bitcoin yourself or to leave it on the exchange? It is not that bad of an option to leave crypto on the exchange, especially if you plan to actively trade or if you are not that confident in your own custodian skills. Otherwise, it would be wiser to buy a hardware wallet or set up a software wallet on your computer and transfer the assets there.
How do you do that? Head over to the deposit/withdrawal section of your exchange and input the Bitcoin address of your personal wallet. Confirm the transactions and wait for miners to confirm the transaction. After 10 to 30 minutes, your funds should arrive in the wallet.
With this guide, we have got you all covered with your crypto journey.
As we have seen, people can acquire BTC with methods other than investing. In fact, there are a total of 17 ways of how to buy Bitcoin. Is there any perfect method? Certainly not. It all depends on your personal preferences and situation. While for some, simple investing is the better option, others might have an easier time with mining. There is really no right answer, and you should understand that the end goal is to have Bitcoin - the methods of acquiring are not really important.
For some, Bitcoin is much more than an investment. It is a way of life that will, for rightful reasons, enter all facets of our lives through sheer adoption.
Finances have been, for a better part of our history, centralized. We have delegated our power to entities larger than us in the hope of enjoying far greater security.
But all the financial crises in the past couple of decades combined have shown us that trusting those who are in power is not always the wisest choice. After all, Bitcoin was born only a year after the great 2008 financial crisis that has left us all disappointed in the system.
If anything, Bitcoin’s rise should serve as a strong reminder that we, the people, have the power required to change the world. Given the direction that we are heading in, it may not as a surprise that decentralization is our savior.