Bitcoin is a popular investment option for many traders due to its rise in popularity in recent years. However, the highly volatile nature of the cryptocurrency market means it’s important to carefully consider your options before making any investments.
In this article, we’ll explore how to buy Bitcoin, how to store it, and whether it’s a good investment option for you.
Let’s find out more!
How Does Bitcoin Work?
Bitcoin operates independently of any third party, like the central bank or government, as a decentralized digital currency. It was created in 2009 under the alias Satoshi Nakamoto—an unidentified person or group. It uses blockchain technology—a public ledger that records all transactions transparently and securely.
Market demand and supply determine Bitcoin’s value, which means its price can fluctuate rapidly. In recent years, Bitcoin’s value has reached an all-time high; for example, in April 2021, it was worth over $60,000. However, due to the high volatility, the price naturally fluctuates and evolves constantly.
How to Buy Bitcoin
If you want to buy Bitcoin, there are a few ways to do it. Let’s discuss some of the most popular methods for buying one, including their benefits and disadvantages.
#1. Centralized Exchange
A centralized exchange is a platform where buyers and sellers can trade cryptocurrencies. To buy Bitcoin on a centralized exchange of your choice, you first need to create an account and verify your identity. The process usually involves submitting personal information along with documentation, such as a passport or driver’s license. Once the platform verifies your account, you can deposit funds and buy Bitcoin using the exchange’s trading tools. Keep in mind that you need to report on your trading activities in your tax forms.
While a centralized exchange can offer high liquidity and a relatively easy way to navigate and use it, you should be aware of its risks. Hackers can exploit vulnerabilities in the systems, and governments will try to regulate them at some point. Moreover, some centralized exchanges may charge high fees for trading and the withdrawal of the money you’ve earned.
#2. Peer-to-Peer Trading Platform
To buy Bitcoin on a peer-to-peer trading platform, you need to create an account and verify your identity the same way you do on a centralized one. Once your account is verified, you can find a seller who offers Bitcoin, and if you agree on the price, you’re good to go.
While peer-to-peer platforms offer high levels of privacy and control, they’re also susceptible to fraud and scams and may not provide the same liquidity level as centralized exchanges.
#3. Bitcoin ATM
A Bitcoin ATM lets users purchase Bitcoin with cash by locating an ATM near them and scanning their BTC wallet’s QR code. Once you’ve scanned the code, you can insert cash into the machine and receive Bitcoin in your wallet.
However, be mindful of the high fees these ATMs charge for buying Bitcoin and the lower security level compared to other methods, despite offering a high level of convenience and anonymity.
#4. OTC Trading
OTC trading, short for “Over-the-counter” trading, involves purchasing Bitcoin directly from another trader instead of using any exchange. This method suits high-volume traders and institutional investors who need more discretion and additional attention to their needs.
OTC trading is more flexible in pricing and settlement and may involve negotiating the terms with the other party. Additionally, OTC may use a neutral third-party service to ensure safe and secure transactions.
Despite these benefits, keep in mind that OTC trading isn’t regulated the same way as traditional exchanges, meaning there’s a higher risk of scams. Be sure you’re working with reputable traders and brokers, and do your research before engaging in OTC trading.
Mining Bitcoin involves using specialized computer hardware to solve complex mathematical equations to mine one BTC. While it can be a way to earn Bitcoin, the process requires a lot of electric energy and expensive hardware, which makes it impractical for many.
However, Bitcoin mining remains a popular activity for some individuals and businesses alike, especially those interested in investing in the future of cryptocurrency and blockchain technology.
How to Store Bitcoin
A crucial step after purchasing a Bitcoin is storing it securely. There are two main wallet types you can use for storing Bitcoin:
- Hot Wallet. This type of wallet is connected to the internet, making it ideal for investors who need frequent access to their Bitcoin, either for trading or purchases. Hot wallets are more user-friendly since you can access them from anywhere with an internet connection. However, because of their connectivity, they’re more prone to hacking than a cold wallet.
- Cold Wallet. A cold wallet is not connected to the internet, and it’s a great option for those who want to store their BTC for a longer period, as it gives you the highest level of security for storing any crypto. Make sure you don’t lose your cold wallet or forget your private keys since you may lose access to your Bitcoin wallet forever if that happens.
One of the main reasons people invest in Bitcoin is the potential for high returns, and it can be a way to diversify your portfolio. Additionally, Bitcoin is seen as a potential hedge against inflation.
However, with buying Bitcoin come risks such as volatility, a lack of regulation, and security risks. If you’re looking for a stable, long-term investment, you might skip buying Bitcoin overall. Make sure you have a clear investment goal, a high risk tolerance, and enough experience with crypto before investing in Bitcoin.
Buying Bitcoin requires careful consideration since the success of the crypto market isn’t guaranteed. Whether to invest in Bitcoin depends on your investment goals, how much research you’ve done, and if Bitcoin represents the right investment option for you. With the right approach, however, Bitcoin can help you diversify your investment portfolio and be a great asset to your funds.