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by Dana Sitar | Updated July 21, 2021 - First published on April 23, 2021
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Intrigued by Bitcoin but not sure how to start? It’s easier than you think.
Cryptocurrency is less than two decades old, and it’s already making a major splash in the world of finance and investing. You might be intrigued by headlines about Bitcoin's explosion in value -- but still intimidated by this new, complex, and largely unregulated space.
With the growing demand for digital currency, especially the original and most popular coin, Bitcoin, buying in has never been easier. Here's what you need to know about buying Bitcoin.
Take these five steps to get your Bitcoin stash up and running.
The first thing you need to buy Bitcoin is a platform that gives you access to the currency. A lot of cryptocurrency exchanges are complex and intimidating for new investors, but more user-friendly platforms have come out in recent years to make the process a lot simpler.
Here are a few easy-to-use options:
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Some online brokerages let you buy Bitcoin, too, including Cash App, Robinhood, and SoFi.
Each exchange offers its own selection of cryptocurrencies, so find one that offers Bitcoin. Because of Bitcoin's popularity, almost every platform does.
Joining an exchange requires a verification process, similar to any financial institution. You usually have to provide some form of ID, and the process can take minutes or days, depending on the platform.
You could also buy Bitcoin with cash through ATMs set up around the world and in a few U.S. states. Or you can use a peer-to-peer (P2P) exchange, which is a website that connects you directly with other buyers and sellers. P2P exchanges eliminate the anonymity you get with a regular exchange, but let you shop around for better prices, sort of like shopping on eBay.
A crypto wallet is the software that holds the information about your digital currency. Think of it like your bank account for Bitcoin.
Many exchange platforms include a wallet you can use to store your investments from that platform. You may want to sign up for a third-party wallet for added security and flexibility.
Crypto wallets can be "hot" -- connected to the internet via desktop software, website, or mobile app. Or they can be "cold" -- living on a hard drive not connected to the internet. Cold wallets are more secure because they’re almost immune to malware, but they cost money. Hot wallets are usually free to sign up for and use.
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You can buy Bitcoin with "fiat" currency -- that is, traditional, government-issued money like dollars or euros -- or in exchange for other digital currencies. If you’re buying for the first time, you’ll go with the former.
Depending on the exchange, you can make a purchase via ACH bank transfer, wire transfer, credit card, or debit card. Buying cryptocurrency with a credit card or debit card tends to come with the highest fees, though they might be the most convenient for you.
Regardless of how you buy, you can usually only withdraw Bitcoin from your wallet to a bank account or via wire transfer. So the set up for most exchanges includes connecting your bank account.
Newer apps make this easy by using a platform called Plaid, which securely and seamlessly transfers data among thousands of financial institutions. It’s what you’ve used if you ever connected your bank account to an app like Venmo, for example.
Once you’re verified and have connected a form of payment, you can place orders on the exchange. In most apps, this works just like any other online broker: You choose which coin you want to purchase (Bitcoin or another currency) and how much you want to spend.
The value of a single Bitcoin fluctuates quickly and has risen steeply since mid-2020. It's currently around $60,000. You can purchase fractions of a coin, though, and many platforms have minimum investments as low as $10.
Will you be an active trader, a long-term investor, or use Bitcoin as tender?
You can do any or all of these with the Bitcoin you own. The simplest and most common option for novice investors is a long-term investment. Like with any investment, active trading in reaction to market shifts won’t get you far unless you really know what you’re doing (and have a fair amount of luck).
Options to shop with Bitcoin are expanding. You can often find online vendors that accept payment directly in Bitcoin and pay for goods or services by sending money from your wallet to theirs.
A few platforms offer a debit card connected to your Bitcoin balance, which you can use to make purchases with vendors in dollars directly from your crypto wallet.
The ease of buying and managing cryptocurrency has grown tremendously in recent years — faster than its reputation can keep up with. If you get into the market now, you’ll be ahead of the curve as some investors consider Bitcoin the butt of a joke or a dark web tool for the edges of the internet.
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Dana Sitar has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool owns shares of and recommends Bitcoin.
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