How to Invest in Cryptocurrency; Bitcoin Buying

Investing in Bitcoin can seem complicated, but it is much easier when you break it down into steps. Buying Bitcoin is getting easier by the day and the legitimacy of the exchanges and wallets is growing as well.

The value of Bitcoin is derived from its adoption as a store of value and payment system, as well as its finite supply and decreasing inflation.

While it is nearly impossible for Bitcoin itself to be hacked, it is possible for your wallet or exchange account to be compromised. This is why practicing proper storage and security measures is imperative.

Investing or trading Bitcoin only requires an account on an exchange, though further safe storage practices are recommended.

There are several things that every aspiring Bitcoin investor needs. A cryptocurrency exchange account, personal identification documents if you are using a Know Your Customer (KYC) platform, a secure connection to the Internet, and a method of payment. It is also recommended that you have your own personal wallet outside of the exchange account. Valid methods of payment using this path include bank accounts, debit cards, and credit cards. It is also possible to get Bitcoin at specialized ATMs and via P2P exchanges. However, be aware that Bitcoin ATMs were increasingly requiring government-issued IDs as of early 2020.

Privacy and security are important issues for Bitcoin investors. Even though there are no physical Bitcoins, it is usually a bad idea to brag about large holdings. Anyone who gains the private key to a public address on the Bitcoin blockchain can authorize transactions. While private keys should be kept secret, criminals may attempt to steal private keys if they learn of large holdings. Be aware that anyone can see the balance of a public address that you use. That makes it a good idea to keep significant investments at public addresses that are not directly connected to ones that are used for transactions.

Anyone can view a history of transactions made on the blockchain, even you. But while transactions are publicly recorded on the blockchain, identifying user information is not. On the Bitcoin blockchain, only a user's public key appears next to a transaction—making transactions confidential but not anonymous. In a sense, Bitcoin transactions are more transparent and traceable than cash, but Bitcoin can be used anonymously.

That is an important distinction. International researchers and the FBI have claimed that they can track transactions made on the Bitcoin blockchain to users' other online accounts, including their digital wallets. For example, if someone creates an account on Coinbase they must provide their identification. Now, when that person purchases Bitcoin it is tied to their name. If they send it to another wallet it can still be traced back to the Coinbase purchase which was connected to the account holder's identity. This should not concern most investors because Bitcoin is legal in the U.S. and most other developed countries.

Step One: Choose an Exchange

Signing up for a cryptocurrency exchange will allow you to buy, sell, and hold cryptocurrency. It is generally best practice to use an exchange that allows its users to also withdrawal their crypto to their own personal wallet for safer keeping. There are many exchanges and brokerage platforms that do not allow this. For those looking to consistently trade Bitcoin or other cryptocurrencies, this feature may not matter.

Step Two: Connect Your Exchange to a Payment Option

Once you have chosen an exchange, you now need to gather your personal documents. Depending on the exchange, these may include pictures of a driver's license, social security number, as well as information about your employer and source of funds. The information you may need can depend on the region you live in and the laws within it. The process is largely the same as setting up a typical brokerage account.

Step Three: Place an Order

Once you have chosen exchange and connected a payment option you can now buy Bitcoin and other cryptocurrencies. Over recent years cryptocurrency and their exchanges have slowly become more mainstream. Exchanges have grown significantly in terms of liquidity and their breadth of features. What was once thought of as a scam or questionable has developed into something that could be considered trustworthy and legitimate?

Step Four: Safe Storage

Bitcoin and cryptocurrency wallets are a place to store digital assets more securely. Having your crypto outside of the exchange and in your personal wallet ensures that only you have control over the private key to your funds. It also gives you the ability to store funds away from an exchange and avoid the risk of your exchange getting hacked and losing your funds.

While exchanges like Coinbase or Binance remain some of the most popular ways of purchasing Bitcoin, it is not the only method. Below are some additional processes Bitcoin owners utilize.

Bitcoin ATMs: Bitcoin ATMs act like in-person Bitcoin exchanges. Individuals can insert cash into the machine and use it to purchase Bitcoin that is then transferred to a secure digital wallet. Bitcoin ATMs have become increasingly popular in recent years; Coin ATM Radar can help to track down the closest machines.

P2P Exchanges: Unlike decentralized exchanges, which match up buyers and sellers anonymously and facilitate all aspects of the transaction, there are some peer-to-peer (P2P) exchange services that provide a more direct connection between users. Local Bitcoins are an example of such an exchange. After creating an account, users can post requests to buy or sell Bitcoin, including information about payment methods and price. Users then browse through listings of buy and sell offers, choosing those trade partners with whom they wish to transact.

Local Bitcoins facilitate some of the aspects of the trade. While P2P exchanges do not offer the same anonymity as decentralized exchanges, they allow users the opportunity to shop around for the best deal. Many of these exchanges also provide rating systems so that users have a way to evaluate potential trade partners before transacting.

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