The massive increase in bitcoin’s price in 2017 took curiosity levels in the cryptocurrency to heights never seen before. Although bitcoin’s price has fallen from its peak in late 2017, interest in bitcoin investing remains high.
Despite the publicity surrounding bitcoin, few know how to buy or sell bitcoins or other virtual currencies. However, if one learns the technology and knows how and where transactions take place, they can purchase bitcoins in a few easy steps.
Obtain a Digital Wallet
The first step involves gaining a digital wallet. This digital wallet allows for the buying, sending, receiving and tracking of virtual currency.
The term “digital wallet” can mislead users as it implies storage. A blockchain, which acts as a virtual ledger, performs the actual storage. Every bitcoin owner receives a new copy of the ledger every time a transaction takes place. This tracks who owns how much bitcoin and limits its supply.
Unlike a physical wallet which only stores cash, the digital wallet includes recordkeeping features which track the sending and receiving of virtual currency. Wallets can consist of mobile, desktop, hardware, virtual or even paper wallets. Each type of wallet comes with benefits and security issues.
A private key encrypts each digital wallet. This private key consists of a code that can be stored digitally or written down on paper. However, bitcoin owners should note that no other copy of one’s private key exists. If the owner loses their private key, the digital currency also becomes lost.
Also, if someone steals a private key, that leaves an entire digital wallet vulnerable to theft. Remember, the crypto world has no FDIC that can restore lost funds. Victims of theft will likely never recover their bitcoin, so this makes protection of one’s wallet and private key all the more critical.
Investors Have Many Options for Exchange of Bitcoin
Once a user obtains a wallet, three major options for buying bitcoin exist. One is a bitcoin exchange. An exchange acts as an online intermediary for both the purchase and sale of bitcoin using fiat currency or other cryptocurrencies.
Bitcoin’s website lists several of these exchanges that exist for this purpose. While such exchanges can help with buying or selling, they offer no security. Hence, users should keep digital wallets away from exchanges when transactions are not taking place.
Other options for bitcoin investing involve buying bitcoin directly from another person or business in a local area. A site called LocalBitcoins is often used for such transactions. This site will include reviews and feedback scores that will help locate a local seller.
A third option involves what’s called a bitcoin ATM. These consists of online or physical locations that allow for the deposit or withdrawal of money for the purpose of buying or selling bitcoin. Sites such as Coin ATM Radar can help people find a nearby bitcoin ATM.
Coinbase Can Further Simplify the Exchange of Bitcoin
A company called Coinbase has simplified the process of bitcoin investing. Coinbase became the largest bitcoin broker in the world by offering a digital wallet, some features of an exchange, and added security. This allows users to exchange cash in exchange for bitcoin or numerous other cryptos.
Once they obtain a Coinbase account, they can deposit money from a standard bank account, use that cash to purchase bitcoin and other cryptos, and place it in a digital wallet. From this digital wallet, customers can conduct bitcoin-based transactions with others. They can also exchange the bitcoin for U.S. dollars.
Coinbase also offers added security not available to other digital wallets. With Coinbase, if a breach in one’s account occurs, Coinbase includes insurance that will replace the bitcoin at no charge.
However, Coinbase does not allow investors to control their private keys. While that protects its depositors from forfeiting their bitcoin if the private key gets lost, the ease of use and security require the surrender of some control.
Due to the run-up in price, buying just one bitcoin has become costly. However, the design of bitcoin allows consumers to purchase fractions of bitcoins.
Each fractional bitcoin unit is called a “satoshi,” named after the alias of bitcoin’s founder, Satoshi Nakamoto. Each bitcoin constitutes 100 million satoshis. Hence, even if one only has $5 available for bitcoin investing, this modest investment could buy thousands of satoshis.
Bottom Line on Bitcoin Investing
Although many do not understand bitcoin investing, almost anyone can obtain the virtual currency in a few easy steps without investing large sums of cash.
Customers start by obtaining a virtual wallet. From there, they can find an exchange, an individual seller, or a bitcoin ATM and purchase or sell their crypto at any of these locations. Alternatively, they can turn to Coinbase for a wallet, an exchange and limited security in one location.
Small investors can invest by buying a few satoshis. Other larger investors can deal in whole bitcoins. Whatever one’s preference, obtaining bitcoin has become easy. By taking these simple steps, investors open themselves up to new possibilities.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.