A Beginner's Guide to Buying Bitcoins

This article first appeared in print edition 4.1 of yBitcoin. Click here to see the full issue. Click here to order your copy.

By Diana Ngo

As Bitcoin’s value rises and more people around the world become interested in investing, brand-new users are still plagued by a fundamental question: How can I buy bitcoins?

That’s why we’ve included this handy “Beginner’s Guide to Buying Bitcoins.” This step-by-step instruction manual should provide everything a new user needs to know to get started with their investment.

But before moving too far, it is crucial that new users keep in mind that safety is imperative. Since cryptocurrencies are still in a regulatory gray area throughout the world, consumers need to conduct due diligence and their own research before using a service and depositing money anywhere.

 With that disclaimer out of the way, it’s time to get started.

1. Choose a Bitcoin Wallet

Choosing a good bitcoin wallet is one of the most important aspects of using the platform. Without a wallet, you cannot, technically, have bitcoins. But finding a good and secure solution isn’t an easy task, as it often comes down to a choice between safety and convenience.

There are many different wallet options out there and even more questions you need to ask yourself in order to find the right one. But making the right choice about where to store the private keys attached to your bitcoins is an important first step.

2. Choose a Bitcoin Exchange

With a wallet selected and set up, users will be ready to assess the different payment options for purchasing bitcoins. Many choose to do this through bank transfers or with credit cards, and this will mean selecting a bitcoin exchange.

 But before sending funds anywhere, users will need to do their own research and ensure that they are doing so safely. It is advised that they dig into these five elements: the exchange’s fees, payment methods, ease of use, security and customer service.

Fees: Some exchanges are very transparent about their fees while others are less so. It’s important to look into this before depositing money anywhere.

Payment methods: Payment methods that are often proposed include bank transfers, credit cards, PayPal and cash. Most places will accept either one or two of those methods.

Ease of use: Don’t try to use a decentralized exchange if you are still new to Bitcoin. Choose a service that accommodates beginners. Some are very user-friendly while offering more advanced features for experts.

Security: Bitcoin exchanges are known to get hacked, so it is crucial that you check whether a service follows security best practices. These include providing proof of coins in cold storage and offering and encouraging customers to use two-factor authentication, among other methods.

Customer service: Some exchanges are very fast to respond to customer queries, while others may take days to get back. At some point you will have to interact with support, so it is important to choose a service that is responsive.

Renowned and reputable bitcoin exchanges include U.S.-based Coinbase, Kraken and Gemini; Bitstamp from Luxembourg; and CEX.IO from the U.K. All of them accept credit cards and bank transfers.

If you are not based in either the U.S. or Europe and want to trade in your local currency, you can look for domestic or regional bitcoin exchanges. BTCC and Huobi, for instance, are two Chinese exchanges that offer yuan pairs. BitOasis, which is based in Dubai, serves the Middle East and North Africa.

3. Choose a Payment Method

Those preferring to utilize PayPal or cash to purchase bitcoins will have several providers to choose from.

Due to a fear of reversible transactions and “charge-backs,” few sites offer the ability to buy bitcoins via PayPal. Nevertheless, and despite the high fees involved, PayPal remains a convenient method.  

LocalBitcoins, an online marketplace and over-the-counter exchange platform, is the most popular option for purchasing bitcoins via PayPal. However, the biggest drawback is that most sellers will require you to have a community reputation and previous purchase history. This allows them to minimize the risk that bad actors will reverse the PayPal transaction while keeping the bitcoins obtained.

Other services include Paxful and WeSellCrypto. Advanced users can use Bitsquare, a decentralized bitcoin exchange that lets you trade directly with others in a relatively anonymous manner.

Meanwhile, purchasing bitcoins with cash will guarantee you the highest levels of anonymity. This can be done using a bitcoin ATM or physically meeting with someone and swapping your cash for their bitcoins. But keep in mind that not all bitcoin ATMs are anonymous, as some require ID submission. To find nearby bitcoin ATMs, check CoinATMRadar, an online website that lists all the devices available worldwide as well as their locations, features and fees. One research option for person-to-person exchanges is LocalBitcoins, which will allow you to find sellers in your area who are willing to sell their bitcoins for cash.

Fees associated with cash transactions are generally higher than buying via an exchange platform by bank transfer. Moreover, for large transactions, using cash can be quite inconvenient, as well as risky.

4. Welcome to Bitcoin!

Following these steps, as well as conducting your own research as necessary, should usher you into the world of bitcoin ownership. As you become more comfortable in the space, reassessing the payment and storage methods that are right for you will become necessary.

With bitcoin now in hand, you have taken the first step to embracing the digital currency revolution.