Investing in the right currencies can give you profits But, the gateway to all cryptocurrencies is via Bitcoin - the apex cryptocurrency.
Now that you know the theory aspect of Bitcoins - what they are, how they came to be, and how they function, it is now time to get your hands in the action and buy some bitcoins. However the biggest challenge that many people face is that they do not know how to buy Bitcoins.
There has been a growing debate over mining not being profitable any more, and even if it is profitable right now, in the near future it won’t be. There are many who debate for and against this. However there are always going to be more traders than there are miners. A majority of people involved in the cryptocurrency business would rather trade these currencies than mine for them as it is not only more convenient, but also allows users to trade online anonymously.
There are a number of marketplaces on the internet where Bitcoins can be bought and sold. To buy these Bitcoins there are a number of payment methods too. Let us take a closer look at all the options that you have when it comes to buying Bitcoins. After this is done, we will give a closer look to buying various cryptocurrencies too.
Also note that in this chapter we will be giving you an overview of things to follow. Every method listed here has a dedicated chapter of it’s own where we discuss in detail the process to buy Bitcoins.
First things first. Bitcoin Wallets are the most primary requirement to buy Bitcoins. You can’t buy Bitcoins unless you have a place to store them at. We have discussed Bitcoins wallets at length in our dedicated chapter. However, here’s a quick overview.
Bitcoin wallets can be thought of as digital bank accounts to store your Bitcoins. There are a number of types of bitcoin wallets available. Without going into the specifics of these wallets, simply put these are the options you have -
There are some wallets which store Bitcoins on your Hard Drive.
Online wallets (web based services)
Vault services where you can store your Bitcoins in removable storage devices
Multisig wallets where you need more than one person’s permission to withdraw funds.
Each wallet comes with a public address and a private key. The public address is for you to give to people when they want to transfer money to your wallet. The private key is meant for you and for you only. Never share your key with anyone. It acts as a ‘password’ to your account.
Most online wallets allow you to buy Bitcoins directly via them. Others just allow you to store them.
For more details on choosing the right Bitcoin Wallet for yourself, you can refer to our comparison of some of the best Bitcoin Wallets.
Now that you have a Bitcoin Wallet, let us take a look at the ways you can buy Bitcoins from:
Think of an ‘Exchange’ as a stock market. This is where you come to pay money and get stocks. There are a large number of Bitcoin Exchanges in the markets. While we have a detailed chapter discussing Exchanges, let us take a quick overview at the different kind of exchanges -
Broadly speaking, there are two kinds of exchanges:
Those which allow you to buy cryptocurrencies in exchange for fiat currencies
Those which allow you to buy cryptocurrencies in exchange for other cryptocurrencies.
While both of them play a critical role, the kind of exchange we are looking at right now is the first one - the one that allows you to trade fiat currencies for cryptocurrencies. These exchanges let you buy Bitcoins in exchange for your fiat (govt backed) currencies.
You can either buy Bitcoins from the exchange itself, where the exchange acts as a broker and sells you Bitcoins at a fixed amount which is based on the rise and fall of the BTC vs USD prices, or you can buy from other traders on the exchange who may sell you at prices slightly lower than the going rate.
Not only can you just buy from these exchanges, you can also sell your currencies here - either at the going rate to the exchange, or at a higher or lower price.
There are a large number of Bitcoin Exchanges. However, there’s always a risk associated with buying, trading and keeping your money with exchanges. Some of the best Bitcoin exchanges where you can buy and trade Bitcoins are: CoinBase, CoinJar, Unocoin, BitStamp, Kraken and Circle. The best bitcoin exchanges when it comes to trading altcoins in exchange for Bitcoins are Bittrex and Poloniex. (Check out our complete list of Best Bitcoin Exchanges)
Most exchanges involve a KYC (Know Your Customer) process where you would be asked to submit your identity verification documents as well as go through an AML (Anti Money Laundering) process which makes sure the money you invest in cryptocurrencies is not ‘black money’ and is accounted for.
There are different exchanges based on the location you are based at. It is best advised to buy from a trusted local exchange as that will help you avoid currency conversion charges.
Despite being one of the most popular methods of online payment across the world, it is surprising that it is still hard to buy Bitcoins using PayPal. In fact, it is one of the hardest methods of buying Bitcoins and support for PayPal is extremely rare.
However if you are hell-bent on making use of PayPal as a means of buying Bitcoins, you could make use of VirWoX - a service which will help you do so. Technically even VirWoX is not a Bitcoin Exchange but it helps you buy Second Life Lindens - which is a virtual currency used in the virtual world Second Life.
These Second Life Lindens (SLLs) can then be traded for Bitcoins. While this is one of the most trusted and popular methods to buy Bitcoins via PayPal, it is quite hard and time consuming and not advised to beginners to try out. Moreover, this process of buying Bitcoins comes with a high payment fee, is time consuming and has a limit set to your account at first.
While most exchanges do not allow buy Bitcoins using PayPal, you can sell them and withdraw funds using PayPal. However, even then it comes with a fees of almost 3% on an average (varying from exchange to exchange). There have been rumors of PayPal providing support for Bitcoins but they have been growing around for years with no actual support ever coming out.
However, for those who still want to buy Bitcoins using PayPal, VirWoX is your best shot for now. It is surprising that even high profile exchanges do not support trading over PayPal. If you are looking for an alternative to VirWoX, you might also want to give Paxful a shot.
Also Read: How to Mine Bitcoins
Another popular payment method is to buy Bitcoins using Debit Cards and Credit Cards. While this is the most common payment method for most things in life these days, buying Bitcoins using Debit Cards or Credit Cards is often associated with a high fees.
It is hard to imagine that there was a time when buying Bitcoins using Debit and Credit cards used to be quite hard and most people avoided the payment method. However over the last one year, with the massive boom in the popularity of Bitcoins, a number of exchanges have now added support for Debit Cards and Credit Cards.
Some popular exchanges which support buying of Bitcoins over cards are: CoinBase, CoinMama, BitPanda and CEX. We will take a detailed look at each of these exchanges and outline the steps of how to buy Bitcoins using debit and credit cards in an upcoming chapter.
There are two major problems when it comes to buying Bitcoins over Credit Cards or Debit Cards
The less likely of the two is Credit Card Fraud. There’s a slight chance that your credit card or debit card information might be stolen and you might end up losing money. This is extremely rare though, thanks to multiple security measures these days.
Second reason why people do not prefer to buy Bitcoins using Credit Cards and Debit Cards is that you are allowed only to buy a certain amount of Bitcoins per week. Moreover, the transaction charges are quite high.
A question many people tend to ask around is - that is it possible to buy Bitcoins using cash. Well, as strange as it might sound, yes, it is possible to buy Bitcoins in exchange for cash. There are some exchanges which accept cash as a method of payment. These Cash Bitcoin Exchanges support deposit of cash in exchange for bitcoins being credited to your account.
These exchanges include the likes of LocalBitcoins, BitQuick, Wall of Coins, Bitit, LibertyX among others.
A major advantage here is that buying Bitcoins against cash is one of the safest ways of buying them. This is especially safer if you are making use of an escrow service which acts as a mediator between the buyer and the seller. Another advantage is that of privacy. Since the transfer isn’t really taking place via bank channels in some of these cases, the Bitcoins go to your wallet directly without your identity being revealed.
One argument against cash purchases is that it promotes the flow of black money in the system, and promotes money laundering. Traders can sell Bitcoins in exchange for cash which will be with them, and will be unaccounted for in the banks. This is bad for the economy at large and might be illegal in some countries.
Often, in these cash transfers, the buyer and seller meet face to face and then make a transfer. The seller transfers Bitcoins to the buyer’s wallet address - the buyer checks it and then pays cash to the seller. Considering it’s a cash transfer and an unaccounted income, some sellers might sell it at a premium or at a discount depending on their need and the market sentiment.
Of late Bitcoin ATMs are also getting popular. They have begun to spring up all over the globe and offer a convenient way of buying Bitcoins.
You deposit your cash into the machine which the machine counts and converts to Bitcoins. You are then required to show your wallet QR code which the machine would scan and pay you with Bitcoins. Bitcoin ATMs usually charge a premium of around 3 to 5% over the going rate.
There has been a growing debate over mining not being profitable any more, and even if it is profitable right now, in the near future it won’t be. There are many who debate for and against this. However there are always going to be more traders than there are miners. A majority of people involved in the cryptocurrency business would rather trade these currencies than mine for them as it is more convenient.
We hope you have a better idea at how to buy Bitcoins with this. We will take a look at each of these payment options in detail in the chapters to follow.