How to buy Bitcoin
So, how does one buy Bitcoins? Before you can buy Bitcoins, you need to first get a Bitcoin wallet. Since you can’t carry Bitcoins in your pocket or keep them in your bank account, your Bitcoins have to be stored inside a Bitcoin wallet. It is highly recommended that you transfer your Bitcoins to your wallet immediately after purchase. The exchange might get hacked or close shop, and you don’t want to risk losing your Bitcoins. There are several types of Bitcoin wallets, from independent wallets to 3rd party wallets and multi-user wallets, which require a pre-set number of owners to give consent before the coins can be accessed. There are desktop wallets, mobile wallets, online wallets, paper wallets and hardware wallets.
To choose the best wallet for your needs, you need to consider a number of factors, including the frequency with which you intend to be sending out Bitcoins, the number of Bitcoins you intend to store inside your wallet, the user friendliness of the wallet and your own personal paranoia and how anonymous you want to remain.
Once you have acquired a Bitcoin wallet, you need to decide on the mode of payment you are going to use to pay for the Bitcoins. Though Bitcoin is money, you have to give someone else your money in order to get the coins. Think of it as exchanging dollars for Euros or another currency. The ease of exchanging your money for Bitcoins depends on how advanced your country’s financial system is. Slow and expensive payment modes will result in a slow and expensive process of acquiring Bitcoins. A fast payment channel will result in a fluid process if buying Bitcoins. Some of the means you can use to pay for Bitcoins include:
- Bank transfer: Yes, you can use the good old bank transfer to pay for Bitcoins. You simply transfer the funds to the seller and receive the Bitcoins once the payments are processed. However, paying for Bitcoins through bank transfer is slow since the funds will need 1-3 days to be processes in most countries.
- Credit card: This is a very common means of payment, though most commercial vendors and Bitcoin exchanges do not accept credit cards. This is because of the issue of chargeback. This basically means that the buyer can complain to the credit card company claiming that they never received what they paid for and would therefore like a refund. On the other hand, Bitcoin transactions cannot be reversed. This means that a buyer who requests a chargeback will have both their money and the Bitcoins, while the seller will lose their Bitcoins and the money. There’s also the risk that someone might pay for Bitcoins using a stolen credit card. Exchanges that accept credit cards sell Bitcoins at a higher price compared to those that accept bank transfer.
- PayPal: Though a few exchanges accept PayPal, most reject paying for Bitcoins through PayPal because of the same issue of chargebacks. Similarly, you will pay more for Bitcoins on exchanges that accept PayPal payments.
- Other Payment Channels: These include other payment platforms like Skrill, iDEal, Sofort, etc. There are dozens of online payment providers, with different exchanges accepting different payment methods.
- Private payment channels: This include channels such as Paysafecard, hard cash, Western Union, etc. Some websites, such as Local Bitcoins connect sellers and buyers in the same geographical region. These can then use private payment channels or meet for face-to-face transactions. These transactions are usually cheaper compared to others.
Now that you know the common methods used to pay for Bitcoins, I will show you different ways you can exchange your fiat money for Bitcoin. The common ways of buying Bitcoins include:
- Bitcoin ATMs: This is one of the easiest and the most anonymous ways of acquiring Bitcoins. Though Bitcoin ATMs look like regular ATMs, the similarities end there. Instead of being connected to a bank, Bitcoin ATMs are connected to the internet. They allow you to exchange hard cash for Bitcoins sent to a particular Bitcoin address. Some might also give you a paper receipt. Bitcoin ATMs usually have high transaction charges and high exchange rates.
- Gift cards/Vouchers: This is another easy and anonymous way of acquiring Bitcoins. You simply need to visit a shop or kiosk and buy a voucher or gift card which has a certain code. You will then visit a website and use the code on your card to send Bitcoins to your address. Similar to Bitcoin ATMs, gift cards and vouchers have considerably high transaction fees.
- Direct commercial exchanges/brokers: These are the digital versions of the exchanges you might find at an airport. They buy and sell Bitcoins. To buy, you simply need to visit the broker’s website, select your preferred payment method, pay and receive your Bitcoins. The prices are set by the broker. Some will require you to have your own Bitcoin wallet, while others like Coinbase and Circle might provide you with a wallet from which you can spend your coins. Commercial exchanges are one of the fastest and easiest ways to acquire Bitcoins since they accept a variety of payment channels, including credit cards and PayPal, though some might demand extra fees for using credit cards and PayPal.
- P2P markets: P2P marketplaces offer platforms where Bitcoin buyers and sellers can meet and trade. P2P marketplaces usually have considerably low transaction fees. Traders can make and take offers according to market liquidity, allowing people to buy large amounts of Bitcoin at relatively low prices. One of the most famous P2P marketplaces is Local Bitcoins, which is a worldwide platform that accepts a wide range of currencies depending on geographical location and lets the people who are trading to decide on their preferred means of payment. Other popular P2P marketplaces include Bitcoin.de and Bitsquare.
- Exchange platforms: For those who want to regularly buy large amounts of Bitcoin at relatively good prices, exchange platforms are a good option. They act as an escrow for both sellers and buyers, capable of saving both fiat money and Bitcoins. Clients can offer their own orders to buy or sell Bitcoins. The exchange engine cumulates the offers and orders and processes trades between buyer and seller. In most cases, exchange platforms usually have low transaction fees and low spread. The downside with exchange platforms is that the process of creating an account can be somewhat complicated and may require one to disclose personally identifying information. They also require clients to trust them with their money.