Bitcoin is a cryptocurrency which is now considered as a form of digital currency in many countries. Many merchants are now accepting bitcoins as a legal payment method for the purchase of goods and services. Investors are also investing in bitcoins. The demand for buying bitcoin is quite high among investors.
In bitcoin investments and as a payment method, no third party is needed to complete the process the process of transaction. Because of the high potential risks associated with bitcoin, most of the companies and countries still do not accept it as currency.
The number of places where you can use bitcoin for the purchase of goods and services is increasing rapidly and many big retailers, as well as small businesses, are accepting it. This increased acceptance of bitcoins in several countries is boosting its footprint across the world and is helping it to gain official recognition of a legal payment mode.
Before buying bitcoin, it is important to understand its advantages, disadvantages and its demand in future. This guide deals with the step-by-step process on how to buy bitcoin. As per this guide, there are total 4 stages involved in the buying process of bitcoin.
Stage 1: Understanding Bitcoins
Step 1: Understand the basics of bitcoin
Bitcoin is a type of cryptocurrency which allows consumers to perform transactional activities without any service charges. Unlike banks, credit/debit card companies and other financial institutions where third parties perform for any successful monetary transactions, in bitcoin there is no such third party system. Central authorities like the Federal Reserve and all do not regulate bitcoin and all the transactions of bitcoin take place in online markets where consumers are anonymous (not completely).
To exchange money via bitcoin, you do not need to open an account or use any bank as a transactional channel. With bitcoin, you can exchange money instantly with anyone. Since bitcoin does not require names and other information of consumers for money transferring, the risk of identity theft is low in bitcoin transactions.
Step 2: Understand the concept of bitcoin mining
Understanding bitcoin mining is very important if you are thinking to invest in bitcoin. The process by which bitcoins are created is known as bitcoin mining. Bitcoin mining is a complex process. The zest of this process is that whenever two users make bitcoin transaction, that very transaction is stored digitally by computer systems in an online transaction log book with all the details of the transaction like the time at which the was done and the amount of bitcoin each user owns. These details are then shared publicly through a ledger called Blockchain, which describes the information of every single transaction of bitcoin.
Stage 2: Understanding the Pros and Cons of Using Bitcoin
Step 1: Know the advantages of bitcoin
Follow are the main advantages of bitcoin:
-
Protection from identity theft
The risk of identity theft does not prevail in bitcoin. Bitcoin does not require a name or other information of user for the completion of transaction. Your digital wallet’s ID is something which bitcoin needs from you. Unlike credit cards, where merchants can access to your ID and complete credit history, bitcoin coins are anonymous and all their transaction data is saved in the Blockchain.
-
Low transactional fees
Unlike traditional payment methods and e-wallet systems where a third party works and a transaction service charge is imposed for completing any payment, in bitcoin there is no such third party system. The transaction is done directly from one user to another. Therefore, the transactional fee is also very low as compared to other medium.
-
Immediate money transfer
Transactions via banks or e-wallets sometimes take unnecessary delays or hold but in bitcoin, there are no such delays. One can instantly perform a monetary transaction without any complexities.
-
Protection against payment fraud
Bitcoin is digital currency so it cannot be counterfeited and this protects users from any payment frauds. Unlike credit cards, transaction is made via bitcoin cannot be reversed.
Understand the disadvantages of bitcoin
Following are the disadvantages of bitcoin:
-
No regulations by the government
In traditional banking, if any fraudulent transaction is make by someone with your credit/debit card, strict government actions are taken against that person and case of fraudery is filed against him but in bitcoin, there are no such regulations. If your bitcoin is lost or stolen, you can’t take help of government to find the theft because bitcoin is not a government regulated currency.
-
Not immune to hackers
The security breach may take place in bitcoin network because it is not completely secured and hackers may hack your bitcoin wallet
-
Price volatility
Price volatility is one of the major drawbacks of bitcoin. The price of bitcoin fluctuates very rapidly. If you are planning to invest in bitcoin, then stay in it, do not move back to USD as it may result in the significant loss of money.
Stage 3: Setting Up Bitcoin Storage
Step 1: Store your bitcoin online
Once the understanding part of bitcoin is done, it’s the time of buying. In order to buy bitcoin, you need to first create a storage site for all your purchased bitcoins. You can store your bitcoins in two ways:
-
Online wallet
In an online wallet, you can store the keys of your bitcoins. This is an online wallet similar to your real wallet where you can store your money digitally. A bitcoin wallet can be created by installing the bitcoin client. Bitcoin client is software which powers the bitcoin currency. Always remember to back up your wallet in an external hard drive otherwise you may lose all your bitcoins if someone hacks your computer or if you misplace your files or keys.
-
Third party
The second way of storing bitcoins is via third party. You can create an online wallet in a third party site like Coinbase or Blockchain.info and can store all your bitcoins in the cloud storage of these third party site.
Step 2: Store your bitcoins in a hard-wire wallet
Hard-wire wallets are very few in number and one cannot easily acquire these wallets. These wallets are devices which store all your bitcoin private keys digitally. These wallets are generally small in size and some of them come in USB-shaped like sticks.
Stage 4: Exchanging Bitcoins
Step 1: Select an exchange service
You can buy bitcoins very easily via exchange services. Bitcoin exchange functions just like any other currency exchange: Simply register on any one of the exchange services and convert your local currency or whatever currency you have into bitcoins.
Some of the well-known bitcoin exchange services are:
-
Coinbase
Coinbase is a very popular bitcoin wallet and exchange system which allows users to trade both in US dollars and euros. The company provides a user-friendly website and application for the convenient and smooth trading of bitcoins.
-
Cryptaw
Cryptaw is a Singapore based wallet and exchange service company. Through this service exchange, users can buy bitcoins from Singapore dollars.
-
Xapo
Xapo is that wallet and exchange service which allows users to deposit flat currency in your account. After that, the currency is converted into bitcoins.
-
Circle
Circle is that exchange service which offers its users to exchange, send receive and store bitcoins. Currently, the facility of linking bank accounts with bitcoin deposit funds is given to the US citizens only.
Step2: Provide ID proof and contact information to the exchange service
In order to create an account on bitcoin exchange service, you will have to provide your personal information to the service. Though you need to submit identity proof and contact information to the exchange service, exchange services and wallets do not provide any protection to their users like banks provide.
Step 3: Buy bitcoins with your exchange account
After setting up your account on exchange service, you have to link it with an existing bank account in order to move funds between your bank account to your new bitcoin account. The transaction is done through wire transfer method and hence entails a transaction fee.
The Bottom Line
The confidence in bitcoin investments has been increased because of the changing government policies and the increased acceptance and adoption of it by both the government and the users. However, bitcoin is still not completely safe and must be aware of the rapid price volatility, legality and taxation issues of it.
Investing in cryptocurrency solely depends upon you. If you think you can bear the price volatility risk of bitcoin then only go for it otherwise don’t think of buying bitcoins. Also, you have to be very careful n storing your bitcoins and private keys. If you lose your keys, you lose your bitcoins. So, store your keys in 2-3 places so that your keys are safe.
Invest in bitcoins at your own risk because if something fraud happens to your bitcoins, no government will help you in retrieving your loosen bitcoins back. You have to be very careful and need to stick with bitcoins only because of the changing prices of bitcoins.
