How to Buy Bitcoins: Despite receiving significant attention in the financial and investment world, many people do not know how to buy Bitcoin. But doing so is as simple as signing up for a mobile app.

First, Sign up for a Bitcoin Wallet

Before you buy Bitcoin, you need to download a Bitcoin wallet from a site such as Blockchain.info or Coinbase, or using a mobile app such as Bitcoin Wallet for Android or Blockchain Bitcoin Wallet for iOS. The customer will be required to fill out an online form with basic details, which should not take more than two minutes.

Below is an example of the Coinbase account page for a Bitcoin wallet on Coinbase. The page looks similar to online banking software used by most traditional commercial bank customers.

How to Buy Bitcoins

Use Regular Money to Buy Bitcoin

Once you have a Bitcoin wallet, you use a traditional payment method such as a credit card, bank transfer (ACH), or debit card to buy Bitcoins on a Bitcoin exchange. The Bitcoins are then transferred to your wallet. The availability of the above payment methods is subject to the area of jurisdiction and exchange chosen. Below is a screenshot of the Bitcoin interface showing how to buy and sell Bitcoin and also Bitcoin Cash, Ethereum and Litecoin​, which are other popular virtual currencies. The user clicks the “Buy” tab to buy digital currency and the “Sell” tab to sell digital currency. You select which currency you are buying/selling and which payment method (your bank account or credit card) you want to use.

How to Buy Bitcoins

Remember that the “Bitcoin exchange” and the “Bitcoin wallet” are not the same thing. Bitcoin exchanges are similar to foreign exchange markets. The exchanges are digital platforms where Bitcoin is exchanged for fiat currency— for example, Bitcoin (BTC) for US dollars (USD). While exchanges offer wallet capabilities to users, it is not their primary business. Since wallets must be secure, exchanges do not encourage storing large amounts of Bitcoin or for long periods. Therefore, it is advisable to transfer your Bitcoins to a secure wallet. Because security must be your top priority when choosing a Bitcoin wallet; opt for one with a multi-signature facility.

There are many well-established exchanges that provide one-stop solutions with high security standards and reporting, but due diligence should be exercised while choosing a Bitcoin exchange or wallet.

How to Buy Bitcoins

A Bitcoin Wallet is for Your Private Key, Not for Storing Bitcoin

The common assumption that Bitcoins are stored in a wallet is technically incorrect. Bitcoins are not stored anywhere. Bitcoin balances are maintained using public and private “keys,” which are long strings of numbers and letters linked through the mathematical encryption algorithm used to create them. The public key (comparable to an international bank account number or IBAN) serves as the address published to the world, and to which others may send Bitcoins.

The private key (comparable to an ATM PIN) should be a guarded secret and only used to authorize Bitcoin transmissions. Thus, it is the “private key” that is kept in a Bitcoin wallet. Some safeguards for a Bitcoin wallet include encrypting the wallet with a strong password and choosing the cold storage option; that is, storing it offline. Coinbase offers a secure “multisig vault” to host user keys. 

As a user, you are free to use your Bitcoins and the private key to buy a commodity, pay for a service, or send money to friends or family. These Bitcoins are sent using the “address” of the recipient. Selling Bitcoins on the exchange will earn you the Bitcoin sale price in the local currency, which can be withdrawn.

Although Bitcoin is homogenous (the same everywhere in the world), its price varies across countries and even exchanges within the same country, giving rise to arbitrage opportunities. At one point in 2017, the Bitcoin price in South Korea was trading at a 35% premium and, in India, a 20% to 25% premium. The demand and supply conditions create aberrations in its price.

The number of places where Bitcoins can be spent is increasing rapidly and includes some large retail players as well as many small businesses and retailers. The increased acceptance of Bitcoin is boosting its footprint across the globe and is helping to secure official recognition as a legitimate mode of payment. In 2017, Japan accepted Bitcoin as a valid payment mode.

How Is Bitcoin Generated?

Bitcoins are created or generated by the network as a reward for the “mining” process, a computational effort in which blockchain—that is, public ledger—transactions are verified.

The details of this democratic process are complicated. It involves mathematical problems of varying difficulty, software to solve them, and a schedule that ensures that solutions are discovered on a highly regulated basis. All you need to know is that every time a mathematical solution is found, a new “block” on the chain is created. Blocks cannot be removed or altered once they’ve been accepted by the network.

The Bitcoin system allows six blocks to be mined every hour. Because it gets more difficult over time, the system is expected to generate fewer Bitcoins over time. (It is structured such that, for every four years the network is in operation, half the amount of Bitcoins that were created in the previous four years are generated.) The bitcoin supply is capped at just under 21 million coins. More than 16.7 million coins have been mined as of Dec. 30, 2017

So How Do I Buy Bitcoins?

You can buy Bitcoins directly from other people using online marketplaces, no different than any other product or service. Alternately, you can also use a digital currency exchange or broker such as CoinbaseBitstampKraken, and Gatehub. Coinbase is one of the biggest U.S. cryptocurrency exchanges. For a beginner, it’s best and easiest to use one of these exchanges.

There different kinds of wallets, including software and hardware wallets. Software wallets are in essence applications, or apps, that you connect with your traditional bank account. There are several to choose from: Coinbase offers a wallet, which is convenient because it is tied directly to its exchange service. There is also Mycelium, a popular mobile wallet, as well as Electrum. Meanwhile hardware wallets store the user’s private keys on a secure hardware device that looks a lot like a flash memory stick. Hardware wallets are considered by some people to be more secure because they can disconnect from the Internet. 

 Good. Now that you have all the ingredients ready, here’s how to complete the recipe.

Step one. Create your wallet. The easiest way to do this is through a third-party like Coinbase, Exodus, MyCelium, or blockchain.info. Go to the site of the wallet provider you’ve chosen and sign up. This step requires name, email address, and password.

Step Two. If you’ve chosen a software wallet, you will be asked to download the app. Download it through the Apple app store or Google Play, depending on whether you have the iOS or Android operating system. Some wallets are designed for desktops; others are better for mobile devices.

Step Three. Visit the exchange you’ve picked out. Maybe it’s Coinbase, Poloniex, CEX.io, Kraken, Bitfinex, BitPanda, or BitStamp. Register with the exchange. Again, you’ll need your name, email address, password. Most exchanges require you to connect with your bank account to pay for your Bitcoin purchase.

Some exchanges like Coinbase offer an app that acts as an exchange and a wallet. Through the app, you can both buy and trade Bitcoins as well as store them. That’s fine, but remember that just because you use the Coinbase exchange doesn’t mean you have to use the Coinbase digital wallet. There are many other digital wallets out there. (And exchanges, for that matter.)

Step four: Go to the exchange’s “buy” section. Select the amount of bitcoin you want to buy. Given the recent high price of Bitcoin, you can buy less than one Bitcoin on these exchanges. Bitcoin can be divided up to eight decimal points. This means you can buy 0.5 Bitcoins, 0.02 Bitcoins, or even 0.00000001 Bitcoin, if it suits your budget. Depending on the exchange, you can buy Bitcoins with a credit card, bank transfer, or even cash.

The Bottom Line

The changing regulatory stance, increasing adoption and acceptance, and investment in Bitcoin start-ups and products are cumulatively increasing confidence in Bitcoin. However, it is still in a nascent stage with price volatility and an uncertain stance regarding taxation and legality. 

Disclosure: Opportunistic fraudsters are taking advantage of this market, offering investments in cryptocurrencies and doing everything they can to defraud unsuspecting victims, Anyone who invests in cryptocurrencies should thoroughly research the company they are choosing to invest with to avoid scams.

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