Cryptocurrency has become one of the most popular investments over the past several years, with Bitcoin front-and-center as the original (and most valuable) crypto available. And while Bitcoin continues to shake up the investing world with meteoric price rises followed by massive drops, more and more investors are adding Bitcoin to their investment portfolios.
Whether you are a casual investor or looking to add a bit of diversity to your portfolio by adding Bitcoin to your investment mix, there are several ways to buy Bitcoin, each with their own advantages. In this beginner’s guide we’ll break down the most popular ways to purchase Bitcoin, as well as ways to store it securely.
Note: Investing in cryptocurrency is a speculative investment and comes with the risk of loss, including total loss of capital.
How to Buy Bitcoin: A Beginner’s Guide
When Bitcoin first launched, it was purely a peer-to-peer exchange of funds from one user to another. Over the past decade, hundreds of companies have sprouted up offering Bitcoin exchange services, as well as helping facilitate Bitcoin trading and storage solutions.
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As a decentralized payment system, the Bitcoin network was designed to be a medium of exchange, but it also proved difficult to adopt due to technical hurdles and the complexity of onboarding new users. In fact, simply “buying Bitcoin” involved quite a few steps and kept most investors away from crypto until recently.
Today, crypto has never been more accessible, and you can buy Bitcoin with a few taps on your phone. Here are the basic steps you need to follow to buy Bitcoin.
1. Decide Where to Purchase Bitcoin
Do you prefer anonymity? Security? Low fees? Ease of use?
Buying Bitcoin has never been easier, but it is important to understand the advantages and disadvantages of the different options. Decentralized exchanges and peer-to-peer (P2P) swap sites offer more anonymity, while centralized exchanges and payment apps make it extremely simple to buy. And Bitcoin ATMs are popping up everywhere.
We’ll go more in depth on the most popular options shortly. You need to decide on where and how you prefer to buy Bitcoin, and that will dictate what information and documentation you may need to make the purchase.
2. Connect a Payment Method
Depending on where you decide to purchase Bitcoin, there are several payment methods you can use to purchase Bitcoin. When using a centralized exchange (most common), you can connect your bank account and deposit cash via ACH or wire transfer. Some exchanges also allow you to connect a debit or credit card to make purchases.
Most reputable exchanges used a third-party service provider to connect to your bank, allowing you to simply enter your bank credentials and select which account to connect.
If you are purchasing Bitcoin on a decentralized exchange, you will need to connect your digital wallet to the platform because you can only pay with other crypto.
If you are purchasing Bitcoin on a peer-to-peer (P2P) exchange, you will need to buy directly from another user and utilize the requested payment method — typically a payment app like Payoneer.
3. Place an Order
Once you have connected your payment method, you can then place an order for Bitcoin. Many exchanges offer a simple order form to input how much Bitcoin you wish to purchase in local currency denominations, and then you just hit “Buy.”
Some crypto exchanges offer more control over your order, allowing you to set limit and stop-loss orders. This allows you to set a specific price for Bitcoin, and the exchange will execute the trade when Bitcoin hits that price. Some may even offer recurring purchases, allowing you to make regular purchases on a set schedule to dollar-cost average your Bitcoin purchases.
Once the order is placed and executed, your payment will be made and the Bitcoin will end up in your account. For most exchanges, the Bitcoin is deposited into a crypto wallet held on the exchange under your name.
4. Store Your BTC in a Crypto Wallet
Although Bitcoin itself is fairly impervious to hacks and cyberattacks, the exchanges and apps that hold your Bitcoin are not. In fact, over $3 billion in crypto hacks were reported in 2021 alone.
Because Bitcoin was built on the idea of self-sovereignty and decentralization, taking custody of your Bitcoin is thought to be the safest way to protect your digital asset. As some might say, “not your keys, not your coins.”
There are two main types of digital wallets to store Bitcoin: hot wallets and hardware wallets.
A hot wallet is a digital wallet that is connected to the internet, allowing you to store and transfer cryptocurrency. These wallets are typically available as a mobile app or browser extension and offer a unique digital address to store your Bitcoin.
Hot wallets are designed for convenience, but because the private key is generated on an internet-connected app, this makes them more vulnerable to cybercriminals. Extra security measures, such as a strong password and two-factor authentication can help bolster the protection of a hot wallet, but typically these wallets are for interacting with crypto apps and exchanges, and not for long-term Bitcoin storage.
Hardware Wallets (Cold Storage)
A hardware wallet is a digital wallet that stores your Bitcoin offline (not connected to the internet). Typically these wallets look like a USB stick. They offer some of the best protection available for storing Bitcoin.
Hardware wallets, such as the Ledger or Trezor, come with software you can use on your computer to prevent putting your private keys at risk, and for the secure transfer of your Bitcoin to the wallet. Once your Bitcoin is transferred to the hardware wallet, you should store the device somewhere safe, such as a safety deposit box, fire safe, or bank vault.
Overall, hardware wallets are the most secure way to store your Bitcoin. But please, do NOT lose access to your private keys, or you risk losing access to your Bitcoin forever. There is no “password recovery” that can give you access to your crypto if you lose your private keys.
How to Buy Bitcoin On a Cryptocurrency Exchange
The easiest path to buying Bitcoin is through a cryptocurrency exchange. There are two types of crypto exchanges: centralized exchanges and decentralized exchanges.
Centralized exchanges, such as Coinbase, allow users to deposit cash and purchase Bitcoin, storing funds on the exchange. Users can also withdraw funds from the crypto exchange into their own digital wallet.
There are hundreds of centralized exchanges to choose from, with some more reputable and secure than others. To buy Bitcoin on an exchange, you will need to do the following:
- Sign up for an exchange account
- Verify your identity
- Deposit funds (bank account, wire transfer, etc.)
- Place an order
Bitcoin exchanges typically offer secure storage of user funds, and some even offer insurance for Bitcoin and cash holdings. That being said, when Bitcoin is held on an exchange, the exchange holds the private keys to your crypto, and if the exchange goes out of business, you are at risk of losing your Bitcoin.
If you wish to purchase Bitcoin with more anonymity and direct ownership of your coins, using a decentralized exchange is a good option. Decentralized exchanges don’t require identity verification, and you can instantly buy Bitcoin and deposit it into your own digital wallet. The downside is that you can’t use cash, but have to trade crypto with Bitcoin to purchase.
To buy Bitcoin on a decentralized exchange, you need to do the following:
- Create a digital wallet or hardware wallet
- Deposit crypto into your wallet, such as a stablecoin
- Connect your wallet to the exchange
- Trade your cryptocurrency for Bitcoin
Once the purchase is finalized, the Bitcoin will be stored in your digital wallet.
How to Buy Bitcoin With PayPal
Some payment processors are starting to allow users to purchase crypto directly through the app, with PayPal being one of the most popular. You can buy Bitcoin directly through the PayPal app, or “Pay with PayPal” on a crypto exchange like eToro.
Once you enable your account for crypto purchases, you can select Bitcoin and choose how much you’d like to buy. After you make the purchase, the balance will show in your PayPal account, but you cannot transfer the Bitcoin off the platform.
PayPal charges fees to purchase or sell Bitcoin, with smaller transactions charging a higher percentage. Here’s a breakdown of the fees for buying Bitcoin on PayPal:
|Purchase or sale amount||Fee|
|$1.00 to $4.99||$0.49|
|$5.00 to $24.99||$0.99|
|$25.00 to $74.99||$1.99|
|$75.00 to $200.00||$2.49|
|$200.01 to $1,000.00||1.80%|
How to Buy Bitcoin With a Credit Card
To buy Bitcoin with a credit card, you need to purchase through a connected exchange or payment app that can process the transaction. Large centralized exchanges typically offer credit card purchases, as do payment gateway services like MoonPay.
The process is much the same as making a purchase through a bank account, as you will need to create an account, verify your identity, and connect your card to the app.
There are several downsides to buying crypto through a credit card:
- High Fees. Most exchanges and services charge a high processing fee for buying Bitcoin with a credit card. This can be 5% or more.
- May Be Treated as a Cash Advance. Some credit card companies, such as American Express, treat purchasing crypto as a cash advance and charge additional fees accordingly.
- Pay Interest on Purchases. Credit cards are a form of revolving debt, and the interest rates can be north of 25% APR if you don’t pay the monthly bill in full.
Although you can buy Bitcoin with a credit card, the high fees may offset any benefit and end up costing you a lot of money.
How to Buy Bitcoin From a Bitcoin ATM
Bitcoin ATMs have been popping up around the world. Bitcoin ATMs allow you to exchange Bitcoin in-person and also allow you to sell your Bitcoin to access cash. Similar to using a Bitcoin exchange, you can deposit cash and purchase Bitcoin, which is then transferred to your digital wallet.
These ATMs typically require verifying your identity, which may mean inserting a government-issued ID, such as a driver’s license. They may also come with high fees for purchases, with average Bitcoin ATM fees charging from 9% to 15% per transaction, according to CoinATMRadar. This is much higher than most crypto exchanges and can get expensive quickly.
How to Buy Bitcoin Through a P2P Exchange
Those who value anonymity might prefer buying Bitcoin directly from another party, and a peer-to-peer (P2P) exchange is an ideal option for this. These exchanges allow you to purchase Bitcoin directly from other users, with the transfer of funds going directly from their Bitcoin wallet to yours.
These services typically require making payment through a specific bank or payment app, such as Zelle, and the exchange facilitates the transaction. Although there is less anonymity than a decentralized exchange, P2P exchanges allow you to set the price you are willing to pay and match up with a seller who is willing to sell at that price.
How to Buy Bitcoin Through a Brokerage
Some traditional brokerage firms offer the ability to buy Bitcoin, with the most popular being Robinhood and Webull. Similar to a centralized crypto exchange, you will need to sign up for an account, verify your identity, and connect a bank account to purchase Bitcoin.
Apps like Robinhood offer Bitcoin purchases with “no fees,” but they do charge a spread, which may cause you to pay more than Bitcoin’s current price for a purchase.
There are other drawbacks to buying through a brokerage as well. Most brokerages don’t have a crypto wallet available, which means you can’t take custody of your Bitcoin (although Robinhood plans to launch a crypto wallet soon). Also, most brokerage apps only offer a few other cryptocurrencies to trade, as opposed to the 100s offered by crypto exchanges like Kraken.
Overall, buying through a brokerage may save on some fees, but offers a very limited Bitcoin purchasing experience.
Buying Bitcoin has never been easier, with more and more apps making it easier to purchase and store crypto with the press of a few buttons.
Although crypto exchanges make it easy, be aware of trading fees and built-in spreads that can end up costing you. And just because places like Robinhood and PayPal allow you to buy Bitcoin, be aware that you cannot take custody of your coins, which is against the original vision of Bitcoin’s creator.
There are many ways to buy Bitcoin, but the most important may be how you secure it. Finding a quality hardware wallet is a great storage solution to make your Bitcoin less susceptible to hacks, as well as less liquid if you are a long-term investor.
Remember, “not your keys, not your coins.” If you hold your coins with a brokerage or other platform, you don’t really have custody of them and could lose your holdings if the platform goes bust.
Overall, Bitcoin has become world-famous, and while the prices are definitely a roller-coaster, Bitcoin is here to stay. Invest wisely.