Today, the number of retail investors who want to get their hands on this valuable cryptocurrency is growing. In fact, a 2021 survey by the University of Chicago revealed that 14% of Americans invested in cryptocurrency in the past 12 months.
So let’s learn all about where you can get it and when it’s the right time to invest.
How Do You Get Bitcoins?
There are four main ways to get Bitcoins: 1) Purchase on a cryptocurrency exchange like Coinbase or payment service like CashApp, 2) Sign up for an investment brokerage like Robinhood, 3) Find a cryptocurrency ATM or store, and 4) Use a crypto faucet to receive Bitcoins in exchange for completing tasks.
Once you have your cryptocurrency, you need to store it in a Bitcoin wallet. Every wallet comes with private keys and addresses used to access the wallet, which can be internet-based or hardware-based.
- A hot wallet is one that is connected to the internet, which makes it easy for investors to access their Bitcoin. However, it does pose a security risk, as you are susceptible to hacking and theft.
- A cold wallet is one that isn’t connected to the internet, making it the safest way to store your currency. In this case, you print your private keys and addresses and store them somewhere, like a safe or safety deposit box. You can also store that information on a USB or hard drive.
Without your private keys and addresses, it’s impossible to access your Bitcoin. So, it’s imperative that you are careful about where you store this information.
Where to Get Bitcoins
How to Get Bitcoins Fast
These days, you can quickly and easily buy Bitcoins online or offline. It’s just a matter of choosing the right purchasing option for you.
Cryptocurrency exchanges are marketplaces where sellers trade cryptocurrencies in exchange for fiat money (i.e. government-issued currency like the euro) or other digital currencies.
Most exchanges accept bank transfers or credit card payments, and some even accept Paypal payments. They’ll also charge you a transaction fee for every trade you make.
You can choose from hundreds of crypto exchanges, but the most popular and reputable exchanges include Coinbase, Gemini, Binance.US, and Kraken.
Investment Brokerage Firms
An investment brokerage firm is a platform that allows investors to buy and sell stocks and cryptocurrencies.
Companies like Robinhood allow retail investors to trade and invest commission-free, making them highly popular. All you need to get started is an account and the money to buy and you’re good to go.
Recently, payment services like CashApp, Venmo, and Paypal have introduced new features to their online platforms that allow users to buy, sell, and hold cryptocurrencies.
For instance, CashApp now has an entire tab dedicated to Bitcoin.
The platform also offers Bitcoin Boost, an opportunity to earn Bitcoin on purchases made with the CashApp card. Think cashback, except crypto.
So, there’s more than just one way to get Bitcoin on these platforms.
Bitcoin ATMs, Stores, and Merchants
If you’d rather buy Bitcoins in person, you have several options to choose from:
- Bitcoin ATMs, which work very similarly to a regular cash-based ATM. You can find one near you through Coin ATM Radar.
- Retail stores, which sell and buy Bitcoin. Visit LibertyX and CoinMap to find ones in your region.
- Peer-to-peer, if you’re interested in buying Bitcoin directly from another person. Websites like LocalBitcoins can help you find people who are willing to exchange Bitcoin for cash.
Currently, there are very few banks that allow the trade and storage of cryptocurrency, including online-only banks Ally and USAA.
How to Get Bitcoins for Free
The examples outlined below are all examples of Bitcoin faucets, which are platforms that offer small amounts of Bitcoin in exchange for completing a task.
While they won’t get you a ton of bitcoins quickly, you can accumulate some over time and use them as a way to learn more about the cryptocurrency.
1. Play Mobile or Online Games to Earn Bitcoins
One of the most entertaining and fun ways to earn free Bitcoins is by playing mobile or online games. That’s right – you can play games on your phone or computer and actually get paid in Bitcoin.
Some serve a lot of advertisements to their users. So, to avoid the ads, you can join a Bitcoin casino, where you bet your own money or Bitcoin on traditional casino games, sports matches, and lotteries to potentially win a higher payout in Bitcoin.
2. Do Odd Jobs Online to Earn Bitcoins
Another way to earn free Bitcoins is by completing tasks on websites. Some companies will pay you in Bitcoin to test their websites, take their surveys, retweet their posts, and complete other small tasks.
There are also websites that let people offer small Bitcoin rewards to the person who can give them the best answer to one of their questions.
You can find odd jobs that pay you in Bitcoin on Cointiply.
3. Write About Cryptocurrency to Earn Bitcoins
Certain cryptocurrency blogs, news outlets, and forums will pay you in Bitcoin to contribute your insights and write for them if you have a lot of knowledge about the industry.
Popular cryptocurrency forums, like Publish0x, reward users for reading and writing articles relating to Bitcoin.
On this site, users can earn Bitcoin along with other cryptocurrencies. They can also give tips to authors they enjoy.
Is now the time to invest in Bitcoin?
This answer to this question will vary greatly depending on your financial goals and your risk level.
For instance, younger people tend to take on riskier investments as they have more time to wait out the market while older investors tend to be more conservative.
Cryptocurrencies are still considered volatile in the market, which has led financial advisors to call it a speculative asset – i.e., one that is very risky but can have a huge return on investment. That’s why they recommend only allocating a small portion of your portfolio to Bitcoin.
With any financial decision, consult an advisor who can offer tailored advice and guide you on the best moves to make.
One thing that’s clear is that Bitcoin is more popular than ever and it’s not going away anytime soon.
Editor’s Note: This post was originally published in August 2018 and has been updated for comprehensiveness.
Since its launch in 2009, Bitcoin has experienced meteoric growth: From October 2013 to early June 2021, for instance, its value increased by almost 30,000%. And while that growth alone is incredible, some analysts say Bitcoin’s value could rise even more as cryptocurrencies and the blockchain technology that power them become more mainstream and integrated into people’s daily lives.
Buying Bitcoin does come with one major buyer beware, though: While it’s experienced immense highs, it’s also fallen to devastating lows.
After hitting an almost $20,000 high in 2017, for example, its value plummeted and rose to no more than about half of that until 2020. Though it’s trended upward since, it remains a very volatile investment, and an ill-timed tweet from Elon Musk can decimate its value. That’s why experts don’t recommend you invest more than a small percentage of your money in Bitcoin.
With all of that said, if you still want to get in on the action, here’s how to buy Bitcoin of your own.
How to Buy Bitcoin in 4 Steps
1. Choose a Crypto Exchange
To buy Bitcoin or any cryptocurrency, you’ll need a crypto exchange where buyers and sellers meet to exchange dollars for coins.
There are hundreds of exchanges out there, but as a beginner, you’ll want to opt for one that balances ease of use with low fees and high security. Be sure to check out our top picks for best crypto exchanges, like Coinbase, Gemini and Binance.US if you don’t already have an exchange in mind.
Make sure to check if your exchange has a Bitcoin wallet built into its platform; if not, you’ll need to find one of your own. You may also choose to buy your crypto on a platform like Robinhood, Paypal or Venmo, though buying crypto this way often means you cannot withdraw your coins and move them to another platform. If you want to hold your crypto to a different wallet, you’ll need to sell your holdings and then rebuy them on a different exchange.
Start Investing In Bitcoin Today With Coinbase
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2. Decide on a Payment Option
After choosing an exchange, you have to fund your account before you can begin investing in Bitcoin. Depending on the exchange, you can fund your account through bank transfers from a checking or savings account, PayPal, wire transfers, a cryptocurrency wallet or even a credit or debit card.
Keep in mind, though, that platforms may charge higher transaction fees for certain funding options. For example, Coinbase doesn’t charge a fee if you do an electronic transfer from a bank account. However, it charges $10 on wire transfers and 2.5% of the transaction amount if you use PayPal.
Things get even pricier if you use PayPal or a debit card to make a direct purchase of cryptocurrency, instead of funding your account and then using transferred money to make your purchase: Coinbase’s fee rises to 3.99% of the transaction amount. Credit card transaction fees on other platforms often run at least this high.
Because fees reduce how much money you can invest (and therefore also how much money you have to grow and compound), it tends to make sense to use electronic transfers from a bank account rather than other methods. In addition, if you use a credit card to buy cryptocurrency, it generally will count as a cash advance and be subject to a higher interest rate than you pay on regular charges. What’s more, taking on debt to buy volatile investments is extremely risky.
3. Place an Order
Once your account is funded, you can place your first order to buy Bitcoin. Depending on the platform you’re using, you may be able to purchase it by tapping a button, or you may have to enter Bitcoin’s ticker symbol (BTC). You’ll then have to input the amount you want to invest.
When the transaction is complete, you will own a portion of a Bitcoin. That’s because it requires a large upfront investment to buy a single Bitcoin now. If Bitcoin’s current price was $38,000, for example, you’d need to invest that much to buy a Bitcoin. If you invested less, say $1,000, you’d get a percentage, in this case 0.026%, of a Bitcoin.
Coinbase wins with a strong track record and reasonable fees
Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. Gordon is a Chartered Market Technician (CMT). He is also a member of CMT Association.
Michael Rosenston is a fact-checker and researcher with expertise in business, finance, and insurance. Prior to this role, he interned at two Fortune 500 insurance companies and worked in data science in the advertising industry.
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Bitcoin is a type of virtual currency that you can use for digital purchases or you can trade like stocks or bonds. To buy and sell cryptocurrency including Bitcoin, you need to use a bitcoin exchange.
A bitcoin exchange will allow you to buy Bitcoin in exchange for other assets, including traditional currency or other digital currencies. The best cryptocurrency exchanges are secure, cost-effective, quick to set up, easy to use, and accept a variety of funding sources. Here are our picks for the best places to buy bitcoin.
Best Places to Buy Bitcoin in 2022
- Best Overall:Coinbase
- Best for Beginners:eToro
- Best Instant:CoinMama
- Best for Privacy:Bisq
Investing in cryptocurrencies, Decentralized Finance (DeFi), and other Initial Coin Offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by The Balance or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed.
Best Overall : Coinbase
- Currencies: 100+
- Transaction Fees: Calculated at time of purchase
- Wallet Included: Yes
New Coinbase users can get $10 in BTC when they sign up for (and verify) an account using BALANCE10.
If you are brand new to the world of bitcoin and cryptocurrency, Coinbase is an excellent place to start due to support for a number of popular cryptocurrencies, a strong security track record, and reasonable fees.
More than 89 million verified users
Support for a large number of currencies
Fees to buy, sell, or convert crypto are determined at transaction
Coinbase is a large cryptocurrency wallet provider and exchange based in San Francisco. It boasts over 89 million users in over 100 countries, making it a popular choice for cryptocurrency enthusiasts, investors, and traders. Coinbase claims it holds over $278 billion in assets and facilitates more than $547 billion in trade volume each quarter. You can trade over 100 different currencies, including Bitcoin, at Coinbase.
Coinbase charges fees to buy, sell, and convert cryptocurrency, but it doesn’t disclose the fees on its site. Rather, it says that fees are determined at the time the order is placed. Funding fees vary based on the method. Serious users may want to upgrade to Coinbase Pro, which uses its own pricing model.
Coinbase offers strong security through Coinbase Vaults, two-factor authentication, and its use of offline storage for the vast majority of client assets.
Best for Beginners : eToro
- Currencies: 49
- Transaction Fees: 1% for buying or selling crypto in addition to the spread price, which is not disclosed
- Wallet Included: Yes
eToro is currently offering a $10 bonus for customers that purchase $100 worth of cryptocurrency through their platform. This promotion is in select U.S. states.
This review promotes virtual cryptocurrency investing within the European Union (by eToro Europe Ltd.), United Kingdom (eToro UK Ltd.), and the United States. (by eToro USA LLC). Virtual cryptocurrency investing is highly volatile and unregulated in some European countries and the UK. There are no consumer protections in Europe or the UK, and trading activities in the virtual crypto trading sector are not regulated by any European or UK governing body. Investments are subject to market risk, including the loss of principal.
eToro is our choice for beginners thanks to an easy-to-use platform and practice accounts that let you test out buying bitcoin without risking real funds.
Free practice accounts with virtual money
Copy-trading system to learn the ropes
Specific spreads are not disclosed
If you’re looking for a simple and focused platform that allows you to buy bitcoin while learning more about the cryptocurrency ecosystem, eToro could be right for you. Those new to bitcoin will appreciate the simple and straightforward platform and CopyTrader system that allows you to mimic trades from others on the platform.
You can test the waters with a $100,000 virtual account with no risk to your actual money when you sign up. Once you're comfortable, you can enter a live trade with real dollars. Just take note of the 1% fee per buy or sell transaction, and a separate spread for each cryptocurrency.
Best Instant : CoinMama
- Currencies: 10
- Transaction Fees: Up to 3.90% commission fee plus Coinmama's market rate (average rate + 2%)
- Wallet Included: No
We picked Coinmama because it offers instant bitcoin purchases with many payment options and high limits.
Instant order delivery
Transfer to any crypto wallet
Numerous funding options
Complex fee structure
Higher fees may apply to instant delivery
No ACH bank transfer support
If you want to own bitcoin as quickly as possible and already have a bitcoin wallet, Coinmama may be your best choice. Coinmama features fast account setup and verification. Once you’re logged in, you can buy bitcoin instantly using several payment methods, though there may be a fairly high price tag for those instant purchase privileges.
You can use a credit or debit card to buy one of 10 different currencies. When you place an order, the funds are instantly verified with your connected card by Coinmama, then the cryptocurrency you chose is deposited into your crypto wallet. Those in the UK and EU have additional instant funding options that are not available in the US.
Ever since it launched in 2012, the exchange rate of Bitcoin has been performing a soaring rally, in spite of various hacking attacks and other setbacks. Someone who bought Bitcoin for a few hundred dollars a few years ago is now a millionaire. But how can you invest into the cryptocurrency and where can you buy Bitcoin?
In the past few years, Bitcoin has been performing quite admirably. In 2016 alone the price has risen by more than 126 percent. 2017 it reached new heights of 20.000 Dollars and some analysts predict a rise to 500.000 Dollars. Others call Bitcoin „nothing but hot air“ and believe it to be essentially worthless. But the fact of the matter is that the price is determined by supply and demand. And the demand for anonymous currencies like Bitcoin is on the rise. Some of the reasons for this are the capital controls in China that can be circumvented with cryptocurrencies, the trade of illegal goods on the darknet that is mostly done with Bitcoin, and of course the increase of speculative investment in the currency.
In light of this performance, investors’ interest in the cryptocurrency is rising. But how to buy Bitcoin? There are several ways and we are going to take a look at the pros and cons of each.
The comfortable way to trade Bitcoin – Bitcoin as CFD
Potential traders who want to participate in the value development of Bitcoin and are less concerned with anonymity can easily trade using CFD Broker Bitcoins. You participate in the value development but never own any Bitcoin physically. The most speculative of investors can use Bitcoin CFDs and apply leverage of up to 30. That means that the CFD would rise and fall 30 times as much as the original Bitcoin. But a one-to-one participation is also possible.
If you want to know how to trade Bitcoin CFDs, you could use the finanzen.net-Partner Plus500. 5 Additionally Plus500 offers payment by credit card and paypal and opens accounts quickly. But of course you can use any other CFD Broker of your choice.
Account opening in 15 minutes. Deposit by credit card oder PayPal possible. 5
77% of retail accounts lose money on CFD trading with this provider. You should consider whether you can afford to take the high risk of losing your money.
How to buy real Bitcoin
If you want to participate in the value development but also need anonymity, real Bitcoin is your only choice. Once you have decided to purchase real Bitcoin you will need a wallet. This electronic account is like a checking account because you can use it to transfer funds and receive Bitcoin. The transfer of Bitcoin is like a normal bank transfer, the only difference being that instead of an account number there is a receiving address. Because digital currency is transferred directly between individuals without a middleman, the fees are lower than what banks typically demand for transactions.
If you buy Bitcoin using several different portals, they can be combined in a single Bitcoin wallet. For day to day use it is easiest to use a Bitcoin wallet app on your smartphone, but you can also have a wallet for online payments on your PC or tablet. After you downloaded and installed your wallet you will need to secure it with a strong password, known as a passphrase. This access code will need to be entered for every transaction.
The first option for people looking to invest into the cryptocurrency Bitcoin is online at a Bitcoin marketplace. A popular American Bitcoin marketplace is coinbase.com. Here users trade directly with each other and the price is determined largely by supply and demand. This leads to a generally favorable Bitcoin price. Marketplaces like this allow registered users to make bids for the purchase or sale of Bitcoin with another currency. Buyers can see how many Bitcoins a seller is offering, and at what price. A transaction is completed when an offer is accepted by another user. The buying price of the sold Bitcoins is transferred to the bank account of the seller. Depending on the marketplace, the providers might demand a small fee for the exchange, the deposit or the withdrawal of funds.
However this fee is lower than the price differential between buying and selling at exchange bureaus. Buyers and sellers each share half the fee. It should be noted that some banks are better compatible with some Bitcoin marketplaces than others. Check with your bank if you are unsure if they allow uncomplicated transactions with your marketplace.
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Just since the start of the year, it has shot up over 120%. While the asset class has had setbacks, digital currency has remained popular across the globe, so much so that the global central banks are now researching and mulling on ways to bring digital currencies into the mainstream. Institutional adaptation is among the biggest reasons why Bitcoin has risen exponentially. Owing to the inflation scenario across the globe, Bitcoin is considered to be a safe haven asset. The recent debut of Bitcoin ETF (Exchange Traded Funds) on the New York Stock Exchange also resulted in a surge in Bitcoin prices along with a record-breaking October for the stock market in general. Besides, much of Bitcoin’s rise followed the decision by PayPal — which has 350 million users — to allow crypto payments. These factors have aided in Bitcoin prices reaching an all-time-high of $68,641.57 on 9th November 2021.
As per news reports, a legal framework to govern crypto currencies is in the works in India. This will be in contrast from the earlier stance taken by the authorities to announce a complete ban on cryptocurrencies. Prices of cryptos jumped sharply in India following the lifting of an RBI ban last year. Although India does not yet have any legal framework to govern cryptocurrency, it is among the fastest growing crypto markets in the world. As per a news report, an estimated 15 to 20 million Indians have invested in cryptocurrencies. Experts have predicted that the asset class may gain further owing to the heightened inflation environment worldwide.
Similar to a bank account, a blockchain wallet is used to store Bitcoins. They are considered to be secure since they are cryptographically signed. WazirX’s wallet runs on the same concept. Moreover, it is integrated with global exchanges.
Choosing a Bitcoin Exchange
Your investing journey could be a lot smoother if you research the platform you would use for cryptocurrency trading. Among the factors that you must consider are the ease of usage, a smooth interface and support for trading pairs. Apart from these indispensable requirements, you should look for a platform which charges a minimal trading fee. Otherwise, the gains you might make with a bitcoin trade will diminish.
One should also consider if the exchange has released its order book as this ensures transparency. An order book is essentially a list of buy and sell orders that are offered on the exchange platform. A strong order book is only an additional validation for the exchange and indicates that it has sufficient liquidity for investors when it comes to exiting the cryptocurrency. Another important point to go through before choosing a platform is the security aspect of the platform. You might want to avoid platforms that do not have a KYC protocol in place. A KYC system helps ensure that financial crimes can be prevented or dealt with.
Here’s how you can trade crypto on WazirX
If you too have started to see value in investing in cryptos, you just have to find a reputable platform to help you invest in the crypto of your choice. WazirX is one such platform which provides its users a seamless and secure way to trade in cryptos in India. The first step involves downloading the WazirX app available on Playstore.
You will then be required to fill your bank account details and complete your KYC following which you can set up your account and add funds via UPI/NEFT/RTGS/IMPS. A pan card and a valid address proof are the primary requirements for KYC. The user’s bank account is then linked to the exchange account and the verification process is completed. Once an account is set up, a digital wallet is automatically created on the platform which allows a user to store bitcoins or carry out transactions.
With the funds in your account, you can start buying cryptocurrencies by clicking on the ‘exchange’ tab. Finally, you can choose the number of cryptos you want to purchase and press ‘Buy’.
Following the purchase, you will be able to see your holdings in the ‘Funds’ option. WazirX offers several cryptocurrencies to trade on its platform including Bitcoin (BTC), Ethereum (ETH), MATIC, Dogecoin (DOGE), Shiba Inu (SHIB), Ripple (XRP), Bitcoin Cash (BCH), Litecoin (LTC), and Tron (TRX).
Ease of trading with WazirX What makes trading and investment in Bitcoin with WazirX user-friendly is the fact that even if a Bitcoin is priced at around Rs 52-53 lakhs, one can buy a fraction of it at just Rs 100. Similar to Bitcoin, you can also buy other cryptocurrencies such as Ethereum, Litecoin, and Ripple.
Wondering how to buy Bitcoin in Canada? You’ve come to the right place!
This article will discuss the steps you need to take to invest in Bitcoin, covering the top trading platforms and showing you how and where to buy Bitcoin today – with low trading fees!
How to Buy Bitcoin Canada – Quick Steps
If you’re wondering how to buy Bitcoin in Canada, here’s a brief overview of the steps you need to take:
1. Open an account with Bitbuy: Head to the Bitbuy homepage and click ‘Get Started.’ Enter a valid email address and choose a username and a password for your account.
2. Deposit: You can fund your Bitbuy account with a bank transfer or wire transfer. Bank transfers require a minimum deposit of $100.
3. Buy Bitcoin: Open the Express Trade module and select Bitcoin. Enter the amount you want to purchase, then click ‘Buy Bitcoin’ to complete your trade.
BitBuy offers 2 different ways to buy Bitcoin. The Express Trade module is perfect for anyone who wants to buy cryptocurrency as a one-off investment. You can buy Bitcoin instantly at the current price with just a click, and it only costs 0.20% per trade.
Alternatively, the Pro Trade module is a comprehensive trading platform made for more experienced traders. You can set price alerts, chart technical patterns, and much more. Trading Bitcoin with the Pro Trade module costs 0.10% per transaction.
You can open an account at BitBuy in minutes and fund your account with a bank transfer or wire. Unfortunately, debit and credit cards aren’t accepted at this time, but the minimum deposit is just $100. BitBuy also offers 14 other popular altcoins in addition to Bitcoin.
Notably, you can reduce this fee by 25% if you hold Binance Coin (BNB), the platform’s native token. Binance also offers around 500 crypto assets to trade, including crypto-to-crypto pairs, ERC-20 tokens, and more. Finally, users can even buy Bitcoin in Canada instantly using their credit or debit card – although this will come with a transaction fee of 3%.
The transaction fee is based on the total trade amount and the payment method used, so it can vary wildly depending on how you trade.
Notably, Coinbase allows all users to download its free crypto wallet app to store crypto and navigate the decentralised web. Users can even earn staking rewards in just a few taps and with holdings from as little as $1!
Store of Value
Traditionally, gold has been the go-to store of value for investors seeking shelter during testing times. However, Bitcoin has been touted as a viable alternative to gold, especially since economies worldwide are currently suffering from high levels of inflation. Furthermore, since the total supply of BTC is capped at 21 million, there is an element of scarcity to the coin – which is something that you can’t say about gold.
Privacy and Anonymity
Finally, Bitcoin was the first to bring the idea of ‘decentralisation’ into the public consciousness. Although other cryptos have sprung up that look to improve on Bitcoin’s approach, the market cap and popular appeal that BTC has is likely to see it remain in front for people looking to maintain their anonymity – which will help sustain price over the longer term.
So although BTC may be experiencing some downwards price pressure, the tides can turn very quickly. From a technical perspective, Bitcoin does seem to be approaching an area of support between $30,000 and $34,000.
This area is where BTC struggled between May and July 2021, unable to break any lower than this point. So, if you’re asking ‘should I buy Bitcoin now?’, a support zone like this would provide the highest probability of a reversal – which could turn into an extended bull run.
Step 2 – Verify Your Account
Bitbuy will send you an email. Click on the link inside to verify your account details.
Step 3 – Make a Deposit
You can fund your Bitbuy account with a bank transfer or bank wire. The minimum deposit for e-transfers is $100, while the minimum deposit for a wire is $10,000. Click on ‘Accounts’ and then click ‘Add Funds’ to make a deposit.
Step 4 – Buy Bitcoin Canada
Open the Express Trade module and select Bitcoin as the cryptocurrency you want to buy. Enter the amount you want to purchase in CAD, then confirm your trade details. When you’re ready, click ‘Buy Bitcoin.’
Bitcoins act like cash, but they are mined like gold. So how does someone get into the current bitcoin rush?
If properly done and willing to take the investment risk, you could wind up with a few bitcoins of your own—which currently have an average weekly price of $945 on the largest bitcoin exchange.
Here's how it's done.
How many bitcoins are there?
When the algorithm was created under the pseudonym Satoshi Nakamoto—which in Japanese is as common a name as Steve Smith—the individual(s) set a finite limit on the number of bitcoins that will ever exist: 21 million. Currently, more than 12 million are in circulation. That means that a little less than 9 million bitcoins are waiting to be discovered.
Since 2009, the number of bitcoins mined has skyrocketed. That's the way the system was set up—easy to mine in the beginning, and harder as we approach that 21 millionth bitcoin. At the current rate of creation, the final bitcoin will be mined in the year 2140.
What exactly is mining?
There are three primary ways to obtain bitcoins: buying on an exchange, accepting them for goods and services, and mining new ones. "Mining" is lingo for the discovery of new bitcoins—just like finding gold. In reality, it's simply the verification of bitcoin transactions.
For example, Eric buys a TV from Nicole with a bitcoin. In order to make sure his bitcoin is a genuine bitcoin, miners begin to verify the transaction.
It's not just one transaction individuals are trying to verify; it's many. All the transactions are gathered into boxes with a virtual padlock on them—called "block chains."
Miners run software to find the key that will open that padlock.
Once their computer finds it, the box pops open and the transactions are verified. For finding that "needle in a haystack" key, the miner gets a reward of 25 newly generated bitcoins.
The current number of attempts it takes to find the correct key is around 1,789,546,951.05, according to Blockchain.info—a top site for the latest real-time bitcoin transactions.
Despite that many attempts, the 25-bitcoin reward is given out about every 10 minutes. In 2017, the bitcoin reward for verifying transactions will halve to 12.5 new bitcoins and will continue to do so every four years.
How do you mine on a budget?
Bitcoin mining can be done by a computer novice—requiring basic software and specialized hardware.
The software required to mine is straightforward to use and open source—meaning free to download and run.
A prospective miner needs a bitcoin wallet—an encrypted online bank account—to hold what is earned. The problem is, as in most bitcoin scenarios, wallets are unregulated and prone to attacks. Late last year, hackers staged a bitcoin heist in which they stole some $1.2 million worth of the currency from the site Inputs.io. When bitcoins are lost or stolen they are completely gone, just like cash. With no central bank backing your bitcoins, there is no possible way to recoup your loses.
The second piece of software needed is the mining software itself—the most popular is called GUIMiner. When launched, the program begins to mine on its own—looking for the magic combination that will open that padlock to the block of transactions. The program keeps running and the faster and more powerful a miner's PC is, the faster the miner will start generating bitcoins.
When mining began, regular off-the-shelf PCs were fast enough to generate bitcoins. That's the way the system was set up—easier to mine in the beginning, harder to mine as more bitcoins are generated. Over the last few years, miners have had to move on to faster hardware in order to keep generating new bitcoins. Today, application-specific integrated circuits (ASIC) are being used. Programmer language aside, all this means is that the hardware is designed for one specific task—in this case mining.
New faster hardware is being created by various mining start-ups at a rapid rate and the price tag for a full mining rig—capable of discovering new bitcoins on its own—currently costs in the ballpark of $12,000.
There is a way around such a hefty investment: joining mining pools. Pools are a collective group of bitcoin miners from around the globe who literally pool their computer power together to mine. Popular sites such as Slush's Pool allow small-time miners to receive percentages of bitcoins when they add their computer power to the group.
The faster your computer can mine and the more power it is contributing to the pool, the larger percentage of bitcoins received. Bitcoins can be broken down into eight decimal points. Like wallets, pool sites are unregulated and the operator of the pool—who receives all the coins mined—is under no legal obligation to give everyone their cut.
Joining a pool means you can also use cheaper hardware. USB ASIC miners—which plug into any standard USB port—cost as little as $20. "For a few hundred dollars you could make a couple of dollars a day," according to Brice Colbert, a North Carolina-based miner of cryptocurrencies and operator of the site cryptojunky.com. "You're not going to make a lot of money off of it and with low-grade ASICs you could lose money depending on the exchange rate."
The other way you could lose money when it comes to mining is power consumption. Currently, profits outweigh money spent on the energy needed to mine. Again, that could quickly change due to the volatile price of bitcoin.
"It's time sensitive, like a yo-yo", said Jeff Garzik, a Bitcoin developer for the payment processor BitPay. It's not mining or investors that are causing the radical highs and lows in the currency's value, it's the media, he said. "Bitcoin's price tends to follow media cycles, not hardware or mining. The difficulty in mining is not the highest correlation in bitcoin value."
For the novice, buying bitcoin can be a daunting prospect. Here, Dominic Frisby outlines the process from start to finish.
You can even buy bitcoins at an ATM
© Cesc Maymo/Getty Images
How do you get money? You can earn it by working or trading. You can buy it – someone could buy sterling using their dollars or euros, or vice versa. And if you happen to be the government, you can get money by printing it or issuing bonds.
Bitcoin is not so different. There are three ways to get hold of it: you can earn it, you can buy it, or you can mine it.
Forget mining for now. The days when you could mine it using an ordinary home computer are gone. Unless you have access to cheap energy (in which case please share the source with the rest of us) or considerable computing power, I would forget mining for the time being.
Next we come to earning it, which is simple. All you need is a wallet. As long as the buyer of whatever product or service you are selling is happy to pay you in bitcoin, you just send them your wallet address on your invoice, instead of your bank details, and they can pay you in bitcoin, just as they would any other form of money.
There are countless wallet providers. Keys.casa and Muun (because it works on bitcoin and the lightning network) are easy places to start. Another easy place to get your first wallet is blockchain.com (you can also buy and sell bitcoin here).
But make sure you set up two-factor authentication (2FA) if you use the online versions. If you don’t protect your wallet, you risk someone stealing it. There is also the option for 3FA – where you can only get into the site with a password, and then confirmation via email and mobile phone.
However, a wallet with Blockchain is not a long-term storage solution. I stress: it is just a starting point. More on storage solutions later. Here, we focus on how to buy bitcoin.
The UK regulator, the Financial Conduct Authority (FCA), has, in its wisdom, made life very difficult for the UK investor who is interested in cryptocurrencies. It has banned the sale of crypto derivatives and exchange traded notes (ETNs) to retail investors with the result that investors lose the comparative safety these products provided (note that I say “comparative” safety – I’m not implying that spreadbets on crypto are “safe”).
If retail investors want to invest in cryptocurrencies – and you should, it is the future of finance – you are now forced to take technological risk as well as the risk of the actual investment itself.
However, our focus here is not to moan about the FCA, but to tell you about how to buy bitcoin, and my next dollop of advice is this: before putting any significant sums to work, research as much as you can. Read about bitcoin. Listen to podcasts. And, above all, try out the tech.
The best exchanges to use to buy bitcoin
There are so many exchanges now, and they all have their pros, cons and idiosyncrasies. The best for UK investors are probably any of Gemini, Kraken, Bitfinex, CEX.Io, Bitstamp, SFOX, Crypto.com, Poloniex, Bittrex and eToro. Opening an account is a bit tiresome with all the ID checks – generally, the more you want to buy, the more paperwork you have to fill in. And do make sure you set up 2 or 3FA, although most exchanges insist on it.
Bitstamp, Kraken and Bitfinex seem to have the cheapest commissions. But try and buy through the trading apps, not off the front page. Commission rates are lower there for some reason.
Once you’re set up, you’ll experience the delights of sending money to your exchange via a bank. You might end up having to make a phone call to the bank at this point (and you’ll wait a while; banks’ response times have become very slow in this new Covid era). Gemini, being FCA registered, was probably the easiest in this regard. I had untold problems sending money to Bitstamp – HSBC refused to allow me to send money there.
Easier options for small amounts include Bittylicious and LocalBitcoins, or even bitcoin ATMs (but both their commissions and spreads are vast).
Revolut makes it easy to buy bitcoin (and easy to open an account). But you can’t then move your bitcoins elsewhere. You can only sell back to Revolut, which is somewhat besides the point. But it also means Revolut solves the storage problem for you.
Advanced users and purists will prefer the decentralised exchanges, but we will leave those for another day.
Other ways to buy bitcoin
If you’d still prefer some sort of listed option, then you could buy Microstrategy (Nasdaq: MSTR) which has become something of a proxy for bitcoin. London has a listed bitcoin miner, Argo Blockchain (LSE: ARB).
Perhaps easiest of all is the Vaneck Vectors Digital Assets ETF (LSE: DAGB), through which you are gaining exposure to a basket of all the listed bitcoin companies. It’s not the same as owning bitcoin, but it’s a start.
Canada has several tinycap bitcoin plays, if your broker can access the market. There is Venture-listed Neptune Digital Assets Corp (Vancouver: NDA), which is a play on the altcoin, Dash. And there’s Cypherpunk Holdings (Canada: HODL). I was a director of this company and even briefly CEO. We set up the company to invest in privacy technologies and it now has the one of the largest bitcoin treasuries of any public company, as well as some very interesting other investments in privacy technologies. Its chairman is former Lithuanian poker champion Tony Guoga, who also has a huge stake in the company. In Moe Adham and Jon Matonis it has two of the most crypto-literate directors you could find