How to Buy Bitcoin in 2021 – A Beginner’s Guide
Looking to buy Bitcoins and don’t know where to start? You’ve come to the right place. By the end of this post you’ll know everything you need to know about buying Bitcoin safely and quickly.
Here’s a quick guide for buying your first Bitcoin:
- Get a Bitcoin wallet
- Locate your Bitcoin address
- Choose the amount of Bitcoin to buy
- You will be navigated to Binance, where you can enter your Bitcoin address and payment information
The Bitcoins will be sent to your wallet within a matter of minutes. If Binance doesn’t work out for you here are some additional reputable options:
Before You Begin
There are several things that every aspiring Bitcoin investor needs. A cryptocurrency exchange account, personal identification documents if you are using a Know Your Customer (KYC) platform, a secure connection to the Internet, and a method of payment. It is also recommended that you have your own personal wallet outside of the exchange account. Valid methods of payment using this path include bank accounts, debit cards, and credit cards. It is also possible to get Bitcoin at specialized ATMs and via P2P exchanges. However, be aware that Bitcoin ATMs were increasingly requiring government-issued IDs as of early 2020.
If you want a detailed explanation of each step and additional buying options keep on reading. Here’s what I’ll cover:
- When should I buy Bitcoins?
- Where Can I Purchase Bitcoin?
- Choosing a Payment Method
- Choosing a Bitcoin wallet
- How many bitcoins should you buy?
- Additional buying options
- Conclusion and resources
1. When should I buy Bitcoins?
If you’re looking to trade Bitcoins and are in it for the short term gain, you’ll probably need to get familiar with different Bitcoin trading techniques and try to time the market. If, on the other hand, you’re into Bitcoin for the actual technology and believe that Bitcoin has a bright future there are two ways you can go about this:
Dollar Cost Averaging (also known as DCA)
Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals. In effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. Dollar-cost averaging is also known as the constant dollar plan.
Buy regardless of the price
Long term believers argue that it doesn’t matter if you buy now or when the price is $200 or even $2000 lower. In the long term the price will go up and make these differences seem unimportant.
2. where can i buy bitcoin?
Where is the Best Place to Buy Bitcoin?
Regardless of the platform you choose, the main thing that matters is that you’re happy with your price and that you’ve found a reliable service to handle your business. As for me, I prefer to pay a little more for a quicker and more reliable service, hassle-free.
Types of exchanges
To help you find the right exchange, we need to make a distinction between brokers, trading platforms, and P2P platforms.
Brokers are sites that allow you to buy coins via their platform at a set price, determined by the platform. While being more expensive than other types of exchanges, brokers are the most simple to use and are therefor are very popular. Examples for a broker are CEX.io and Coinbase.
Simply put, trading platforms connect buyers with sellers indirectly. Sell orders are placed by sellers and picked up by buyers, with no direct communication between the two parties. A small fee is charged by the platform for providing the service.
Trading platforms, such as Binance or Kraken to name two, are usually the cheapest way to buy bitcoins, however, they are not the most user friendly. For one, order fulfilment is dependent on finding sellers willing to meet your offered price, which might take time. Additionally, some platforms, like BitMex offer advanced trading options such as stop losses or limit orders, which might confuse trading newbies.
Unlike trading platforms, P2P platforms enable buyers to communicate directly with sellers and vice versa. This direct communication allows the two parties to negotiate over the price.
However, this direct communication involves risk, since you are essentially sending money to an anonymous seller. On the upside, P2P platforms usually have benefits such as availability in multiple countries, more payment methods, and the like. Two examples of prominent P2P platforms are Paxful and LocalBitcoins.
3. Choosing a Payment Method
It may surprise you, but one of the more crucial deciding factors of how much you’re going to pay for your bitcoins is going to be your payment method, and there’s a good reason for this.
What Is a Chargeback?
Chargebacks are primarily a means of consumer protection; most often, they are initiated by consumers after fraudulent or erroneous charges, for example when they used their credit card to pay for a certain product but it was never delivered to them.
A demand is then made by the credit card provider for a retailer to make good on the loss on the fraudulent or disputed transaction, reversing said payment or money transfer after it was authorized.
The chargeback does not occur automatically nor instantaneously — the consumer must first successfully dispute the original charge and the final settlement can take up to several days.
Other potential reasons for initiating chargebacks include clerical errors like an accidental duplicate charge or technical issues that lead to mistaken charges. The threat of a possible chargeback incentivizes merchants to provide quality goods and services and be extra careful when charging their customers.
Additionally, chargebacks provide a measure of protection in cases of identity theft — when a person’s credit card is used without their knowledge or authorization with malicious intent.
On the flip side, consumers may also engage in chargeback fraud — deliberately trying to initiate a chargeback on a charge that they know was legitimate.
The impossibility of chargeback fraud in decentralized cryptocurrencies — where transactions are permanently recorded on the blockchain and are irreversible — is one of the key advantages offered to merchants if they choose to accept crypto payments.
Top Payment Methods for Buying Bitcoin
Credit Cards and Debit Cards
These are probably the most common payment method available. These days, many exchanges allow you to purchase bitcoins with a credit card. The main ones are Binance, Coinbase, Cex.io, and eToro. Buying bitcoins with a credit card will always require some sort of identity verification and in most cases will be relatively expensive. On the other hand, the verification process is just a one-time thing, and the waiting time for your bitcoins will likely be short.
PayPal will allow purchases of Bitcoin, Ethereum, Bitcoin Cash and Litecoin within the PayPal digital wallet.
In recent years, PayPal has become favorable of Bitcoin. However, it’s still an issue to find credible places to buy bitcoins with PayPal in 2021. This is mainly due to chargeback issues.
The two main methods that allow you to buy Bitcoins with PayPal are eToro and LocalBitcoins.
People sometimes might be more inclined to purchase Bitcoins using their bank accounts as this is probably the most convenient out of all the payment methods out there today. The reason for this is the fact that when you use direct payments using your bank, you do not need to think about anything anymore when you want to purchase Bitcoin online.
When bitcoins are bought with a wire transfer, once the money goes through to the seller, it cannot be charged back, no matter what. Naturally, many sellers prefer that you pay them using a wire.
Some websites, such as Paxful, connect buyers and sellers who are located nearby in order to conduct face-to-face Bitcoin transactions. Of course, buying bitcoins with cash is quick and usually cheaper. The downside to conducting transactions with cash is that you have to physically meet with the person. Also, you never know who you are dealing with when it comes to cash, so it’s important to take the appropriate steps to protect yourself.
The objective of KYC guidelines is to prevent businesses from being used by criminal elements for money laundering. Related procedures also enable businesses to better understand their customers and their financial dealings. This helps them manage their risks in a well-judged manner. Today, KYC principles apply to banks as well as different online businesses. They usually frame their KYC policies incorporating the following four key elements:
- Customer acceptance policy;
- Customer identification procedures;
- Monitoring of transactions; and
- Risk management.
The stringent regulatory environment establishes KYC as a mandatory and crucial procedure for financial institutions as well as non-financial institutions. As it minimizes the risk of fraud, by identifying suspicious elements earlier on in the client-business relationship.
4. Choosing a Bitcoin wallet
Bitcoins need to be stored inside a Bitcoin wallet. A Bitcoin wallet is a piece of software that helps you manage your Bitcoins (i.e. send them, receive them, store them). Just like in order to use email you’ll need Gmail, Outlook or a similar program, using Bitcoin requires a Bitcoin wallet.
When you buy Bitcoin from an exchange, it’s highly recommended that you move it from the exchange into your own personal wallet, so that you will be in full control over your coins.
If you fail to do so, you are at risk of losing your coins in case someone hacks the exchange, or even if the exchange will close down (hey, it happened before).
Bitcoin address and Private Key
A wallet usually holds two important pieces of information:
A private key in the context of Bitcoin is a secret number that allows bitcoins to be spent. Every Bitcoin wallet contains one or more private keys, which are saved in the wallet file. The private keys are mathematically related to all Bitcoin addresses generated for the wallet.
Because the private key is the “ticket” that allows someone to spend bitcoins, it is important that these are kept secret and safe. Private keys can be kept on computer files, but are also often written on paper.
A Bitcoin invoice address, or simply invoice, is an identifier of 26-35 alphanumeric characters, beginning with the number
bc1 that represents a possible destination for a bitcoin payment. Invoices can be generated at no cost by any user of Bitcoin. It is also possible to get a Bitcoin invoice address using an account at an exchange or online wallet service.
There are currently three invoice address formats in use:
- P2PKH which begin with the number
- P2SH type starting with the number
- Bech32 type starting with
Types of Bitcoin wallets
There are several aspects you need to be aware of when it comes to Bitcoin wallets.
A simple answer to what is non-custodial wallet is that it is a type of Blockchain wallet that lets you be your own bank. This implies that you have full control over your funds and on the associated private key.
These wallets serve users with two types of private keys to perform a transaction –
1. Seed phrase– It is usually a value of 12-24 word designed by encapsulating the real private key. This key, stored on the user devices, allows them to access multiple accounts simultaneously.
2. Raw Private Key – It is the actual private key in raw form (alphanumeric string), which is also stored on the user device.
Today, there are various non-custodial wallets available in the marketplace, while a number of others are getting added on an everyday basis, purely because of the benefits that non-custodial wallets carry over custodial wallets.
In a custodial wallet, a third party holds private keys. It means it gets complete control over crypto-assets while a user can only make permission to send or receive payments.
Workings of a Custodial Wallet:
Essentially, in a custodial wallet, a third-party authority manages all the funding while users cannot execute any transaction without their involvement.
For instance, Bob (a third party in this case) manages a fund transfer request made by Alice (a user in this case) to a particular address/place. However, Bob does not receive any private key to that specific storage address.
Most third-party wallet companies today take sufficient security measures in order to ensure that no one hacks your account. One of these measures is called Two-Factor Authentication (or 2FA for short). Using 2FA helps the wallet verify your identity by asking you to enter not only your username and password but also a one time password (OTP) that is sent to a device you own via a text message or email.
Multi-Signature Bitcoin wallets
Multi-signature (multisig) refers to requiring multiple keys to authorize a Bitcoin transaction, rather than a single signature from one key. It has a number of applications.
- Dividing up responsibility for possession of bitcoins among multiple people.
- Avoiding a single-point of failure, making it substantially more difficult for the wallet to be compromised.
- m-of-n backup where loss of a single seed doesn’t lead to loss of the wallet.
Use as a joint account:
Standard transactions on the Bitcoin network could be called “single-signature transactions,” because transfers require only one signature — from the owner of the private key associated with the Bitcoin address. However, the Bitcoin network supports much more complicated transactions that require the signatures of multiple people before the funds can be transferred. These are often referred to as m-of-n transactions. The idea is that Bitcoins become “encumbered” by providing addresses of multiple parties, thus requiring cooperation of those parties in order to do anything with them. These parties can be people, institutions or programmed scripts.
Multi-signature application examples:
- 1-of-2: Husband and wife petty cash joint account — the signature of either spouse is sufficient to spend the funds.
- 2-of-2: Husband and wife savings account — both signatures are required to spend the funds, preventing one spouse from spending the money without the approval of the other
- 2-of-3: Parents’ savings account for child — the kid can spend the money with the approval of either parent, and money cannot be taken away from the child unless both parents agree
- 3-of-5: Low-trust donation address – five trusted people from a project each hold a private key. Three people are required to actually spend the money but anybody can donate to the project’s address. Reduces the risk of embezzlement, hacking/malware or loss due to a single person losing interest in the project. Which private key was used in the final signature is visible on the blockchain which aids accountability.
Multisig wallets are considered more secure because even if one of the keys to the wallet is stolen, there’s usually no way to drain the wallet’s funds without the other owners.
Some wallets, like Electrum, have the option to enable multisig.
Paper and physical wallets
What Is a Paper Wallet?
A paper wallet is an offline mechanism for storing bitcoins. Unlike fiat currency, there is no physical representation of a bitcoin (or most other types of cryptocurrency). Rather, wallets that are used to store digital tokens are usually software programs that help to facilitate updates to the blockchain ledger when transactions are made.
Paper wallets are different from so-called hot wallets because they operate separately from the Internet. However, they still do not store physical bitcoins; the paper quality of these wallets refers primarily to the method of access for the cryptocurrency owner.
A hardware wallet is a special type of bitcoin wallet which stores the user’s private keys in a secure hardware device.
They have major advantages over standard software wallets:
- private keys are often stored in a protected area of a microcontroller, and cannot be transferred out of the device in plaintext
- immune to computer viruses that steal from software wallets
- can be used securely and interactively, private keys never need to touch potentially-vulnerable software
- much of the time, the software is open source, allowing a user to validate the entire operation of the device
How to choose the right wallet?
Ask these questions to evaluate a specific Bitcoin wallet properly:
- Does it only support Bitcoin or can it store other cryptocurrencies as well?
- If it’s a web wallet, does the address begin with HTTPS? That offers greater security than an HTTP wallet.
- How secure is authentication? Does it provide two-factor authentication (username and password plus some piece of information only you have)?
- Does it have a multi-signature feature (if you want to use a wallet with multiple owners)?
- Is the wallet “hierarchical deterministic” (HD), meaning it will always use a new Bitcoin address to receive payments and so enhance the security of your money?
- How transparent is the wallet provider? Do you know who they are?
- Has the company behind the wallet published the wallet’s code and is it open source?
- Is the wallet simple to use?
- Is there a way to back up the wallet?
- What does the community have to say about the wallet? Check forums like Bitcoin Reddit or Bitcoin Forum.
- For a hardware wallet, what do you think about its design, user interface, manufacturer reputation, and price?
- Are there any fees that you will have to pay for the provided services? If so, what are they?
5. How many bitcoins do you want to buy?
Picked up a wallet? Found your preferred way to buy Bitcoin? Good! You now need to ask yourself a very important question: how much money do you intend to invest in Bitcoin?
Bitcoin is a VERY risky asset. This means you should never buy any amount you can’t afford to lose. It’s important to think this through. If this is the first time you’re buying Bitcoins, choose an amount that won’t affect you financially if Bitcoin drops to zero.
In general, we tend to be overly optimistic when we invest, and we can forget about the very real possibility of a downside. My personal rule of thumb is to never invest more than 5% of my disposable income or total wealth.
6. Other buying options
A BitcoinATM is a specialized piece of equipment that functions similar to a traditional ATM, but with added functionality that makes it function more like a physical exchange. There are multiple types machines, but they are generally broken down as 1 way or 2 way machines. 1 way machines, or Kiosks, allow for the insertion of cash and withdrawal of Bitcoin only. 2 way machines generally function as a full exchange, allowing for conversion between both fiat to bitcoin or bitcoin to fiat.
Different BitcoinATM manufacturers and operators choose different levels of AML/KYC requirements depending on their own needs and the jurisdiction of the physical placement of the BitcoinATM.
BitcoinATM360 was the first company to provide enterprise services for BitcoinATM operators as well as selling new and used units from various manufacturers.
Buy bitcoin with cash in person
If you don’t want to rely on any third-party services, then the best way is to find a person to deal with yourself. Place advertisements on local advertisement boards, websites, social media or forums or simply check with your friends.
Alternatively, you can attend your local Bitcoin meetups (check sites like meetup.com) and find like-minded people there. Maybe some of them will want to buy or sell bitcoin with cash.
However, remember that safety comes first. Never reveal your actual name or where you live in those advertisements because being known for holding bitcoin is getting increasingly more dangerous.
Maintain low-profile, and always agree to meet with another person in a safe public space, such as a local bank, coffee shop, mall, or other places with many people.
7. Conclusion and Resources
You’re now ready to go and buy your first Bitcoin.
If Bitcoin’s history has taught us anything, it’s that as long as you keep your money on an exchange, you don’t actually own that money—the exchange does.
Once the coins are in your account, make sure to withdraw them to the Bitcoin address you’ve copied from your wallet. After the coins arrive safely in your wallet, you can proudly say that you’ve bought your first Bitcoin.