There’s no doubt about it. Cryptocurrency remains a seriously hot topic for potential investors around the globe. If you’re only just hopping on the Bitcoin bandwagon and aren’t 100% sure where to start, it’s not too difficult to get caught up.
At this point, you probably know three foundational facts:
- Bitcoin is a form of digital currency that can be used to make purchases/payments electronically and without any middlemen.
- There is a limited supply of Bitcoin, which makes it a fabulous investment opportunity.
- As a decentralized cryptocurrency, Bitcoin isn’t controlled by any banks or government institutions.
If at the very least, you’re armed with these basic facts, you’re well on your way to making your first purchase.
A Bit of Background Information
Initially, Bitcoin was proposed as a simple electronic system that would be based on mathematical proof, rather than being controlled by the fickle regulations of any one bank or institution. The thought behind the so-called “cryptocurrency” was that it would allow people to exchange funds for products or services securely and under their own terms. Additionally, Bitcoin needed to be a safe, confirmable, and immovable system in order for it to work as planned.
It’s important to note that the owners of Bitcoin are anonymous. This is purely for the sake of their own personal privacy and safety. They do not use full names, Taxpayer Identification Numbers (TIN), or social security details. Instead, buyers and sellers are connected through clever encryption keys.
You might also be wondering how Bitcoin is issued in the first place. As a digital currency, it can’t possibly be issued like conventional currency. The fact is, it is not handed out from the top down; as there’s no central organization involved, that wouldn’t really make sense. Interestingly enough, Bitcoin is digitally mined by several powerful computers around the globe that are connected to the Internet.
Who Decides What Bitcoin is Worth?
Similarly to stocks, Bitcoin’s value is decided by what people are willing to pay for it. It’s a simple enough concept based largely on supply and demand. When Bitcoin was first established, it was decided that no more than 21 million Bitcoins are allowed to be mined, ever. At this stage, around 12 million Bitcoin have been mined.
So, much like gold, the cost of Bitcoin is determined by the fact that there is a limited supply. As there is no intrinsic value, the entire system is based on perceived value - much like all other precious metals, for example.
Therein lies the difference between stocks and Bitcoin. The value of stocks is directly related to a company’s potential earnings. The value of Bitcoin is determined solely by how much is available, who wants it, and how much they’re willing to pay for it.
How Can I Buy Bitcoins?
You’ll be relieved to know that Bitcoins can be bought directly from other people via online marketplaces. In this way, it’s much like purchasing any other product or paying for any other service. This is probably the most straightforward way to go about it. You exchange regular currency for the highly sought-after cryptocurrency - it’s that easy.
If you’re not completely sure about the safety or security of purchasing from a stranger in an online marketplace, an official digital currency broker is another good choice. Digital currency exchanges, like Gatehub, Bitstamp, and Coinbase are generally the preferred choices. Coinbase is well-known to be reliable and is one of the most popular US-based cryptocurrency exchanges. It’s highly recommended that beginners opt for this avenue, as it’s really easy to navigate. Be aware that these exchanges do charge certain fees, which will usually cover your costs for using the Bitcoin network as well.
Digital currency exchanges tend to be quite flexible when it comes to payment, which is good news if you have a particular preference. All of them are only too happy to accept payments via credit card or secure bank transfer. Several exchanges accept Paypal transfers as well, which makes the process even more secure for you.
Should you choose to purchase Bitcoin via a trusted and vetted digital currency exchange, you will be required to verify your identity before you can set up an account. KYC (know-your-client) and AML (anti-money-laundering) regulations have been put in place to protect you, as the purchaser, so it’s in your best interests to comply. Before attempting to open an account, make sure you have a clear photo of your identification document and a valid proof of address.
What is a Wallet?
Much like any currency - digital or otherwise - you need a place to store your Bitcoin. Irrespective of the way you choose to purchase your Bitcoins, you’ll need to make sure you have your “wallet” ready. This wallet is a place where you’ll store your private key; the secret number that gives you access to your coins. The key will allow you to make a purchase on whichever marketplace you choose. You’ll never be restricted to any specific digital exchange or marketplace just because you purchased there first. Remember, Bitcoin is supposed to be about the freedom to choose where, when, and how you purchase your coins or how you decide to use them once they’re yours.
It is important to note that there are two main types of wallets: software and hardware-based. You’ll need to choose the type of wallet that makes you feel most secure. Software wallets, on the one hand, are apps that you link to your regular bank account. Various digital exchanges offer wallets of their own, which is convenient if you’re using that particular service for your transactions. Hardware wallets, on the other hand, store your private keys on a device that is similar to your trusty flash drive. Many people go for the latter option because it is able to disconnect from the Internet, which makes them feel safer.
Now would be a good time for any person to get in on the ground floor of the cryptocurrency game. At this stage, it’s not entirely clear if the digital currency is the concrete way of the future but it’s certainly gaining in popularity. Bitcoin is safe, secure, and legal, so there’s no reason to avoid adding a few coins to your digital wallet. We learn by doing and with virtually no risk, this is a good time to start.