the exchange account. Valid Bitcoin payment methods include bank accounts, debit cards, and credit cards. It's also possible to get bitcoin at specialized ATMs and via peer-to-peer (P2P) exchanges.
Bitcoin's value comes primarily from market speculation but also from its store of value, use as a payment method, and finite supply. Because a Bitcoin wallet or exchange account can be compromised, it's vital to learn about safe storage and take the necessary crypto security measures. Exchanges and service providers such as Coinbase, PayPal, Robinhood, and others sell bitcoin.
Privacy and security are important issues for Bitcoin users. Investors who gain the private key to a public address can authorize transactions. The private key
is a cryptographic code similar to a password that allows a user to transfer cryptocurrencies from their wallet on the Bitcoin blockchain. Private keys should be kept secret, and investors must be aware that the balance of a public address is visible.
Individuals can create multiple public addresses and distribute their collection of bitcoin over many addresses. A good strategy is to keep
significant investments at public addresses that aren't directly connected to those used in transactions.
Bitcoin transactions are more traceable than cash transactions
because they are available for public viewing. However, it is very difficult to determine who
is transacting unless the address is associated with an exchange account—which is required if the user wants to convert their bitcoin to fiat currency.
This is because when you create an account on a regulated exchange that can convert cryptocurrency, you must provide
identification. This is called Know Your Client (KYC) and is required by law in many countries to assist law enforcement's
efforts to combat money laundering and terrorism financing.
Before buying bitcoin, be sure to check out the legal, regulatory, and tax status of purchasing it where you live.
Step 1: Choose a Crypto-Trading Service or Venue
Exchanges are a convenient option because they offer a breadth of features and more cryptocurrencies for trading. Exchanges also enable
investors to buy, sell, and hold cryptocurrency and allow users to transfer crypto to their online wallet for safekeeping.
There are many cryptocurrency exchanges, but there are only two types—centralized and decentralized. Decentralized exchanges allow users to
remain pseudo-anonymous and generally don't require personal information. For certain demographics, including refugees or those living in countries
with little to no infrastructure for government credit or banking, decentralized exchanges allow access to the global economy.
Popular exchanges in the U.S. and many other countries are centralized and follow laws that require users to submit identifying documentation.
These exchanges include Coinbase, Kraken, Gemini, and Binance; they offer Bitcoin, a growing number of altcoins, and fiat exchange services.
When creating a cryptocurrency exchange account, use two-factor authentication and a long, unique password that includes a variety of lowercase
and capital letters, special characters, and numbers.
Step 2: Connect Your Exchange to a Payment Option
Depending on the exchange, personal identification can be required, which may mean that you have to include a picture of a driver's license or
Social Security card, as well as information about your employer and source of funds. The process is largely the same as setting up a typical brokerage account.
At most centralized exchanges, you can connect your bank account directly or link it to a debit or credit card. Although you can use a
credit card to purchase cryptocurrency, cryptocurrency price volatility could inflate the overall cost of purchasing a token when combined with a
credit card's interest charges. Bitcoin is legal in the U.S., but some banks may question or even stop deposits to crypto-related sites or exchanges
without being notified of the activity by a customer.
Fees vary for deposits via a bank account, debit, or credit card, and exchanges also charge fees per transaction.
Step 3: Place an Order
Cryptocurrency exchanges have evolved and now mimic the same features as their traditional brokerage counterparts. Crypto exchanges offer
several order types and ways to invest or trade. Almost all crypto exchanges offer both market and limit orders, and some also provide stop-loss orders.
Kraken offers the most order types, which include market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders.
Exchanges also offer ways to set up recurring investments, allowing clients to dollar-cost average their investments of choice.
Coinbase, for example, lets users set daily, weekly, or monthly recurring purchases.
Step 4: Safe Storage
Cryptocurrency wallets are a place to store digital asset keys. Keeping crypto keys off an exchange and in a non-connected wallet (cold wallet)
ensures that users have control over the keys. Investors can use the wallets offered by exchanges, but it's not recommended
for large or long-term cryptocurrency holdings.
You can buy Bitcoin through a payment processor like PayPal Holdings Inc. (PYPL). There are two ways to purchase Bitcoin using PayPal: You can connect your
account to a debit card or bank account or use the balance of the PayPal account to buy cryptocurrencies from a third-party provider.
You may also use PayPal to directly buy four cryptocurrencies: Bitcoin, Ethereum, Litecoin,
and Bitcoin Cash.and PayPal's own stablecoin, PayPal USD (PYUSD). U.S. residents can use their existing PayPal accounts or set up a new one to buy bitcoin.
Additionally, you can use your cryptocurrencies to purchase products and services through the "Checkout With Crypto" feature.
When you buy bitcoin directly from PayPal, it earns money from the crypto spread, or the difference between Bitcoin's market price and its exchange rate with the U.S. dollar.
For each purchase, PayPal also charges a transaction fee, which depends on the dollar amount purchased.
You can send crypto, including bitcoin, from PayPal to an external digital asset wallet that you own and control, or to one owned and controlled by another person like a friend or family member.
To send your bitcoin outside of PayPal, you will need to provide the wallet address where you want to send the assets. If you are sending bitcoin, you must use a wallet that accepts it.
The social trading and multi-asset investment company eToro is among the few online traders that allow bitcoin purchases using PayPal.
Using credit cards to buy bitcoin is similar to using debit cards or automated clearing house (ACH) transfers. However, not all exchanges
allow you to buy Bitcoin with credit cards due to associated processing fees and the risk of fraud.
Credit card processing can add extra charges to these transactions. In addition to paying blockchain transaction fees, the exchange may pass on processing fees
to the buyer. Credit card issuers treat bitcoin purchases as cash advances and charge hefty fees and interest rates on them.
For instance, American Express users will pay the current cash advance fee for such transactions, and the fee charged will vary by exchange. The credit
card company also limits users to $1,000 worth of bitcoin purchases per month.
Bitcoin ATMs
Bitcoin ATMs act like in-person bitcoin exchanges. Individuals can insert cash into a machine and use it to purchase bitcoin,
which gets transferred to their wallet. Bitcoin ATMs have become increasingly popular in recent years and are even available at the retail giant Walmart Inc. (WMT), among other places.
Bitcoin ATM use requires government-issued IDs.
Two charges are associated with ATM bitcoin purchases: a purchase fee and a conversion fee for converting a fiat currency to bitcoin. Both fees
are fairly steep compared with those of other options. For example, CoinHub charges a markup of 12.5% and a retailer fee of $4.95 above the Bitstamp spot rate.
P2P Exchanges
Some P2P exchange services provide a more direct connection between users. LocalBitcoins is 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 prices.
Although P2P exchanges don't offer the same anonymity as decentralized exchanges, they give users the chance to shop around for the best deal.
Many of these exchanges also provide rating systems so that users can evaluate potential trade partners before transacting.
Mainstream Brokerages
Robinhood Markets Inc. (HOOD) is one exchange that offers crypto trading. It charges a 0% commission for cryptocurrency trades and purchases
and makes money from the payment for order flow, passing its trading volume on to other trading platforms or brokerage firms. Robinhood has
enabled trading on its platform for these cryptocurrencies, among others: Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Dogecoin, and Ethereum Classic.
In contrast, you can trade thousands of cryptocurrencies on Coinbase, and beginning in 2022, traditional brokers like Fidelity Investments began to include bitcoin in 401(k) accounts.
Bitcoin and other cryptocurrency investments are not protected by insurance from the Securities Investor Protection Corp. (SIPC). At regular brokerages,
the agency protects against the loss of securities and cash in brokerage accounts containing up to $500,000, with a $250,000 cash limit.
Cryptocurrency exchanges such as Coinbase have crime insurance to protect their infrastructure against hacks. But that insurance doesn't
protect individual customers from password theft.
You can sell bitcoin at the same venues where you purchased the cryptocurrency, such as cryptocurrency exchanges and P2P platforms.
Typically, the process of selling bitcoin on these platforms is similar to the process of buying it.
Most cryptocurrency exchanges charge a percentage of the crypto sale amount as fees. For example, Coinbase says it may charge a fee when
a customer cashes out their crypto, depending on the payment method selected.
Exchanges generally have daily and monthly withdrawal limits. Therefore, cash from a large sale may not be immediately available to the trader.
However, with Coinbase, for example, there is no limit on the amount of cryptocurrency you can sell.
The best way for a beginner to purchase bitcoin is to create an account on a reputable and regulated exchange, fund it, and make a purchase.
Buying bitcoin can seem complicated if you haven't done it, but it's relatively simple.
It just requires an account at a service or an exchange and a way to store your purchases safely.
To buy bitcoin, you must select an appropriate service or venue, connect with a payment method, place an order,
and ensure stable storage for purchased cryptocurrency. Each of these steps requires research and
a careful assessment of the pros and cons of the relevant service.
Bitcoin is available at bitcoin ATMs or from payment services like PayPal and mainstream brokerage firms like Robinhood or Coinbase.