A Newbie’s Guide To Buying Bitcoin

Since it launched in 2009 and more famously after it shot up to about $20,000 in December 2017, Bitcoin has been the most preferred investment tool of young investors. This asset reached an all-time high price of $64,800 on April 14, 2021, effectively attracting many other sectors and gaining worldwide attention.

All for good reason too- it’s no secret that several early investors of Bitcoin have become millionaires and even billionaires because of it.

However, several people are venturing into the crypto world daily and trying it out for the very first time. It can be difficult for a newbie to figure out the interface and understand how it works. 

Coinpedia to the rescue! We’ve brought to you a one-stop article that covers all the aspects of buying Bitcoin and how to navigate the different challenges. 

Your journey as a Bitcoin investor/trader begins here. Read on!

Prerequisites

To register as a voter in the elections, open a bank account or obtain a driver’s license., one must submit a set of government-issued identity documents.

Similarly, to invest in Bitcoin, you must fulfill some prerequisites since finance and digital assets are sensitive matters which could make or break individuals, businesses, companies, and even governments.
Additionally, you should have a stable Internet connection on your electronic device to trade online.

Choosing and Registering on a Platform 

This is where most beginners face their first obstacle- which platform should they choose to buy Bitcoin?

Although there are other ways to trade/invest, one of the easiest methods is to use platforms called Cryptocurrency exchanges, where crypto traders and investors ‘Buy’ and ‘Sell’ their Digital assets.

Remember that you need a Cryptocurrency exchange account to buy Bitcoin. You must complete the KYC verification prompted by the network to do so. 

This is done to protect you as well as the other users on the platform.

Centralized exchanges(CEX): 

CEXs are controlled by a company or an organization and maintain a central ledger. Digital assets you trade using these exchanges are not owned by you but by the exchange. These exchanges provide liquidity and are user-friendly. 

These are some of the essential prerequisites needed while setting up an account on a Centralized Exchange:

1. A set of personal identification documents issued and probably attested by government authority.
2. A Bank account and corresponding recognized payment options(Cards/Paypal etc.)
3. Cryptocurrency wallet
4. E-mail Id
5. Active phone number

The popular Centralized exchanges are Coinbase, Bittrex, Gemini, etc.

After choosing an exchange, download it on your device. Registration on the platform is mandatory; KYC verification may be mandatory depending on the platform. Based on their business model, the platform may even offer Decentralized exchange services in the future. 

Decentralized Exchanges(DEX): 

These exchanges are automated to the highest levels, offer a peer-to-peer transfer of assets, are often open-source, and are not administered based on a centralized ledger. 

Since they do not maintain a centralized ledger, DEXs usually charge lesser transaction fees. In addition, unlike CEX, you fully own the digital assets you trade.

Note: Most Decentralized exchanges do not accept Fiat currency as a mode of payment. You may have to convert your fiat currency into a token/coin called USDT(United States Dollar Tether), which is accepted by most DEXs.

Some of the popular DEX Platforms: are Uniswap, Sushiswap, Pancakeswap, etc.

How do I Buy Bitcoin?

1. Most DEX platform applications can be downloaded on your device. They don’t require stringent details as in the case of CEX, but you need to set up an account by entering a password in some DEXs or link your wallet that holds your Bitcoin securely. 
2. While setting up your DEX account, a phrase of random words will be displayed, which you have to note down and secure as it is a backup to access your account. This phrase contains words called Seed Words. After noting it, the app will prompt you to back up your account and DEX account somewhere secure.

After completing these processes, you must choose a payment option.

Hybrid Exchanges

These exchanges are a combination of decentralized and centralized ledgers and may get framed per the customers’ requirements.

These exchanges may be designed using the best qualities from both CEX and DEX.

Cryptocurrency exchanges offer trading platforms for their users. Depending on the transaction fees they charge, security, and features like an inbuilt insured wallet, liquidity, Two-Factor authentication, etc., you have the liberty to opt for the best-suited platform according to your needs.

Choosing Payment Options

You have successfully set up an account on the exchange that best suited your requirements. How does one proceed?

Bitcoin is a digital asset with a fluctuating value. Therefore, you must pay an equivalent amount or value accepted by the seller or the exchange while purchasing it. 

Below are some of the Widely accepted payment methods.

1. Credit card/ Debit card payments.
2. Direct Bank Transfer/Wire.
3. Paypal/any other such private-sector financial services with wallets.

Many fiat currencies are accepted based on the exchange you are using and the region where the exchange is based.

You can also use other Altcoins or tokens for pair transactions based on proportionate values to buy Bitcoin, provided your exchange allows that transaction.

Transaction Fee:

As a bank in the standard fiat structure charges a fee for every service it provides, the exchanges also apply fees to carry out a transaction on their platform.

Transaction fees vary based on various factors, such as location, currency type, local transaction laws, tax, the amount transferred, bank policies, and conversion charges of the exchanges.

Placing an order

If you have completed the above steps, the only thing left to do is purchase Bitcoin by placing an order. When you place an order, you will be either a Maker or a Taker of the order; Here’s the difference.

Maker 

A maker is a person who creates more liquidity in the market by placing an order to buy/sell bitcoin below/above the current ticker price, which does not match with pending orders on the order book.

In simpler words, if you place an order and do not receive the matches for the order and it remains pending for a long time, you are termed as Maker- as you are initiating the deal or making a new deal not present on the platform yet.

For example, you want to place an order to buy Bitcoin worth $10,000. You place the order, and your transaction has been pending for a long time.

It indicates that no trader is present to sell Bitcoin at the specified price, as the current running price matters a lot. Hence, you will be termed as Maker as your order will be created to be fulfilled by some other trader.

Taker

A Taker is a person who is taking the liquidity from the market by placing an order to accept orders set by makers.

In simpler words, if you place an order and it gets fulfilled immediately, then you are termed as a Taker. The order you place is already existing on the platform and you are taking away the deal.

Types of Orders

Over the years, with the growth of technology, exchanges have become more user-friendly and offer a wide range of orders. Similar to most stockbrokers, some exchanges offer both Market and Limit orders. 

Market orders/ Take order

The Buy orders get executed immediately at the price Bitcoin is trading at right then.

Limit order/ Make an order

The order facilitates you to have the liberty to enter a price you want the Buy order to get executed. The order will remain pending in the order book till somebody wants to sell you Bitcoin at the price you have set.

Once the seller agrees to the order details specified by you, they accept the offer and, in-return, transfers the Bitcoin to the wallet address provided by you. 

You will now have unique public and private keys to access your Bitcoin stored on the Blockchain.

Safe-Keeping of Bitcoin

Most Centralized cryptocurrency exchanges offer an inbuilt wallet with a unique wallet address. These wallets do not store Bitcoins but have secure private and public keys.

In case the exchanges do not offer wallets as in Decentralized exchanges, you can buy a wallet from a third-party provider for safe-keeping. It’s not mandatory, as you can store your keys on any electronic device. However, keep in mind that Bitcoins that are not stored using secure methods are prone to cyber-attacks.

Other Methods to buy Bitcoin

Bitcoin ATMs

Bitcoin ATMs require government-issued identity and are one of the several methods to purchase Bitcoin- but they aren’t prevalent. 

It’s as simple as depositing the equivalent amount of Bitcoin into the machine and confirming the wallet address or Public address. The ATM will transfer the Bitcoin after currency validation and Blockchain consensus to the provided wallet address/Public address.

P2P – Peer-to-Peer

This was the whole point for which Bitcoin was created- a peer-to-peer based transaction ecosystem, but unfortunately, it is not as easy to find sellers or buyers of Bitcoin since it is not an accepted mode of payment worldwide.

Conclusion

After reading this article, Buying Bitcoin should not feel like a complicated process. 

As mentioned above, this asset can be owned in many ways. Therefore, do your research on the market behavior and the volatility to get the price for the purchase.

FAQ