The rules of the risks attached to cryptocurrency trading don't need to be impossible to follow. In this, we explore risk trading and how...
Many people, although curious, shy away from investing in Bitcoin. Mostly, because it seems like a complicated investment opportunity, others are aware that there are many Bitcoin scams making its rounds on the internet and many people have lost their earnings this way. We can assure you that Bitcoin does have many profitable opportunities for investors and is growing in popularity faster than we think. It is important to us that you understand how to buy bitcoin and how it works before investing in it. This way you will have all the information you need to make an informed investment decision.
Before we begin: Here are some key takeaways
- Bitcoin came into existence in 2009 and was created by software developer Satoshi Nakamoto (Pseudonym) .
- Bitcoin is a virtual currency, which means it exists online and cannot be printed or withdrawn.
- Bitcoin is decentralized and is not governed by any financial institution or central authority.
- All Bitcoin Transactions are kept in a public ledger. This is completely transparent and this way transactions can be traced.
- Although it is nearly impossible for your Bitcoin to be hacked, it is possible for your Bitcoin Wallet to be compromised. Therefore it is important that you store it securely.
What you need to begin
A new investor needs a few things before purchasing Bitcoin. This includes a cryptocurrency exchange account, personal identification documents, a secure internet connection and a method of payment. We do recommend that all Bitcoin investors have their own personal wallet outside of the exchange account. It is possible to get Bitcoin at specific ATMs, but it is important to note that Bitcoin ATMs now require government-issued IDs as of early 2020. We do not recommend that new investors rely on Bitcoin ATMs.
Eager Bitcoin investors must prioritise their security and privacy. You may not be able to accumulate your Bitcoin physically, but it is considered a bad idea to boast about how much Bitcoin you own. As mentioned earlier, it is important to secure your Bitcoin wallet. Anyone who gains access to a private key to a public address on the Bitcoin blockchain can make transactions. This is why your private key should be kept secret.
The public ledger is accessible to anyone. However, only transactions can be viewed. Your identity is kept private. Bitcoin transactions are more transparent than cash transactions, but with Bitcoin, it can be used anonymously.
Here is a step-by-step guide on how to buy bitcoin
Step 1: Choose a suitable exchange
It is of great importance that you sign up for a cryptocurrency exchange. It will allow you to buy, sell and hold cryptocurrency. We recommend choosing an exchange that allows you to withdraw your crypto into your own personal wallet for safe keeping. Since Bitcoin is decentralized and has individual sovereignty, some exchanges allow you to remain anonymous. Most exchanges operate autonomously and are decentralized too.
Step 2: Verify and fund your account
After choosing your exchange make sure you have your personal documents at hand. You may need to provide your social security number, details about your employer and a picture of your driver’s license. This process can be compared to opening up a broker account. You are able to use your credit card to purchase cryptocurrency. Most exchanges allow you to connect your bank account directly or deposit fiat currency into a fiat wallet.
Step 3: Place your order
Once you have connected a payment option to your account you can now go ahead and purchase Bitcoin. Your exchange will provide you with a number of order types and different ways to invest. Most exchanges offer markets, limit orders and recurring investment options.
Step 4: Open a digital wallet
A digital wallet is where you will keep all your Bitcoin and other cryptocurrencies This wallet works with the Blockchain technology. There are many digital wallet providers online. We recommend that you do your research before choosing a suitable one. There are basically two types of wallets you need to be aware of:
- Hot Wallets: Hot wallets refer to online wallets. This wallet runs on internet-connected devices like computers, phones or tablets. These wallets are usually more vulnerable because they generate the private keys to your coins and are more vulnerable to hackers.
- Cold Wallets: Cold wallets refer to wallets that are not connected to the internet.They are usually referred to as offline wallets and are safer than hot wallets since it is not dependent on internet-connected devices. Cold wallets store your private key on something that is not connected to the internet and can come with software that works in parallel so that you can view your portfolio without putting your private key at risk.
Are there alternative ways to purchase bitcoin?
Yes there are. Here are some additional ways you purchase Bitcoin:
1. Bitcoin ATMs
Bitcoin ATMs are similar to in-person Bitcoin exchanges. You can insert cash into a machine and then use it to buy your Bitcoin. It will then be transferred to your digital wallet. Bitcoin ATMs are becoming very popular.
2. Peer to peer exchanges
With P2P exchanges, after creating an account, you can post requests to buy or sell Bitcoin. This includes information about payment methods and prices. You will then be able to browse through listings of users buying and selling their Bitcoin and choose who you would wish to transact with.
The best way to protect your bitcoin
As explained earlier, Bitcoins are stored in a digital wallet. This wallet can be hardware-based or online based. It can also be stored on your mobile device, computer desktop or kept on your person, by printing your private keys and addresses on paper. You may wonder how safe all of these wallet options are? Well that depends on how you manage your wallet and the set of private keys it contains. The biggest danger you face is losing your private key or having it stolen.
*Important notice: anyone who has access to your private keys will be able to perform transactions. This is why we stress the importance of securing your digital wallet accounts from hackers.
Here are a few ways you can protect your account:
- Activate Offline Mode
This is also known as cold storage. Cold storage wallets are not connected to the internet, which makes it the safer option and prevents hackers from gaining access to your account through the internet. We recommend that you split the bitcoins you own. Keep some in a digital wallet and the rest in cold storage.
- Backup Your Wallet
You can backup your entire wallet very early on in your buying journey. In case your device fails, a history of regular backups may very well be the only way to recover the currency in your digital wallet. When you backup your wallet, make sure you store it in multiple locations and set a strong password.
- Encrypt Your Wallet
Encryption is always beneficial in adding an extra layer of security to your wallet. This simply means adding a strong, secure password to your wallet. A weak password will still mean that your account is vulnerable and easily accessible to hackers.