Bitcoin is a cryptocurrency or a virtual/digital currency that can be used to buy, sell or send money to people over the internet.
If you want to buy Bitcoin, which is steadily increasing in worth, this article covers the step-by-step approach to buying Bitcoin, places to buy from, and every other thing you should know about bitcoin.
What is Bitcoin?
Bitcoin often described as a cryptocurrency, a virtual currency, or a digital currency – is a type of money that is completely virtual.
It’s like an online version of cash. You can use it to buy products and services, but not many shops accept Bitcoin yet and some countries have banned it altogether.
However, some companies are beginning to buy into its growing influence. In October last year, for example, the online payment service, PayPal, announced that it would be allowing its customers to buy and sell Bitcoin.
The physical Bitcoins you see in photos are a novelty. They would be worthless without the private codes printed inside them.
How does Bitcoin work?
Each Bitcoin is basically a computer file that is stored in a ‘digital wallet’ app on a smartphone or computer. People can send Bitcoins (or part of one) to your digital wallet, and you can send Bitcoins to other people.
Every single transaction is recorded in a public list called the blockchain. This makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies, or undoing transactions.
How do People get Bitcoins?
There are three main ways people get Bitcoins.
You can buy Bitcoins using ‘real’ money.
You can sell things and let people pay you with Bitcoins.
Or they can be created using a computer.
How are New Bitcoins Created?
People build special computers to generate Bitcoins. In order for the Bitcoin system to work, people can make their computers process transactions for everybody.
The computers are made to work out incredibly difficult sums. Occasionally they are rewarded with a Bitcoin for the owner to keep.
People set up powerful computers just to try to get Bitcoins. This is called mining. But the sums are becoming more and more difficult to stop too many Bitcoins from being generated.
If you started mining now, it could be years before you got a single Bitcoin. You could end up spending more money on electricity for your computer than the Bitcoin would be worth.
Why are Bitcoins Valuable?
There are lots of things other than money which we consider valuable like gold and diamonds. The Aztecs used cocoa beans as money!
Bitcoins are valuable because people are willing to exchange them for real goods and services, and even cash.
Why do People Want Bitcoins?
The government or banks does not control some people like the fact.
People can also spend their Bitcoins fairly anonymously. Although all transactions are recorded, nobody would know which ‘account number’ was yours unless you told them.
In an online chat with social media users in January 2021, the world’s richest man, Elon Musk, said he was a big supporter of Bitcoin. He even went as far as to change his Twitter bio to “#bitcoin”.
He has repeatedly shown his support for online currencies in recent years and caused major movements in their values. Mostly, due to his own personal wealth and influence.
This particular endorsement led to the value of Bitcoin rising significantly.
Is it Secure?
Every transaction is recorded publicly, so it’s very difficult to copy Bitcoins, make fake ones or spend ones you don’t own. It is possible to lose your Bitcoin wallet or delete your Bitcoins and lose them forever.
There have also been thefts from websites that let you store your Bitcoins remotely.
The value of Bitcoins has gone up and down over the years since it was created in 2009 and some people don’t think it’s safe to turn your ‘real’ money into Bitcoins.
The head of The Bank of England, Andrew Bailey expressed this concern, in October 2020.
He said that he was “very nervous” about people using Bitcoin for payments pointing out that investors should realize its price is extremely volatile.
By this, he meant that the value could drop significantly at any moment and investors could lose a lot of money.
Can Bitcoin be Converted to Cash?
Bitcoin can be exchanged for cash just like any asset.
There are numerous cryptocurrency exchanges online where people can do this but transactions can also be carried out in person or over any communications platform, allowing even small businesses to accept Bitcoin.
There is no official mechanism built into Bitcoin to convert to another currency.
Nothing inherently valuable underpins the Bitcoin network. But this is true for many of the world’s most stable national currencies since leaving the gold standard, such as the US dollar and UK pound.
What is the Purpose of Bitcoin?
Bitcoin was created as a way for people to send money over the internet.
The digital currency was intended to provide an alternative payment system that would operate free of central control but otherwise be used just like traditional currencies.
Is Bitcoins Safe?
The cryptography behind Bitcoin is based on the SHA-256 algorithm designed by the US National Security Agency.
Cracking this is, for all intents and purposes, impossible as there are more possible private keys that would have to be tested (2256) than there are atoms in the universe (estimated to be somewhere between 1078 to 1082).
There have been several high profile cases of Bitcoin exchanges being hacked and funds being stolen, but these services invariably stored the digital currency on behalf of customers.
What was hacked in these cases was the website and not the Bitcoin network.
What This Implies
In theory, if an attacker could control more than half of all the Bitcoin nodes in existence then they could create a consensus that they owned all Bitcoin.
And embed that into the blockchain. But as the number of nodes grows this becomes less practical.
A real problem is that Bitcoin operates without any central authority. Because of this, anyone making an error with a transaction on their wallet has no recourse.
If you accidentally send Bitcoins to the wrong person or lose your password, there is nobody to turn to.
Of course, the eventual arrival of practical quantum computing could break it all.
Much cryptography relies on mathematical calculations that are extremely hard for current computers to do, but quantum computers work very differently and may be able to execute them in a fraction of a second.
Where does Bitcoin Come From?
Bitcoin is virtually ‘mined’ by a vast, decentralized (also referred to as ‘peer-to-peer’) network of computers that are constantly verifying and securing the accuracy of the blockchain.
They reflect every single bitcoin transaction on that ledger, with new information periodically gathered together in a “block,” which is added to all the blocks that came before.
What is Bitcoin Mining?
Mining is the process that maintains the Bitcoin network and also how new coins are brought into existence.
They publicly broadcast all transactions on the network and miners bundle large collections of transactions.
“The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
The software outlined in the article was completed and publicly distributed the following year, creating the Bitcoin network on January 9, 2009.
Now the software is open-source, meaning that anyone can view, use or contribute to the code for free. Many companies and organizations work to improve the software, including MIT.
What Makes Bitcoin a New Kind of Money?
1. Bitcoin is Global
You can send it across the planet as easily as you can pay with cash in the physical world. It does not close on weekends, does not charge a fee to access your funds, and does not set any arbitrary constraints.
2. Bitcoin is Irreversible
Bitcoin is like cash, in the sense that transactions cannot be reversed by the sender.
In comparison, credit cards, conventional online payment systems, and banking transactions can be reversed after the payment has been made—sometimes months after the initial transaction—due to the centralized intermediaries that complete the transactions.
This creates a higher fraud risk for merchants, which can lead to higher fees for using credit cards.
3. Bitcoin is Private
When paying with Bitcoin, there are no bank statements, or any need to provide unnecessary personal information to the merchant.
Bitcoin transactions don’t contain any identifying information other than the Bitcoin addresses and amounts involved.
4. Bitcoin is Secure
Due to the cryptographic nature of the Bitcoin network, Bitcoin payments are fundamentally more secure than standard debit/credit card transactions.
5. Bitcoin is Open
Every transaction on the Bitcoin network, without exception, is made public. This means there’s no room for manipulation of transactions (save for a highly unlikely 51% attack scenario) or changing the supply of Bitcoin.
The software that makes up the core of Bitcoin is free and open-source so anyone can review the code.
6. Bitcoin is Safe
In more than ten years of existence, they have not successfully hacked the Bitcoin network.
Because the system is permissionless and open-source, various computer scientists and cryptographers have been able to investigate all facets of the network’s security.
How to Use Bitcoin
In 2013, a Bitcoin enthusiast called Laszlo Hanyecz posted a comment on a message board giving 10,000 BTC–worth roughly $25 at the time–to anyone who could bring two pizzas to his house in Jacksonville, Florida.
As the legend goes, those two pizzas, which another Bitcoin early adopter bought from a local Papa John’s, marked the first successful purchase of non-virtual goods using Bitcoin.
Thankfully, it’s a lot easier to use Bitcoin these days!
1. It’s Simple
BTC transactions are similar to those made with a credit or debit card.
Except that instead of inputting card information, you’ll be asked to enter the payment amount and the vendor’s public key (similar to an email address) via a wallet app.
(When transacting in person using smartphones or tablets, often a QR code will pop up to simplify the process – when you scan the code, your wallet app will automatically enter the pertinent information.)
2. It’s Private
One of the benefits of paying with Bitcoin is that doing so limits the amount of personal information you need to provide.
The only time you need to share your name and address is if you’re purchasing physical goods that need to be shipped.
3. It’s Flexible
As to what you should do with your Bitcoin, that depends completely on your personal interests. Here are some ideas: You can ;
Sell it for cash using an exchange or a Bitcoin ATM.
Spend it online or in brick-and-mortar retailers as you would any other currency by using a Bitcoin debit card.
Hold on to some or all of it as part of your investment and savings strategy.
You might choose to that is close to your heart (check out).
And if you have a serious budget and unfulfilled astronaut dreams? Richard Branson’s Virgin Galactic happily accepts BTC in exchange for the opportunity to blast off on one of its forthcoming space-tourism missions.
5 Places to Buy Bitcoins
If you’re looking to trade Bitcoin, the good news is that you now have several options. You may not even need to open a separate and specialized account to do so, since many major brokers offer a way to buy them.
Here are some of the top brokers for trading cryptocurrency. Plus, some unexpected players – PayPal and Cash App for example – now allow U.S. residents to buy, sell and hold Bitcoin, too.
Each method below offers a different combination of cost, security, and potential upside/downside.
PayPal makes it tremendously easy to directly buy or sell bitcoins using the same app that you’ve come to trust with your online payments.
You’ll pay $0.50 for trades involving less than $25, and from their PayPal uses a sliding commission scale that starts at 2.30 percent for trades over $25 and declines to 1.50 percent for trades of more than $1,000.
Though there’s a spread markup on trades, you won’t pay a fee for holding cryptocurrency in your account, and you can trade as little as $1 at a time.
Coinbase is a specialized exchange for cryptocurrencies that allows you to own digital currencies directly. You’ll be able to trade dozens of the most popular cryptos, including Bitcoin, Bitcoin Cash, Solana, and Ethereum.
For extra security, Coinbase also allows you to store your coins in a vault with time-delayed withdrawals.
It charges a spread fee of 0.50 percent and then adds on a transaction fee that varies with the funding source and the size of the transaction.
This fee typically adds another 1.49 percent or so to your costs but even more with a debit card.
The fee structure is confusing, to say the least, although Coinbase promises to show you what you’re paying before you actually have to make the payment. The exchange’s Pro platform is cheaper, however.
3. Trading App
You can pick up a few bitcoins with no direct commission by using a trading app such as Webull or Robinhood, though you’ll end up making up for it with a spread markup.
Robinhood takes its best trick – no commissions – and applies it to cryptocurrency, but it does charge a spread markup, the exact cost of which it does not reveal.
You’ll be able to buy bitcoins directly. And will have access to other digital currencies, too, a feature that other brokers listed here don’t offer.
Of course, you’ll be able to buy stocks, ETFs, and options while you’re on the easy-to-use platform.
Webull lets you trade more than 20 cryptos, including Bitcoin. You’ll pay a spread markup of 1 percent on each transaction, however. You can also trade stocks, ETFs, and options.
4. Interactive Brokers
At Interactive Brokers, you’ll be able to buy futures contracts on Bitcoin as well as trade the coin directly. The broker charges $10.02 per futures contract, which gives you exposure to five bitcoins.
If you want to trade Bitcoin directly, you’ll pay a competitive commission of 0.12-0.18 percent of your trade value, depending on your monthly volume.
You’ll also have access to Ethereum, Bitcoin Cash, and Litecoin. Interactive Brokers provides a whole range of other tradable securities, giving you access to securities across the world.
5. Bitcoin ATM
Another option is to buy bitcoins directly through a Bitcoin ATM, though you’re likely to pay much more in commissions than you would elsewhere.
You’ll be able to buy bitcoins and some ATMs will allow you to sell them, too, using cash or a debit card. But you may need a Bitcoin wallet to make the transaction.
Commissions can be pricey, with some ATMs charging around 7 percent per transaction, while the fees at others may stretch into the teens.
How to Buy Bitcoin in 4 steps
Decide where to buy Bitcoin. Cryptocurrency exchanges like Coinbase and a few traditional brokers like Robinhood can get you started investing in Bitcoin.
Think about how to store your cryptocurrency. Are you going to keep your Bitcoin in a hot wallet or a cold wallet?
Make your purchase. Figure out how much you want to invest in Bitcoin.
Manage your investment. Determine your long-term plan for this asset.
FAQs about How to Buy Bitcoin
What is BTC?
BTC is the abbreviation for Bitcoin.
Is Bitcoin Cryptocurrency?
Yes, Bitcoin is the first widely adopted cryptocurrency, which is just another way of saying digital money.
Is There a Simple Bitcoin Definition?
Bitcoin is digital money that allows secure and seamless peer-to-peer transactions on the internet.
Like any other asset, you can make money by buying BTC low and selling high, or lose money in the inverse scenario.
At what Price did Bitcoin Start?
One BTC was valued at a fraction of a U.S. penny in early 2010. During the first quarter of 2011, it exceeded a dollar.
In late 2017, its value skyrocketed, topping out at close to $20,000. You can track the price of Bitcoin here.
The process of purchasing bitcoin is slightly more complicated than that of purchasing regular stock or equity. This is primarily due to the fact that the cryptocurrency ecosystem and infrastructure are less developed than those of traditional trading.
Trying to buy Bitcoin is a slightly complicated process, especially because of how the cryptocurrency ecosystem works and because it is not fully developed yet.
Selecting a service or venue for the purchase, connecting with a payment method, placing an order, and ensuring safe storage for your purchased cryptocurrency are the four steps in the bitcoin purchase process.
Each of these steps necessitates research and a thorough examination of the benefits and drawbacks of each service. Bitcoin can also be purchased at Bitcoin ATMs, through payment services such as PayPal, and through mainstream brokerages such as Robinhood.
However, this article has tried to show the steps needed to buy Bitcoin from the different payment services and Brokers, with ease.
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