Bitcoin is the most popular cryptocurrency, and with the serious money it is attracting provoking this year’s record highs, more folks are looking to own the virtual currency. There are multiple methods by which you can acquire Bitcoins, including setting up a PC to mine it yourself, paying for a professional mining contract, or trading another cryptocurrency for it. Or you can simply buy Bitcoins for cold, hard cash.
In the latter case, the issue then becomes how best to change legal tender into Bitcoins. As Bitcoin is an all-digital virtual currency, the novice buyer might well be a little confused concerning where to start. As Bitcoin is not a physical currency, but a virtual one, it needs to be held in a digital wallet.
A popular digital wallet is Blockchain, and an account can be created there in which you can keep your digital money; it offers a web interface as well as smartphone apps. While some Bitcoin exchanges also provide a digital wallet feature, we do not recommend this route due to security concerns – exchanges focus more on currency trading, and less on keeping the user’s Bitcoins safe. Online digital wallets come at no cost to the user.
Bitcoining it in
In order to purchase a Bitcoin (or more), the user needs to go to a Bitcoin exchange that deals in their own fiat tender (real currency). A popular one is Coinbase which has an excellent track record as it has exchanged over $20 billion (£15 billion) worth of cash into Bitcoins, with support in 32 countries.
In order to perform a purchase on the Coinbase exchange, first you must set up an account. This requires some basic information to be supplied: a name, email, password and location (to make sure your particular location is supported). You also need to be 18 years of age or older.
Once the account is created, the next step is to link it with a bank account. When selling Bitcoin on Coinbase, the proceeds can either go to this bank account, or to a PayPal account. Purchases can be made from the linked bank account, or with Mastercard or Visa credit cards.
Users then decide how much Bitcoin they would like to purchase. Initially, Coinbase imposes a limit of purchasing $1,000 (£750) worth of Bitcoin per day; when you’re fully verified this limit increases to $50,000 (£37,000) daily.
The value of Bitcoin is shown in US dollars. Once a purchase has been agreed, the user will transfer the Bitcoin to their digital wallet to keep the funds secure in what is called a ‘cold storage’ wallet. This is an important step as if it’s not taken, and the exchange goes out of business or has financial difficulty, the user will lose their funds.
While purchasing Bitcoin via a credit card is the most convenient method for the newbie, it also has a higher risk of transaction fraud, as well as higher processing fees. Using a credit card also limits the amount that can be purchased, for example, Spectrocoin limits users to $50 (£37) of Bitcoin for the initial four days, which then gets increased to $200 (£150) daily, and then $500 (£370) after seven days.
Users should be wary, though, and only deal with a regulated Bitcoin exchange (which fully displays its credentials on the site). Otherwise, there is little stopping a rogue Bitcoin exchange from taking your money and making off with it.