How to buy Bitcoin (BTC): A step-by-step guide
Before you buy Bitcoin, do your research on the world’s most popular cryptocurrency. Have a plan for how you want to use it, and don’t forget to factor in taxes if you plan to sell at a later date.
11 min read
Bitcoin is the world’s original and most popular form of cryptocurrency. Depending on who you talk to, it’s tipped to either be the future of finance or a bubble on the verge of bursting. As more people learn about this decentralized, peer-to-peer version of electronic cash, more of them are learning how to buy Bitcoin and how to weather its roller-coaster price fluctuations.
If you’re interested in jumping on the Bitcoin bandwagon, you’ve come to the right place. But before you rush to buy Bitcoin, it pays to understand what you’re actually buying. In this guide, we’ll review some of the financial concepts that underpin cryptocurrencies like Bitcoin and set you up with the knowledge you need to make your first purchase.
What to know before you buy Bitcoin
Before you buy your first Bitcoin, let’s cover the basics.
Bitcoin is a cryptocurrency—or crypto, for short. Cryptocurrency is a form of digital currency that uses cryptography to ensure secure transactions. These cryptographic techniques replace the need for a bank or other “trusted third party” to oversee transactions.
As the first cryptocurrency to promise a “purely peer-to-peer version of electronic cash,” Bitcoin pioneered many concepts that now underpin a growing number of cryptocurrencies. Perhaps most important is Bitcoin’s promise of a decentralized financial system that’s fast, transparent, and not dependent on the oversight of powerful institutions like banks.
Still confused? Let’s review some key points to understand Bitcoin and cryptocurrency before diving any deeper:
- Bitcoin is not physical money. Instead, it’s a type of digital token that can be sent electronically through a decentralized digital payment network.
- Unlike fiat money (i.e. government-issued currencies like the US dollar or euro), Bitcoin is not backed by a central regulating authority. Many cryptocurrencies, including Bitcoin, do not have intrinsic value. Instead, their value is based on supply and demand.
- There is a limited amount of Bitcoin. The “demand” for Bitcoin is created by the finite number of tokens available. Bitcoin is hard-capped at 21 million, whereas some other cryptocurrencies do not have a finite supply.
- Bitcoin is built on blockchain technology. A blockchain is a type of digital ledger that securely records transaction information. Bitcoin’s blockchain is decentralized, which means it depends on a peer-to-peer network of computers around the world to verify transactions.
- There are thousands of different cryptocurrencies. Bitcoin is the biggest and most popular. Between October 2013 and June 2021, its value increased by close to 30,000%.
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How to buy Bitcoin in 5 steps:
Now that you understand the basics of how crypto works, it’s time to look at how to buy Bitcoin, step-by-step.
First, this means getting familiar with the fundamentals of Bitcoin, deciding what you intend to do with it once you invest, and researching the crypto tax regulations where you live. Some people have skipped this last step—and it cost them a small fortune in unpaid taxes. Learn from their mistakes!
On that note, here’s a five-step guide to how to buy Bitcoin. We’ll start with a bit of education.
1. Do your research on Bitcoin and taxes
The first step to buying Bitcoin is to understand the philosophy behind it.
In January 2009, a person writing under the pseudonym Satoshi Nakamoto launched Bitcoin and the first blockchain network to support it. In his white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” Nakamoto introduced Bitcoin as a way to make online payments without going through a financial institution. What Nakamoto described was nothing short of revolutionary: a transparent financial system that still allows for secure, private individual transactions.
Because Bitcoin was specifically designed to be decentralized, world governments have struggled to consistently regulate it. For some, this is part of Bitcoin’s appeal. But for others, it adds an extra layer of uncertainty to Bitcoin’s prospects.
And uncertainty is a real problem, because Bitcoin is a highly volatile commodity, prone to fluctuating in value by double-digit percentages within the span of days or even hours. Owning Bitcoin is not for the faint of heart, but if you’re buying Bitcoin with a long-term view in mind, you may be better suited to weather its short-term fluctuations.
If you do decide to buy Bitcoin, you’ll need to take your country’s crypto tax regulations into consideration. Taxation laws vary depending on whether your country views cryptocurrencies as assets, securities, or currencies. In general, crypto may be taxed as income, capital gains, VAT, or otherwise. Before making your first purchase, read up on your country’s crypto tax policy—and remember to keep track of all your crypto activity.
2. Choose a crypto exchange or trading service
Next, you’ll need to decide where you’re going to buy your Bitcoin. One of the most popular and straightforward ways of doing this is to use a crypto exchange or trading service. Many exchanges allow you to buy cryptocurrencies directly, while some trading services instead offer exposure to cryptocurrency prices without the need to actually hold cryptocurrencies of your own.
Since Bitcoin is the most popular cryptocurrency in the world, you shouldn’t have trouble finding it on any crypto exchange or trading service you choose. But not every platform is made equal—many have varying transaction fees, registration processes, and terms of service. So, before committing to buying Bitcoin, make sure you’re comfortable with the terms and conditions of your chosen platform.
Also, be sure to research its reputation. Many people have fallen prey to fraudulent platforms that look legitimate. A good rule of thumb is to use the more established exchanges that have built up a solid reputation.
While crypto exchanges are a popular way to buy Bitcoin, there are alternative buying methods available to you. We’ll come back to those a little later on.
3. Store your Bitcoin in a secure crypto wallet
Once you’ve selected your crypto exchange, it’s time to decide how you want to store your Bitcoin. Broadly speaking, there are two options to choose from: a hot or cold crypto wallet.
While a hot wallet is connected to the internet and exists in a digital form, a cold wallet is a physical piece of hardware that exists offline. Let’s break this down further
- Hot wallets. There are several ways to open a hot wallet. The easiest is to use the hot wallet your crypto exchange offers you. These are known as “hosted wallets” and are generally free to use. One of the big advantages of a hosted wallet is that if you forget your password, there are usually safety checks in place to help you retrieve it. The biggest downside is that hosted wallets may be more vulnerable to hacker attacks. If that concerns you, you could consider opening a “non-custodial wallet.” This hot wallet isn’t affiliated with a third party (like an exchange) and only you can access it. This makes it harder to hack. But, if you lose or forget your password, it’s very difficult to retrieve it and your Bitcoin could be as good as lost!
- Cold wallets. If security is a priority for you, then a cold wallet may be the best option. Cold wallets (or “hardware wallets”) are essentially offline apps or pieces of hardware that look like USB sticks. They generally don’t connect to the internet, which makes them less vulnerable to hacks. Cold wallets cost around 90€. To use one you’ll need to transfer your Bitcoin into it from its original hot wallet, which may incur a small fee.
To learn more about the different types of wallets and how they store private key pairings, check out our guide to crypto wallets.
4. Fund your account
Once you’ve chosen which crypto exchange and crypto wallet you’re going to use, you’ll need to add funds to your account. This basically means adding fiat currency to a crypto exchange so you can exchange it for Bitcoin.
How to fund your account may vary from exchange to exchange. Typical methods include sending money via PayPal, a bank transfer, or a wire transfer.
Beware that different funding methods may come with different transaction fees. For example, the fee for funding your account via a wire transfer may be higher or lower than the fee for using PayPal. Transaction times may also vary depending on your chosen funding method.
5. Decide how much Bitcoin to buy and make your purchase
No matter how you look at it, Bitcoin is a risky asset to own. When deciding how much to buy, you need to size up the risks and the potential rewards. If you’re currently in debt or you haven’t got an emergency fund, you may want to focus on your financial security before entering the volatile world of crypto. Without a buffer to fall back on, you could be left high and dry if the value of Bitcoin plummets.
It’s also important to note that, unless you have (at the time of writing) a spare 36,000€, it’s unlikely that you’ll be able to purchase an entire Bitcoin. Instead, you’ll buy a fraction of a Bitcoin. However, because Bitcoin is divisible by eight decimal places, even if you only have as little as 50€ (roughly 0.00136% of a Bitcoin), you can still buy into Bitcoin.
Other ways to buy Bitcoin
As we mentioned above, there are several alternative ways to purchase Bitcoin that we’ll briefly address now. You could consider purchasing Bitcoin via a Bitcoin ATM, through a mainstream bank, crypto broker, or by using your credit card. Here’s how.
How to buy Bitcoin with a Bitcoin ATM
A Bitcoin ATM (or BATM) works exactly like a normal ATM, but it can only be used to buy or sell Bitcoin. With over 1,200 BATMs dotted around the world, you’ll first need to locate the closest BATM to you.
Once there, the BATM will ask you a couple of verification questions and will send you an SMS to confirm your mobile number. You’ll then need to enter your Bitcoin wallet receiving address, choose your payment method (you can typically pay using physical cash or a debit card), and specify how much you want to buy. Once complete, it should only take a couple of minutes before your newly purchased Bitcoin arrives in your wallet.
How to buy Bitcoin with a mainstream bank or brokerage
Instead of buying Bitcoin through a cryptocurrency exchange, you can also buy it through several mainstream banks or via a crypto brokerage. Using a brokerage is a particularly beginner-friendly way to buy Bitcoin if you’re new to the world of crypto.
Similar to a stockbroker, a crypto broker acts on your behalf, buying and selling crypto in alignment with their experience of the market. In exchange for their expertise, brokers typically charge a fee and may offer you buying and selling rates that they set themselves. Your Bitcoin wallet will typically be managed entirely by the broker, meaning that your Bitcoin will stay in the brokerage unless sold.
Alternatively, it’s often possible to link your bank account to several different crypto exchange platforms. This means you can send money through your bank to buy Bitcoin on a crypto exchange platform. However, whether your bank is compatible depends on the crypto exchange, your location, and the type of account you’re trying to link.
How to buy Bitcoin with a credit card
If your credit card supports 3D Secure, you may be able to buy Bitcoin with it. That’s not to say you should, though. Many banks may classify this purchase as a cash advance, which may mean you incur a higher interest rate on your transaction.
In general, buying Bitcoin with a credit card tends to be more expensive than using a bank transfer. Plus, if you don’t already have enough money to fund this purchase, buying Bitcoin on your credit card is risky as it could land you in a lot of debt.
What can you do with Bitcoin after you buy it?
So, once you’ve bought some Bitcoin—what next? Well, you have several options. You can:
- Do nothing! You can hold onto your Bitcoin with the idea that its value may continue to increase over time.
- Trade it. You can exchange your Bitcoin for fiat or other cryptocurrencies, though beware that trades may be considered taxable events.
- Buy things with it. Using Bitcoin to buy products and services is becoming increasingly popular. However, the adoption of crypto as a means of payment is proving slow.
How to keep your Bitcoin safe
The two biggest risks to your Bitcoin are hackers and your own memory. To keep your Bitcoin from getting hacked and stolen, consider using a non-custodial wallet or, for even more security, a cold wallet. Your Bitcoin may be most at risk from a potential hack when stored in a hot wallet on a crypto exchange. By moving it into a wallet that’s either free from third-party access (a non-custodial wallet) or from internet access entirely (a cold wallet), you can reduce this risk.
If you do opt for a cold wallet, you carry the risk of forgetting your private Bitcoin key code and not being able to retrieve it. A way to reduce this risk is to use a cold wallet that also offers a key recovery tool.
How to sell your Bitcoin
If you want to sell your Bitcoin, you can place a sell order on a trusted and secure crypto exchange. Here you decide whether you want to sell a portion, or all of, your Bitcoin.
Once sold, there may be a slight delay before receiving your money. As soon as the money lands in your exchange account, you can transfer the money back into your bank account. Alternatively, if you don’t want to use an exchange, you can also sell your Bitcoin via a Bitcoin ATM or peer-to-peer trading.
Is Bitcoin worth investing in?
Buying Bitcoin is risky. The market is incredibly volatile, with great highs and staggering lows. But, this is partly what attracts so many buyers—the parallels between crypto trading and gambling have been well-documented for a reason! So, if you’re going to take the plunge, enter with caution and make sure you’re financially secure enough to handle any big losses first.
How can I buy Bitcoin stock?
If you’re more interested in investing in Bitcoin as opposed to buying and being able to access your Bitcoin directly, you may be able to open an account with a crypto brokerage. A broker will then fully manage your Bitcoin investment.
How is Bitcoin taxed?
Bitcoin is taxed differently depending on your location. Before you buy any Bitcoin, it’s incredibly important to understand how your country taxes crypto. Many crypto investors have been caught out by not understanding the regulations and have had to pay back huge sums of tax.
Is Bitcoin a safe investment?
The short answer: No. Bitcoin is a volatile investment. Historically, its value has swung from great highs to great lows in a matter of days. If you’re looking for a safe, stable investment, it may be better to look elsewhere!
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