How to Buy Bitcoin for Beginners? 2024 Step By Step Guide
Bitcoin is back in the news. Just in the past 6 months, Bitcoin has gone up by a value of about 150%. And each and every day more and more money is entering the crypto market. So if you have been cautious until now about the prospects of crypto and now want to be a part of the action, you have come to the right place.
According to me the best way to understand any investment is to simply buy some and try it out. So in this blog, I will help you to safely make your first crypto investment, without getting scammed and losing all your money. So let's get started.
What to Buy
There are around 23,000 cryptocurrencies out there and choosing one to invest in is itself a difficult task. But we can broadly classify all cryptocurrencies into two, Bitcoin and Altcoins. Bitcoin is the oldest and the most popular cryptocurrency with the highest market share. Altcoins, or alternative coins, is kind of an umbrella term for all crypto coins other than Bitcoin such as Ethereum, Solana, and many others.
Although many altcoin projects started as great initiatives, most of them ended up being little more than Ponzi schemes. So blindly buying a trending coin is a formula for disaster.
Personally, I only invest in Bitcoin and Ethereum because they are the two widely known, widely accepted, and longest-existing crypto coins. And for a newbie investor, it's better to start with Bitcoin and then later expand into other altcoins once you get a feel of the market. Deciding which crypto to buy is just one part; figuring out how to do it easily and safely is the most important thing.
Where to Buy?
Investing in crypto may seem complicated, but trust me it is pretty straightforward. It's easier than shopping on Amazon. To make your first crypto investment, you only need two things. A place to convert your fiat currency such as dollars or euros into crypto also called crypto exchanges and a place to safely store the bought coins called a wallet. We will look into both in detail.
An exchange is a platform where buyers and sellers meet to trade cryptocurrencies. And in return for providing their services, these exchanges charge a small fee for each trade. Now when it comes to crypto exchanges, there are two main types, decentralized and centralized.
Decentralized Exchanges
A decentralized exchange or short DEX, allows users to directly buy and sell cryptocurrency without an intermediate third party. There exists no central authority with complete control, which is one of the founding principles of the whole crypto ecosystem. Bitcoin was designed to be a decentralized currency, free from manipulation by governments and other agencies.
In a decentralized exchange, users are solely responsible for managing their crypto. Even though they offer certain benefits such as anonymity and lower fees, they are not that user-friendly and require some level of technical know-how. Since this blog is meant for beginner investors, we will not talk in detail about decentralized exchanges and focus on the other two simpler options, Centralized exchanges and online brokers.
Centralized Exchanges
Centralized Exchanges (CEX) operate similarly to traditional financial institutions by acting as an intermediary between two parties. The difference with a DEX is the presence of a central authority, that matches potential buyers with potential sellers using a digital order book. The most popular ones are Binance, Coinbase, and Kraken. They offer user-friendly interfaces and are often the best option for beginner investors.
But the convenience comes at a cost. They charge commissions and transaction fees and to set up an account you must provide personal information and verify your identity.
When it comes to centralized exchanges the most popular one is Binance, founded by Changpeng Zhao in 2017. This is also the platform I use, but the core principles are the same and you can apply this to any other exchange.
To buy Crypto with Binance, first, go to the Binance website or download the Binance app and sign up for a free account using your email. You enter the 6-digit code sent to your email, set a password and your account is ready. Now next step is to do the identity verification. You will be asked to provide your personal details. Then you will be directed to an external site where you have to submit an identification document along with a photo to complete the verification.
Once verification is done, there are multiple ways to pay for the transaction. A common one is to deposit money onto Binance from your bank account and use that balance to buy crypto. And to do that click on the Deposit button on the top right corner and select Bank Deposit. Now choose the currency you want to deposit and select the Bank Transfer option. Enter the amount you want to deposit and click continue. You will be taken to your banking portal to complete this transfer and get the money credited to your Binance account.
There is also an option to make a payment with a debit or credit card. But keep in mind that there is an additional charge for that. Now go to the Buy Crypto Page, and enter the amount you want to buy either in terms of fiat currency or Bitcoin. You also have the option to select other cryptos from here. You can pay either using a credit card or with the balance available in your account. Once you complete the transaction, the coin will appear in your Spot Wallet.
But do keep in mind that these crypto exchanges are mostly unregulated so there is always a risk of losing your investments. If you want more security and comfort, an option you can consider is a traditional investment broker.
Crypto Brokers
A crypto broker is an online platform that allows investors to buy and sell cryptocurrencies along with stocks, bonds, and other traditional securities. They may not offer as many cryptocurrencies as exchanges do, but they offer easy-to-use interfaces that do all the hard work of interacting with exchanges for you. And unlike crypto exchanges, online brokers are regulated financial companies, ensuring more safety for your funds.
With an online broker, you can choose to invest in native cryptocurrencies such as Bitcoin, Ethereum, and others, but also in a new asset class called Bitcoin Spot ETFs. Now ETFs, or so-called exchange-traded funds, are a type of investment that tracks the performance of a group of assets or commodities. For example, a Gold ETF tracks the price of Gold-related assets.
Similarly, in a Bitcoin Spot ETF value of the ETF is directly tied to the price movement of Bitcoin itself. This offers traditional investors an easy way to invest in Bitcoin without having to directly buy and hold the coins.
Investors who are used to buying and selling securities through an online broker would find it easier to use these same platforms to trade crypto. And if you don't have an account you can sign up for one with major brokers such as Robinhood, eToro, Fidelity, etc. Then you log on to the platform, search for the coin or the Spot ETFs, enter the desired amount, click the buy button and you are all done.
An important thing is to understand that whether it's an exchange or an online broker, they don't technically store your Bitcoin in a safe or something. The coins are part of the blockchain and exchanges provide a wallet that can store keys, which is kind of like a password to your crypto in the blockchain. For a lot of people that’s convenient, but then there is also the risk.
If the exchange gets hacked or goes bankrupt, you lose access to your coins. The phrase "not your key, not your coin" is very common within the crypto community. In short exchange wallets are good for learning and getting started, but if you want to safely store your crypto you have to move it into a personal wallet.
Where to Store?
And here again, you have two options: a hot wallet or a cold wallet. A hot wallet is on a device that is connected to the internet. The internet connectivity makes it relatively easy to carry out transactions, but it may be more vulnerable to hacking.
A popular platform that provides hot wallets is Crypto.com.
The alternative and the most secure way is to store your crypto in a cold wallet. A cold wallet is an external device, like a USB drive or a hard drive in which you can download and store your keys and is not connected to the internet. This is the most safest and secure option. You can check this video to learn how to transfer crypto to a ledger hardware wallet.
Crypto is a high-risk asset and the most important rule of buying crypto is to only invest what you are willing to lose. I limit my crypto share to around 5% of my total investments and that's money I am happy to risk. Don't invest in such high-risk assets, because someone says it's the next big thing, always consider your personal and financial situation before you click that buy button. I hope you got some value from this blog and will help you to get started with your crypto journey.
Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. It is important to do your own analysis before making any investment.
