Buying Bitcoin For Dummies (and Making Sure You Don’t Mess It Up!)
On July 26, London-based news organization City A.M. reported that retail giant Amazon has plans to start accepting bitcoin payments by the end of the year. The news comes shortly after Amazon made a job posting for a cryptocurrency and blockchain lead.
Despite the continued volatility of the crypto market, Amazon’s latest move confirms what many of us already knew: Bitcoin is here to stay.
In 2020, the Harvard Business Review released the results of a survey that indicates more than a third of small and medium-sized businesses in the United States accept Bitcoin – and that number is still currently growing.
As of today, many major retailers in the US accept Bitcoin. The list includes the likes of Microsoft, AT&T, Overstock, airlines like Virgin Galactic and Norwegian Air, and even fast food joints like Burger King, KFC, and Subway.
In addition to its growing mainstream appeal, Bitcoin also tops the charts when it comes to cryptocurrency investing, and it’s never too late to start. Here’s a guide on how to get in the game.
What is Bitcoin?
In case you’ve been living under a rock, we’ll start with a little overview.
Bitcoin is a decentralized digital currency that was launched by Satoshi Nakamoto in 2009. Satoshi Nakamoto is a pseudonym and little is known about the creator.
Bitcoin uses a proof-of-work algorithm that enables secure peer-to-peer transactions on the blockchain. It was the first widely adopted application of the POW concept.
If all of that sounds confusing, here’s what you really need to know.
The price of Bitcoin continues to be volatile and has seen numerous ups and downs over the years.
Bitcoin’s first major jump occurred in 2001 when the price climbed from $1 to $432 in just three months, a 3,200% increase. However, that jump was short-lived. In 2013, four years after its launch, the price of bitcoin was just $13. By the end of the year, it would hit more than $700.
In 2017, the coin saw another major jump when it reached $20,000. The price fell soon after and remained stable for the next two years. In 2020, the price began to rally again. Bitcoin started the year at $7,200 and ended the year at $24,000.
In April 2021, the price of bitcoin reached an all-time high of more than $63,000 but has since fallen. As of this writing, the price of bitcoin is hovering around $40,000.
While the high price of bitcoin might seem like a barrier to entry, experts predict the coin will only continue to increase in value. One 2020 report predicted that the price of bitcoin could reach nearly $400,000 by 2030.
Ready to get started? In the next part, we’ll help you understand the basics of cryptocurrency trading.
Understanding The Marketplace
What’s an exchange?
Cryptocurrency exchanges allow users to buy, sell, and exchange Bitcoin and other digital currencies for traditional currencies. Some of the top exchanges trade in a variety of different types of cryptocurrencies while others specialize in one specific type.
The different types of exchanges include trading platforms, direct trading, and brokers.
- On direct trading platforms, there is no fixed market price and sellers can set their own exchange rates. Direct trading platforms enable users to make person-to-person trades.
- Conversely, traditional trading platforms serve as a middleman, connecting buyers and sellers and collecting a fee for each transaction.
- Meanwhile, on broker websites, cryptocurrency prices are established by the broker running the site.
For example, Bisq is a decentralized bitcoin exchange network. The open-source desktop application allows users to buy and sell bitcoins in exchange for national currencies, or alternative cryptocurrencies.
Another option is Cash App. The mobile peer-to-peer transfer application is an easy-to-use option for buying and selling bitcoin and also allows users to withdraw bitcoin.
Sounds simple right? But not so fast, before you can start buying, you need a wallet. We’ll cover that next.
What’s a wallet?
In order to make your first bitcoin purchase, you first need a crypto wallet. These software applications allow you to make transactions and keep track of your balance. But unlike physical wallets in the real world, they don’t actually store currency.
Bitcoin is stored on the blockchain which is responsible for recording transactions. Your crypto wallet lets you easily access this information and interact with the blockchain. So your crypto wallet isn’t really a wallet in the traditional sense, it’s more like the teller at the bank, facilitating transactions and helping you check your balance.
Wallets are a means of storing the public and private keys necessary for you to interact with the blockchain. Your public key or address is made up of a randomly generated string of case-sensitive letters and numbers. It’s what allows you to purchase cryptocurrency. Your private key or password is what enables you to write in the public blockchain ledger and spend cryptocurrency. It allows you to make transactions and access any cryptocurrency that’s shared with you.
There are many different wallets you can choose from for storing this vital information. In order to decide which wallet is right for you, it’s important that you understand how wallet software and cryptocurrencies work.
As previously discussed, some exchanges are one-stop shops for crypto. Exchanges are a popular way to make purchases and some offer their own wallet. However, exchanges aren’t the most secure option for storing the bitcoin you buy. There have been several cases of exchanges being targeted by hackers and users have lost money as a result of these cyber-attacks.
A more secure option is full node wallets, though they’re not necessarily the best option for beginners. These wallets require users to download the entire bitcoin blockchain, which requires many gigabytes of storage. However, there are also light clients wallets that don’t require users to download a full blockchain. These wallets are more secure and also a good option for newbies.
Leading the pack in security are hardware wallets – which thankfully don’t connect to the internet. This reduces the risk of digital theft, but these wallets are a big investment. Still, for those looking to store large amounts of bitcoin, they’re the best option.
While all of this might seem daunting, there is one more option that combines security and ease of use to reduce the barrier of entry for newbies. Desktop, mobile, and online wallets are easy to set up and less intimidating than other options that require a hefty investment and deep knowledge of blockchain technology. Many of these wallets allow users to both buy and store their crypto on one platform.
The simplest option in this category is mobile wallets which are designed to provide a streamlined and efficient Bitcoin buying process.
Mobile wallets bring the buying experience right to your fingertips. Since they are light wallets, users aren’t required to download the entire blockchain. Instead, mobile wallets rely on miners and nodes to relay accurate information about the current state of the bitcoin network. These wallets are perfect for buying, selling, and making other transactions on the go. All you need is a connection and you can easily make transactions from your smartphone or tablet.
Now let’s look at some possible options.
The Best Bitcoin Wallets
This was the first mobile wallet option on the market for bitcoin and it’s still one of the best. BRD wallet doesn’t require users to create an account so there’s no login. This enables users to hold their own keys and send and receive Bitcoin anonymously. Users can buy Bitcoin directly through the app or transfer bitcoin purchased via an exchange. BRD also offers users rewards like 25 percent off trading fees. The application is available in 170 countries for iOS and Android devices.
This is a more advanced option for crypto enthusiasts, but once you get the hang of it, you’ll appreciate its extra bells and whistles. Electrum is one of the original Bitcoin wallets on the market, which means it’s not much to look at in the interface department – but what it lacks in appearance is made up for through its security. This includes encrypted private keys that never leave your computer. That means your private keys are kept offline, giving users the ability to go online with a watching-only wallet.
This is another great mobile option for beginners. Like BRD the mobile application has an intuitive user interface and a built-in exchange. Exodus also offers desktop and hardware wallet platforms. One of the benefits of this wallet is that it allows users to set custom fees to keep their transaction costs low. For transactions that need to be done quickly, users can also allow the platform to set an automatic fee.
This Bitcoin-specific wallet is another mobile-only entry on our list, though it also supports ETH and ERC-20 tokens. Like Exodus and Electrum, Mycelium allows users to set customized transaction fees. The wallet also boasts a number of security features like watch-only accounts and several levels of pin protection in addition to hardware wallet support, which lets users hold their Bitcoin in an offline storage device while using Mycelium’s user interface to monitor their holdings.
While most of the wallets on this list are mobile applications for ease of use, we’d be remiss if we didn’t include one hardware wallet option. When it comes to security, Trezor can’t be beaten. Security features include firmware verification, an ultrasound hardware seal, and protected key operations. This open-source software also has built-in exchanges and a web-based user interface. But before you commit, make sure you’re ready to make an investment.
This other multi-currency hardware wallet option hailing from Paris, France offers offline private key storage units (for over 27 coins and over 1,500 tokens) in the form of the Ledger Nano S and the Ledger Nano X wallets. The key difference between the two models is that the Ledger Nano S is cheaper and integrates a certified secure chip to allow users to store at least three up to twenty applications in it. Ledger Nano X, on the other hand, is almost twice the price of Nano S and makes use of the same technology- but with enhancements such as being able to add up to 100 applications and Bluetooth compatibility.
Let’s Get To It – Here’s How To Actually Buy Bitcoin For Dummies
Now that you understand the basics of buying bitcoin, let’s take you through the process. For this example, we’ll use BRD.
- Start by downloading the BRD app on your chosen mobile device
- Once you open the app click “Get Started”
- Next you’ll need to create your 6 digit PIN and confirm it on the next page. Once you’ve read the information about your recovery phrase, click “Generate Recovery Phrase” to get your 12 word phrase. Then write it down.
- Now you’re ready to buy. On the home screen, click “Buy/Sell”
- In the “Pay With” section, enter the amount you would like to purchase. In the “Receive” section, select Bitcoin from the list of currencies available for purchase
- You’ll also need to select your payment method
- Next you’ll need to select an offer. From there, you’d need to review the order summary and click “Confirm & Buy” to proceed with your purchase
Congratulations, that’s it. Welcome to the bitcoin game.