Here is a simple guide on How To Buy Bitcoin: Bitcoin is a virtual type of currency that is owned by no government, bank or nation. It is steadily increasing in value as more and more people purchase it, and slowly, certain businesses are starting to accept it. But it remains highly volatile, and this alone makes it impractical as a tool of commerce. However, these are early days. The world is turning to face technologies like Bitcoin and the blockchain that makes it work, and many of the world’s biggest banks and consulting firms are working hard to set up policy and case studies to be ready when the rest of the world flips the switch, and Bitcoin becomes as big the hype suggests. If you want to buy some, it’s pretty easy. But first let’s make sure you have somewhere safe to keep it. So we created this how to buy bitcoin guide for you as non legal or investment advice but a basic guideline for some important pointers.
First, the Wallet
You’ll need a wallet. Not a nice leather billfold, because Bitcoins are not physical. There are no coins and no paper bills involved. It is all virtual. The Bitcoin wallet is an app that you can download to your phone, and your computer. It contains two 16-digit passwords: one is called a public key, and the other is a private key.
Quite simply, when you buy Bitcoin, your wallet sends your public key information to the vendor, the same way you would enter a credit card number into an online form. The public key tells the vendor’s app where to send the Bitcoin amount. The private key is the password you employ to confirm the transaction from your end. This one-time code is reviewed by the computers on the blockchain, who then approve the transaction unanimously as representing your receipt of a certain amount of Bitcoin. Once the code has been accepted by the computers on the blockchain, your wallet’s information will say it has some Bitcoin in it, and then the code is sealed permanently into the next block on the chain.
If you are a casual user looking to buy a small amount of Bitcoin, a software app-based wallet will be ideal. But there are actually four wallet types available:
- Software wallets. These are apps to be used from your mobile device.
- Online bitcoin wallets are hosted online and can be accessed from any device. That’s different from having the app on your phone. It’s online, like a web page.
- Hardware wallets are physical devices with enhanced security, designed for those doing large transactions.
- Paper wallets – these are files that you print out, and which contain the required private key data.
If your interest is light use, the most highly rated wallet apps are: BreadWallet (iOS), Copay, Mycelium (Android), and Airbitz, which actually comes with Starbucks discounts.
How to buy bitcoin and where to find it
Most Bitcoin sales are done through currency exchanges and specialist Bitcoin traders, as opposed to major banks. In the U.S., the two most popular exchanges are Coinbase and Kraken. Like most other exchanges, purchases are usually done via your bank account, so it is important before connecting up, to ensure your Bitcoin exchange has a solid reputation.
Other services like BitQuick do the sale through an escrow service in which you wire cash to your BitQuick account (as opposed to them accessing your regular account).
Be aware that any currency exchange will charge service fees, and there will usually also be mining fees from the blockchain miners who approve your transaction. These fees are not huge, as compared to banks or international cash wire services, but they are still fees.
Certain banks, like Bank of America and Wells Fargo in the U.S. and RBC in Canada are starting to accept Bitcoin, but they, too, require access to your bank account.
The reason why trading houses and banks insist on direct access to an account is to limit the potential for fraud. Because of the discrepancy between credit cards transaction times and Bitcoin processing times, it is possible for less scrupulous people to make a Bitcoin purchase on a credit card and then run a chargeback before the blockchain completes it approval process. This is obviously not good for the credit card companies. If you choose to use a credit card, your purchase will be processed as a cash advance, not a purchase.
How to buy bitcoin, other options for purchases
Another interesting way to buy Bitcoin is your local convenience store or gas station. This is a three-way relationship between a Bitcoin broker, a local business with a terminal, and you. As strange as this may sound, it is predicated on the fact that Bitcoin is independent of any bank, meaning you should be able to transact your money anywhere. Here’s how this works:
A participating Bitcoin broker establishes a relationship with small outlets like gas stations and convenience stores that are equipped with a wire transfer merchant terminal. This same terminal might also be used for cash payments to wire services like Western Union, or even to lottery offices. You pay the convenience store $100, for example, and the clerk enters it into the terminal. In return, you receive a slip of paper with a unique serial number on it. This is your proof of payment of $100, which may be worth approximately $96 in Bitcoin after fees. You return to the website of the Bitcoin broker and enter that number, along with your wallet’s public key. The broker then transfers $94 or so worth of Bitcoin (again another service fee) to your wallet. (The fees in this example are subject to change).
This local approach works, but it is up to you, the consumer, to do some research to find out which of your local Bitcoin brokers works with convenience stores, and how the experience has been for others.
Keep your Bitcoin information safe. If you lose your wallet, either by losing your phone or forgetting the password, those Bitcoins will be lost. Since there is no bank insuring your deposits, there is no recourse.
Bitcoin as a currency has a long way to go before it becomes common. If you are a serious investor looking to profit off its rise in value, make sure to store your accounts with hardware or paper wallets. If you are looking for some smaller-size fun, buying some Bitcoin is a great practical education on the future of money.