Bitcoin, since it launched in 2009 and more famously after it shot up to the level of about $20,000 in December 2017, has been the most preferred investment tool of young investors. Later reaching above $51000 to hit an all-time high in February of the year 2021, has attracted many other sectors and gained worldwide attention.
I mean, why not!!?? Many early investors have made millions out of Bitcoin trading. If you do it right, you might be one too. Perhaps, a topic for discussion, some other time, maybe!!
Every time you type “How to buy Bitcoin” on google, you get tons of sources, but no real one-stop article which caters to your doubts from A to Z!! That is exactly what this article is going to help you with!!
This is an article you must go through thoroughly to understand how you can start your journey as a Bitcoin Investor or a trader.
Let’s get into the details.
Table of contents
- Prerequisites to be fulfilled
- Choosing and Registering on a Platform
- Choosing Payment Options
- Placing an order
- Safe-Keeping of Bitcoin
- Other Methods to buy Bitcoin.
Prerequisites to be fulfilled
You register yourself on a national list to be a voter for elections, submit a set of government-issued identity documents to open a bank account, or obtain your drivers’ license.
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.
You should have an Internet connection on your electronic device.
There are some prerequisites to be fulfilled that vary with the kinds of platforms that you want to use.
Choosing and Registering on a Platform
This is the point where you choose one of the most common and safe methods for beginners, choosing the platform where you want to buy your first ever Bitcoin.
Although there are other ways to Trade/invest, it is to be noted that there are several types and number of platforms which are 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.
This is where you create that account!! You have to use KYC platforms to verify your identity on the exchange’s network. These types of verifications are mostly common on centralized platforms.
CEXs are controlled by a company or an organization and maintain a central ledger. Digital assets that you trade using these exchanges, are not owned by you, but by the exchange. Although, these exchanges provide liquidity and are user-friendly.
These are some of the basic prerequisites listed below you may need while setting up an account on Centralized Exchange:
- A set of personal identification documents issued and probably attested by government authority.
- A Bank account and corresponding recognized payment options(Cards/Paypal etc)
- Cryptocurrency wallet
- You will also need an e-mail Id and an active phone number
Now you can go ahead and choose one of the Exchanges, and download them on your device. Registration on the platform is mandatory and depending on the platforms, KYC verification may be mandatory.
Although Centralized exchanges, based on their business model may offer Decentralized exchange services in the future.
Since these exchanges are automated to the highest levels, offer a peer-to-peer transfer of assets, and are often open-source, are not administered based on a centralized ledger. Since they do not maintain a centralized ledger, DEX’s usually charge less transaction fee. 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.
How do I Buy Bitcoin?
- 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 just link your wallet that holds your Bitcoin securely.
- 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 backup your account and DEX account somewhere secure.
Note that after completing these processes, you have to choose a Payment option.
These exchanges are a combination of decentralized and centralized ledgers. These may get framed per the requirements of the customers. These kinds of exchanges may be designed using the best of qualities from both CEX and DEX.
Cryptocurrency exchanges offer trading platforms for their users. But depending on the transaction fees they charge, security, and features like 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 one of the best suited Cryptocurrency Exchanges. Now, what’s the next step to buy Bitcoin??
Let me explain.
Bitcoin is a digital asset with a fluctuating value. You have to pay an equivalent amount or value, accepted by the seller, or the exchange while purchasing it! To do the same, you need to attach a Bank account. Based on the regions you live in, You may have to produce your social security number, source of the funds, etc.
Below are some of the Widely accepted payment methods.
- Credit card/ Debit card payments.
- Direct Bank Transfer/Wire.
- Paypal/any other such private-sector financial services with wallets.
Many fiat currencies are accepted based on the exchange that you are using and the region where the exchange is based.
You can also use other Altcoins or tokens as offered for pair transactions based on proportionate values to buy Bitcoin, provided your exchange allows that transaction.
As a bank in the normal fiat structure charge fees for every service it provides, the exchanges also apply some fees to carry out a transaction on their platform.
Based on various factors, such as location, currency type, local transaction laws, tax, the amount transferred, bank policies, conversion charges of the exchanges, transaction fees vary.
Placing an order
If you have completed the above steps, the only thing left to do is purchase bitcoin by placing an order. To buy any cryptocurrency on a centralized exchange, you need to place an order. And when you place an order, you will be either a Maker or a Taker of the order.
Who is a 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 you do not receive the matches for the order and remains pending for a long time, then you are termed as Maker. As you initiate the deal or you are making a new deal that is not present on the platform yet.
For example, let us consider, you want to place an order to buy bitcoin worth $10,000. You place the order and your transaction is showing 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.
Who is a Taker?
A Taker is a person who is taking from the liquidity in 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. As the order you place is already existing on the platform and you are taking away the deal.
Types of Orders
The exchanges, over years, have become user-friendly and offer a wide range of orders. Some exchanges, similar to the majority of stockbrokers, 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 on the order details as specified by you, he accepts the offer and in-return transfers the Bitcoin to your wallet address provided by you. You will now have a unique Public key, and a Private key to access your Bitcoin stored somewhere on the Blockchain.
Safe-Keeping of Bitcoin
Most Centralized cryptocurrency exchanges offer an inbuilt cryptocurrency wallet, with a unique wallet address. These wallets do not store Bitcoins but have to 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. But such bitcoins that are not stored using secure methods are prone to cyber-attacks.
Other Methods to buy Bitcoin.
If you want to explore other methods of buying bitcoins, you certainly can.
Below are the two methods which are most followed
- Bitcoin ATMs.
These Bitcoin ATMs require government-issued identity and are one of the methods to purchase bitcoin. 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.
Although if you provide the wallet address/Public address of your account, a person willing to sell bitcoin can do so. This kind of arrangement is allowed in DEX.
After reading this article, Buying Bitcoin should not feel like a complication. Although before buying it on any platform, carry out your research.
After going through the blog, now you might have a clear idea on how to buy bitcoin’. As mentioned above bitcoin can be owned in many ways. Therefore, do research on your own on the market behavior, the volatility before jumping in.
Beginners should buy bitcoin through Cryptocurrency exchanges, as it is easier for them to do so. Get a Wallet, Create an account on the exchange, choose a payment option, and buy Bitcoin.
Some of the biggest centralised Cryptocurrencies Exchanges charge very less transaction fee and exchange fee.
Buying Bitcoin on platforms which are vetted and using a wallet to safeguard your Bitcoin is considered to be safe.