Bitcoin is an alternative online currency system, which serves as a digital currency. Bitcoins are used both as an investment and as a payment method for goods and services, appreciated by many because it eliminates intermediaries. Despite the growing popularity of this currency, many businesses still do not accept it and its usefulness as an investment is very dubious and potentially risky. Before starting to buy bitcoins, it is important to understand what they are, the advantages and disadvantages.
Steps
Part 1 of 6: Getting to know Bitcoins
Step 1. Learn the basics of the Bitcoin system
It is a completely virtual currency, which allows users to exchange money for free, without relying on third parties (such as banks, credit cards or other financial institutions). Bitcoins are not regulated or controlled by a central authority such as the ECB and all transactions take place in an online marketplace, where users are anonymous and almost completely untraceable.
- The Bitcoin network allows you to instantly exchange money with any other person in the world, without having to create a merchant account, or rely on a bank or financial institution.
- Money transfers don't require names, so the risk of identity theft is low.
Step 2. Learn the concept of bitcoin mining
To understand the Bitcoin system, it is important to understand the aspect of mining, i.e. the process in which coins are created. Although this is a complex business, the basic idea is that every time a Bitcoin transaction is made between two people, it is digitally stored by a computer in a transaction log, which describes all the details of the exchange (such as the time and amount of bitcoins owned by the affected users).
- These transactions are then shared to the public in the form of block chains, which contain all the transactions and identities of all the owners of the bitcoins.
- Miners are the people who own computers who constantly check the block chain to make sure it is correct and up-to-date. It is they who confirm the transactions and, in exchange for this work, are paid in bitcoins, increasing the currency in circulation.
- Since bitcoins are not regulated by a central authority, the mining operation ensures that the user who transfers the bitcoins has enough, that the promised amount is actually transferred, and that the account balance of the two involved users is correct. at the end of the transaction.
Step 3. Familiarize yourself with the legal issues surrounding the Bitcoin network
Recently, the US agency responsible for combating money laundering announced new guidelines for virtual currencies. These rules will regulate bitcoin exchanges, but leave the rest of the Bitcoin economy intact for the time being.
- The Bitcoin network is resisting government scrutiny and has developed a good following in the crime world, for example among drug traffickers and gamblers, thanks to the anonymous nature of currency exchanges.
- US federal law enforcement may conclude in the future that the Bitcoin network is a money laundering tool and may seek ways to dismantle it. While completely eliminating bitcoins is a real challenge, strict legislative regulation could greatly reduce the spread of the system and greatly limit the legitimacy of the currency.
Part 2 of 6: Knowing the Advantages and Disadvantages of Bitcoins
Step 1. Consider the benefits of bitcoins
This currency guarantees low fees, identity theft protection, payment fraud protection, and instant transactions.
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Low commissions:
Contrary to what happens for traditional financial systems, where the system itself (such as PayPal or a bank) is compensated with a commission, the Bitcoin network does not provide for any cost for users. The network is maintained by the miners, who are rewarded with new money.
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Identity Theft Protection:
the use of bitcoins does not require a name or any other personal information, but simply an ID for the digital wallet (the means used to send and receive bitcoins). Contrary to what happens with credit cards, where the broker has full access to your personal information and your account, Bitcoin users operate completely anonymously.
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Fraud protection:
as bitcoins are digital, they cannot be counterfeited and therefore scams become impossible. Furthermore, the transactions are not reversible, contrary to what happens with credit cards.
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Immediate transfers:
historically, money transfers often encounter delays, withholdings or other problems. The lack of a third party ensures that money can be transferred between people with ease and without the complexities, fees and delays associated with purchases made with different currencies.
Step 2. Consider the disadvantages of bitcoins
With a traditional bank account, if an attacker makes a fraudulent transaction with your credit card or your bank goes bankrupt, there are laws designed to limit consumer losses. Unlike normal banks, the Bitcoin network does not have a security system to protect users from losing or losing the currency. There is no intermediary body that can reimburse you.
- Keep in mind that the Bitcoin network is not immune to hacker attacks, and the average Bitcoin account is not entirely protected from attackers or free from security holes.
- One study found that 18 out of 40 businesses that offered bitcoin exchange for other currencies closed and only 6 of them reimbursed their customers.
- Exchange volatility is also a significant downside. This means that the price of Bitcoin in dollars fluctuates a lot. For example, in 2013, 1 bitcoin was worth about $ 13. It quickly climbed to $ 1200 and jumped to $ 19,000 today (January 2018). For this reason, if you decide to buy Bitcoin it is important to keep your investment, otherwise you could lose a significant amount of real currency.
Step 3. Understand the risk of bitcoin as an investment
One of the most popular uses of bitcoins is investing and this practice deserves special attention before continuing. The main risk of bitcoins is their volatility. Due to the very rapid fluctuations of the price, the risk of losing the investment is very high.
Furthermore, since the value of bitcoins is determined by supply and demand, if this currency were to be regulated by any form of law, the number of affected users could decrease, theoretically rendering the currency worthless
Part 3 of 6: Setting up the Bitcoin Wallet
Step 1. Store your bitcoins on the internet
To purchase this currency, you must first create an electronic accumulation system. There are currently two ways to do this:
- Deposit the keys of your bitcoins in an electronic wallet. This is a file on your computer that you can put your money into, similar to a real wallet. You can create one by installing the Bitcoin client, the program that generates the currency. However, if your computer is hacked by a virus, a hacker, or if you lose the file, you could lose your bitcoins as well. Always back up your wallet to an external hard drive to avoid losing your currency.
- Deposit your bitcoins in a third party service. You can also create an electronic wallet on third-party sites, such as Coinbase or blockchain.info, by saving the currency in the cloud. This system is simpler to set up, but it does mean entrusting your bitcoins to a third party. The sites mentioned are two of the largest and most reliable, but there are no guarantees as to their safety.
Step 2. Create a paper wallet for your bitcoins
It is one of the most used and least expensive solutions to keep your currency safe. The wallet is small, compact and made with paper that has a code printed on it. One of the benefits is that your private keys are not stored in a digital environment, so they cannot be subjected to cyberattacks or hardware failures.
- Many internet sites produce paper wallets for Bitcoins. They can generate a Bitcoin address for you and create an image that contains two QR codes. One is the public address that you can use to receive Bitcoin, the other a private key, which you will use to spend the currency deposited in that address.
- The image is printed on a long piece of paper that you can fold and take with you.
Step 3. Use a physical wallet to deposit your bitcoins into
Wallets of this type are very few and difficult to obtain. They are dedicated devices that can store private keys in electronic form and facilitate payments. They are usually small, compact and some have the shape of USB sticks.
- The Trezor wallet is ideal for miners who wish to acquire large amounts of bitcoins, but who do not want to rely on third-party sites.
- The compact Ledger wallet works as a USB storage system for your bitcoins and uses smartcard security. It is one of the least expensive physical wallets on the market.
Part 4 of 6: Exchanging Bitcoins
Step 1. Choose an exchange service
Getting bitcoins from an exchange service is the easiest way to acquire this currency. These services work like all traditional exchange services - just register and convert the currency of your choice into bitcoin. There are hundreds of sites that offer this and the best solution depends on your geographic location. However, below you will find some of the more well-known services:
- CoinBase: This popular exchange and e-wallet service also allows you to exchange dollars and euros for bitcoins. The company has a website and a mobile app to allow users to buy and trade bitcoins with ease.
- Circle: This exchange service offers users the ability to deposit, send, receive and trade bitcoins. Currently, only US residents are able to link their bank account and deposit funds.
- Xapo: This site offers an e-wallet, a debit card and the ability to deposit real currency into your account and convert it into bitcoin.
- Some exchange services also allow you to trade bitcoins. Others function as electronic wallets with limited buying and selling possibilities. Most of them keep amounts of real or digital money for you, just like regular bank accounts. They are a good option if you want to do bitcoin trades often and don't care about total anonymity.
Step 2. Provide proof of your identity and contact information to the service
When you sign up for an exchange service, you must provide your personal information to create an account. The laws of almost all states require that all individuals, individuals or entities using a Bitcoin exchange service, meet the anti-money laundering requirements.
Even if you are asked to prove your identity, exchange services and e-wallets do not offer the same level of protection as banks. You are not protected from hackers and no refunds will be given if the site fails
Step 3. Buy bitcoins with your account
Once you've created a profile on an exchange service, you need to link it to an existing bank account and set up money transfers between the two. Usually you will have to do this with a wire transfer and you will have to pay a commission.
- Some foreign exchange services allow you to make in-person deposits into a bank account. You will need to do this at an ATM and not at an ATM.
- If you are asked to link a bank account to the exchange service account in order to use it, you will likely only be able to provide information from banks operating in the country where the service is based. Some services allow you to send money to overseas accounts, but the fees are much higher and currency exchanges may be delayed.
Part 5 of 6: Using a Vendor
Step 1. Search for sellers on LocalBitcoins
This is the most frequently used site for in-person exchanges between local sellers. You can arrange a meeting and negotiate the price of the virtual currency. The site also offers protection for both parties.
Step 2. Use Meetup.com to find sellers
If you don't like the idea of trading in person privately, use Meetup.com and look for a Bitcoin dating group. You can decide to buy the virtual currency together with other people and ask for advice from other members who have already dealt with sellers.
Step 3. Negotiate the price before the meeting
Depending on the seller, you may have to pay a 5-10% surcharge for in-person transactions. You can check the current bitcoin exchange rate at https://bitcoin.clarkmoody.com/ before accepting the seller's offer.
- You should also ask the seller if he prefers to be paid in cash or with an online payment service. Some sellers may accept payments via PayPal, although most want non-reversible cash transactions.
- A reputable seller will always negotiate the price with you before the meeting. Many also don't wait too long to finalize the sale once an agreement is found, so as to avoid problems in the event of sudden fluctuations in the price of bitcoins.
Step 4. Meet the seller in a public place that is frequented by many people
Don't do it at his house. You should take all possible precautions, especially if you carry the necessary cash with you.
Step 5. Make sure you have access to your Bitcoin wallet
When you meet the seller in person, you need to access the Bitcoin wallet with your smartphone, tablet or laptop. You will also need an internet connection to confirm the success of the transaction. Always check that the bitcoins have been transferred to your account before paying the seller.
Part 6 of 6: Using Bitcoin ATMs
Step 1. Find the Bitcoin ATM closest to you
These are devices that have only recently been created, but their number is growing. You can use an online map of Bitcoin ATMs to find the closest one.
Many institutions around the world now offer Bitcoin ATMs, from universities to local banks
Step 2. Withdraw the money from your bank account
Almost all Bitcoin ATMs accept cash only, because they are not configured to accept credit or debit cards.
Step 3. Insert the cash into the ATM
At this point, scan the QR code of your wallet or access the necessary codes from your smartphone to upload the bitcoins to your account.
The exchange rates offered by Bitcoin ATMs have a 3-8% fee
Advice
- Carefully consider whether to try bitcoin mining. "Mining" is the process by which bitcoins are created, forming blocks of Bitcoin transactions. Although it is technically a method to "buy" bitcoin, the currency's popularity has made this activity increasingly difficult, which today is carried out almost exclusively by large groups of miners defined as "pools" and by companies born to create currency. You can buy shares in a pool or mining company, but at the moment it is no longer an activity that one person can do for profit.
- Beware of anyone trying to sell you programs that allow you to mine bitcoins on a normal computer or equipment that helps you mine. It is probably a scam.
- Make sure your operating system is reasonably secure. If you work in a Windows environment, install VirtualBox, create a virtual machine with Linux (Debian for example) and carry out all the operations related to bitcoins inside the virtual machine. When it comes to electronic wallets for computers, Electrum (electrum.org) is the best at the moment.
