So after reading about it in the news enough, you’ve decided you want to buy Bitcoin. Many smart people you know are interested in it, and the risk-to-reward ratio seems to be in your favor. The question now is: how do you go about buying Bitcoin? It isn’t like any other investment you’ve bought before, because you can’t just call your broker and ask him to buy it for you.
Bitcoin is referred to as a decentralized currency, which means a lot of things we don’t have time to get into here, but also means that the big banks aren’t in control of its flow to consumers. The banks are becoming disintermediated – and that’s a great thing for investors – which means that consumers don’t have to go through them to purchase it.
This creates a situation where an investor pays much lower fees since they aren’t supporting the livelihood of someone else with their investments. The drawback that occurs is most people don’t know how to go about purchasing Bitcoin if they don’t have a broker to do it through. There are a few ways of going about doing this, but the most well-known way is using an exchange.
Exchanges Are Designed to Be Simple
The concept of a cryptocurrency exchange is rooted in a lot of the same ideas of a stock exchange. You are able to buy and sell assets after you quoted a rate, and the flow of assets is managed by a centralized entity for efficiency’s sake. The integral difference right now is that there are a ton of different cryptocurrency exchanges.
The exchanges are much more like startups than major institutions. There is competition between the companies, they are aggressively expanding, and the services vary widely. Many people are initially hesitant to use a cryptocurrency exchange because of the perceived “risk” involved in giving their credit card to an online entity. With the spread of e-commerce, this has gotten a lot better, especially as more of these companies are forced to register with regulators and the clients become more protected.
The risk is minimal in these exchanges. Your choice of exchange will depend upon your technical knowledge, trading needs, and required customer service. The fees vary from exchange to exchange, so it is best you do your research, but also realize that it is worth paying a little extra for a platform you trust.
We will focus on the process of buying Bitcoin on CEX.IO. The specific feature of the exchange is that you can choose from a number of payment options to be used when depositing your money into an account. These methods include credit/debit card, bank transfer and depositing via Crypto Capital account. The latter two are commission-free.
The Bitcoin purchasing itself is quite straightforward and easily maintained. CEX.IO allows their users to buy Bitcoin in several clicks through the Buy/Sell, where you can instantly get the desired amount of cryptocurrency under pre-defined conditions, or place a customized ‘buy’ order in the Trade section, where you will be matched to the most appropriate seller automatically. Using both ways you will ultimately end up having the intended amount of Bitcoin in your account.
Choosing a Wallet Service
Once you have chosen an exchange to purchase your cryptocurrency through, you next need to figure out where you are going to store your cryptocurrencies. Another term new investors won’t be familiar with is the “wallet” an investor uses to store their cryptocurrency. In the centralized investing model, the bank would manage custody. However, now that you are not paying fees to the bank, you need to find another way to manage your assets.
This is where the idea of a “wallet” came about. Your private keys (think of these as the codes to signify ownership of your cryptocurrency) need to be stored somewhere, and wallets are designed for this. There are many types of wallets. But the first choice you will need to make is between storing your cryptocurrency on the exchange or sending it to a different wallet service.
Many cryptocurrency exchanges have wallet services, but some do not, and will instead directly send your cryptocurrency to the public key you specify. Setting up wallet software on your desktop or mobile is easy, but if you want to avoid this step, just keep your cryptocurrency on-exchange and you will be fine.
Other Purchasing Options
Exchanges are the most beginner friendly options, but there are other ways of purchasing Bitcoin. Rather than dealing with a centralized entity, you can make the purchase from another individual who is looking to sell their cryptocurrency.
This works a lot more like a market, but because you aren’t dealing with a centralized exchange, there is both more risk and higher fees. Exchanges are designed for maximum efficiency, whereas when you use a decentralized service to purchase cryptocurrencies, you need to go through additional effort to facilitate the transaction.
There is also the factor that you can’t always trust other people. Some decentralized marketplaces do offer escrow services, but it can always feel shady trading large amounts of money in a public place. You wouldn’t do this with your stock trading account, that’s for sure.
Time to Get Started?
The natural human instinct is to go through a form of paralysis by analysis, where they fail to make a move because they are trying to learn more and more about a particular topic. You should definitely act as an informed investor, and the best thing you can do as a beginner is taking a small action by purchasing a tiny amount of cryptocurrency, that will help motivate you to learn more about it. Investing in cryptocurrency can be both risky and rewarding, so make sure you contribute the amount of money that can be easily sacrificed if anything goes wrong.
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