How to Get Bitcoins
Getting Bitcoins can be a challenge. But, it will become easier once you understand how the process works.
I hope this simple guide gives you all the information you need.
Convenience and Safety
US Dollars (USD) are safe and easy.
US Dollars also have Security Features – but those are not what I’m talking about.
With Bitcoins and other cryptocurrencies, you have a choice that you didn’t have before.
But, that comes at a cost – and only you can decide if the cost is worth the benefit.
Convenience (easy) requires reducing Security. You see this with passwords every day. One of the most common easy passwords in use is “password”. Sure, it’s easy. But how secure is that? You’ve just traded security for convenience – and it’s a trade we all make every single day.
BTW, if you’re not using a password manager, you’re making a huge mistake. They are really good, incredibly safe and very easy to use. My favorite is 1Password. If you’re *not* using a password manager, you might need to think twice about how ready you are to get into Bitcoins and Cryptocurrencies. Seriously.
In most cases involving currencies, adding convenience to transactions usually requires a trusted third party.
You could use only USD cash. If you kept it in a safe and only carried exactly what you need, that would be relatively secure. But, how would you pay all of your bills? You’d need to visit a payment location with cash in hand for your mortgage, rent, utilities and other shopping.
That’s not very convenient.
So, you write a check or use a credit card instead. This requires a bank.
Banks are trusted third parties for your US Dollars (USD). In fact, they are *very* trusted because they are not actually required to keep a real USD for every USD that customers have on deposit. Most banks are Fractional Reserve Banks. This allows them to loan more USD than they actually have on reserve. This property of USD makes it “easy” for you to get and spend USD.
These trusted third parties and USD also provide a “safety feature” that is not available in Bitcoins. There are legal and illegal ways to acquire and spend US Dollars and the banks are required to help enforce these laws. As a result of this safety feature, a bank may withhold some or all of your funds for various periods of time. Your funds in a bank can also be legally taken away from you by others without your permission. Your transactions of acquiring and spending USD via trusted third parties are recorded and reported to you as well as a variety of other government agencies. All this helps keep you and your USD “safe”.
Bitcoins are designed to be trustless and do not require trusted third parties.
This feature increases the security and decreases the convenience of Bitcoins.
DYOR – Do Your Own Research
Nothing I tell you is true.
I am not a financial advisor.
Everything here is my opinion. I hope it is informative and helpful to you.
But, it is imperative that you Do Your Own Research.
I highly recommend that you at least Google the heck out of what I say – some of it will be wrong – not intentionally, but as a result of simplifying a complex set of topics to the point of incorrectness. If that happens, please let me know because I want to correct it.
Your understanding of the facts may differ from my understanding of the facts.
We’re dealing with real money here so be smart and DYOR.
Also, never invest more than you can afford to lose – seriously. Bitcoin is still a frontier and there are many places where you can easily be cheated or scammed. It hasn’t happened to me (yet) but I take a lot of precautions. One of those precautions is limiting my BBBC investments to money that I can afford to lose.
DO NOT BET THE FARM!
Converting USD to Bitcoin
Since Bitcoin is a cryptocurrency, you will need to buy or exchange your USD for Bitcoins.
I DO NOT recommend in-person or person-to-person purchases of Bitcoin. Since you are exchanging USD for BTC, there are some laws that can easily be broken by purchasing BTC from a person that you don’t know. There is also a very real risk of physical threats and danger. I’ve done this myself and it is sketchy at best – especially for the newcomer.
An exchange is a business that can legally accept USD for BTC. They are licensed by the US Government to perform this service. This is part of the safety features of USD. You must use this type of exchange to purchase BTC with USD.
Make No Mistake, this type of exchange is a trusted third party for BOTH USD and BTC. This is a safety feature of the USD and a necessary and temporary annoyance for BTC.
There are also exchanges that do not accept USD. They may or may not be licensed by the US Govt and are not concerned with the safety features of USD. You can use this type of exchange to purchase other cryptocurrencies with your BTC or vice versa.
As part of the safety features of USD, an exchange that is licensed to convert USD to BTC will require some information from you. This information is generally called KYC/AML which stands for Know Your Customer / Anti Money Laundering. This information allows the exchange to help enforce the laws that make the USD safe.
There are subtly different processes to comply with KYC/AML requirements but essentially, you will be required to provide a sufficient amount of information to convince the exchange that you are who you say you are and that you are not a “bad actor”. This can include sharing your name, address, driver license, passport and bank account information. See, you’re feeling safer already!
This process may also take a few minutes or several weeks – depending on how many other people are in the queue in front of you. Be prepared to wait for approval from the exchange to purchase BTC with your USD. This is sort of like renewing your driver license.
Wire Your USD or Connect Your Bank Account
You’ll need a way to move your USD from your pocket or bank account to the exchange in order to purchase BTC. There are a variety of ways and each exchange will have different choices.
The most common way to move USD from your bank to the exchange is by using Direct Deposit/ACH/Debit Card or Bank Wires. Direct Deposit is easiest but has a security risk. Bank wires tend to be expensive and slow but offer a level of security that ACH does not have. There’s that trade-off between convenience and security again.
There was a time when credit cards could be used to deposit USD into exchanges but since credit cards have a convenience feature that allows chargebacks and BTC does not have that feature, some folks figured out they could use credit cards to buy BTC and then charge back the USD so that they got BTC for free. That got shut down early in 2018.
In most cases, your first step will be to move some of your USD from your bank to the exchange. This will typically require you to wait for a few days for the USD to move from your bank to the exchange. Then, you can purchase your BTC with the USD you have on the exchange.
Some exchanges do not keep a USD balance and will pull the USD directly from your bank at the time of your BTC purchase. I prefer this approach.
In any case, be prepared to wait a bit more as your USD move around to the proper location.
BTC or BCH?
You will probably find that the exchange you chose offers both BTC and BCH.
BTC refers to Bitcoin and is the original and ongoing Bitcoin.
BCH refers to Bitcoin Cash or Bcash, which was a fork of the BTC chain in August of 2017.
Some folks in crypto-land who are fanboys of BCH will call BCH Bitcoin and call BTC Bitcoin Core.
Yeah, I’m sorry it’s confusing.
Look for the Ticker Symbol BTC.
If you make a mistake and accidentally purchase BCH instead of BTC, that’s OK. You haven’t lost anything, you’ve just purchased a different crypto and it is easy enough to exchange it for BTC. Email me if you’re confused and I’ll help you get it sorted out.
Make Your Trade or Buy Your BTC
Since you’re purchasing BTC for USD on an exchange, you’re actually making a trade in a market – just like you’d purchase a share of stock from the stock market.
You’ll have to decide on the price in USD that you are willing to pay for BTC.
In a market, you’ll see the current price and you’ll also see other offers to buy and sell BTC for USD.
A market consists of people offering to buy BTC in exchange for USD at a certain price and people offering to sell BTC for USD at a certain price.
A trade only occurs when a buyer and a seller agree on a price.
The current price or market price is simply the most recent price for a successful trade.
The easiest purchase of BTC is at the market price. This trade will happen almost instantly.
If you want to purchase BTC at a certain price, you will place a LIMIT ORDER at that price and your offer will join the list of all the other offers. If another seller likes your price, they will accept it and your trade will be complete at that time.
I recommend purchasing BTC at the market price unless you have a specific reason for placing a limit order.
Pay Your Fees
Exchanges are somewhat like banks in that they are commercial enterprises and expect to earn a profit for the work and value they provide to you. You do this by paying fees. You’ve seen those from your bank already, right?
Exchanges charge small(ish) fees for a variety of activities. It is very worthwhile to know the fee structure of the exchange you use so that you can be clear about your choice for safety Vs convenience.
Some exchanges offer free(ish) trading while on the exchange but charge fees when you move your BTC off the exchange (more on that later).
Some exchanges just charge a flat or percentage fee for each trade.
Some exchanges do both.
DYOR – Do Your Own Research.
Owning Your First Bitcoin!
You now own some Bitcoin!
You have the exchange’s (trusted third party, remember) promise that they have exchanged your USD for BTC. You also have an account on the exchange that shows you have BTC, just like your account at your bank shows that you have USD.
But, you really don’t own Bitcoin until you have them in your own wallet and your keys are stored in that wallet.
Not to worry, if the exchange you chose is licensed to trade USD for BTC, then it’s probably as safe and secure as a bank.
Your BTC will be fine there until you’re ready to get your own wallet.
I’ll cover setting up a wallet next time.
How To Get Started
I recommend Coinbase as your first exchange.
Coinbase is like almost any other financial services business – they have pros and cons and fans and haters. DYOR.
The reason I like Coinbase for newcomers is that they make it really easy to buy BTC with USD.
And, that’s about all I need them for.
I use other exchanges for trading cryptocurrencies because they provide better services and value for trading.
I use Coinbase to purchase Bitcoins because it is very easy to do.
A Shameless Plug
If you’d like to get an account on Coinbase, you can use the referral link below and we will both get $10 USD in BTC when your investment reaches $100 USD. This is entirely anonymous to me and I never see your name or your amounts. I just get a notice that a person that used my referral link and I have earned a reward in BTC.
Thank you very much if you use this approach and link.
The Rules of Bitcoin
- Always talk about Bitcoin.
- Never talk about Your Bitcoins.
Mastering Bitcoin – Andreas Antonopolous
Curated Bitcoin Resources by Jameson Lopp
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BBBC #0 – How I Got Started
BBBC #1 – What’s a Blockchain?
BBBC #2 – What’s a Bitcoin?
BBBC #3 – What Do You Believe?