Cryptocurrencies aren’t just for the techies — in fact, anyone can safely purchase them. Bitcoin has exploded over the past year, creating over 100,000 “Bitcoin millionaires” to date. And some analysts believe it’s just the beginning. That said, investing in Bitcoin for the first time can be intimidating. Nobody wants to lose their money. And the truth is, without proper precautions, losing your money is a very possible outcome. That’s why in this guide, we’ll cover how to buy Bitcoin safely. By the end, you’ll realize buying cryptocurrency isn’t so intimidating after all — it’s actually pretty simple!
Before throwing your hard-earned money at Bitcoin, let’s make sure you understand what you’re investing in. Bitcoin (BTC) was created in 2009 and is considered the original cryptocurrency. Think of it as virtual cash that you store in digital wallets. Bitcoin is powered by blockchain, which is essentially a database spread across many computers requiring no centralized oversight. In other words, it’s a technology that can operate independently of banks and governments. The main benefits to Bitcoin are:
All investments have some element of risk, but there are a few unique Bitcoin risks you’ll want to be aware of before buying. The most obvious is Bitcoin’s inherent volatility. For example, on Feb. 21, 2021, one Bitcoin was worth $57,128.64. One week later, it plummeted to $45,092.81. Two weeks after that, it was over $60,000. These giant swings are not for the faint of heart, and there’s no telling if (or when) the bubble will burst. Bitcoin investing also comes with fewer protections than other types of investments and is not insured by the government. Apart from volatility, there are also security risks. If you don’t take proper precautions (which we’ll cover shortly), hackers will be looking for ways to sneak in and drain your accounts.
How to buy Bitcoin safely, step-by-step
Now that you’re aware of the risks, here’s how to safely buy Bitcoin in four easy steps.
Your first step is to decide where you’d like to purchase Bitcoin. You have several options:
There are hundreds of different exchanges to choose from, and they are not all created equal. As a beginner, your safest bet is to stick with well-known exchanges such as Coinbase, Kraken and Gemini. Each exchange is unique, so dig around to determine which one is best for you. Here are some factors to consider:
Each of the three recommended exchanges has a simple sign-up process: Just visit the exchange’s homepage and click “Get Started.” From there, you will have to set up your account and verify your identity. This process varies based on where you live and the exchange you choose. Be prepared to provide copies of your driver’s licence, social security card, employer information and documentation confirming your address. After passing the verification process, it’s time to connect your payment method and fund your account. This can be done via ACH bank transfers, debit cards, credit cards, wire transfers and sometimes even PayPal. Different exchanges charge varying fees based on the payment method you choose, so do your research.
While you can technically store your Bitcoins on the exchange itself, this is not recommended. If the exchange were to be hacked, you can say goodbye to your money. For safekeeping, you need a digital wallet. You can store your cryptocurrency in two different types of wallets: a hot wallet or a cold wallet. A hot wallet runs directly on your smartphone, tablet or computer. Your private keys — used to access your cryptocurrency — are generated on your internet-connected device. This easy access makes it convenient for active trading, but also convenient for hackers. A cold wallet, also known as a hardware wallet, is a physical device that stores your private keys offline. Think of it as a glorified USB drive. Whenever you want to buy or sell Bitcoin, you’ll need to connect your wallet. This protects you from hackers but is slightly less convenient for regular trading. If you plan to trade cryptocurrency frequently, you can use a hot wallet for the funds you’re actively trading and a cold wallet to securely store the rest. If you plan to buy and hold, a cold wallet is all you need.
Now for the fun part. The purchase process for each exchange is slightly different, but most include the following steps:
And there you have it — you are now a proud Bitcoin investor!
How to avoid Bitcoin nightmares
It’s one thing to know how to buy Bitcoin. It’s another to know how to buy Bitcoin safely. Let’s go over some safety ground rules.
Whether you believe in Bitcoin or not, the truth is nobody knows what its future holds. Expect the worst, hope for the best, and don’t invest money that you depend on.
When investing in cryptocurrency, don’t buy a cryptocurrency just because everyone else is doing it. Do your own research. Verify it with multiple sources, and don’t invest in anything you don’t understand.
Protect your funds with a complicated password, two-factor authentication, and a hard wallet. Print out multiple copies of your private keys and store them in different secure locations. That way if you ever lose your hard wallet, you can recover your funds.
Just like traditional investments, you must pay taxes on cryptocurrency-related income. You must report all capital gains and losses on your crypto investments. This includes the gains and losses that are realized when you purchase a product or service directly with Bitcoin, so make sure to keep a detailed record for tax time.
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