Tuesday, November 7, 2017

So you wanna buy Bitcoin?

A lot of people have become very interested in Bitcoin thanks to its recent run up in price. Many are also interested to dip their toe into this new world of the ‘Internet of money’. So how do you go about actually buying (and potentially selling Bitcoin)?

You are going to start out wanting to exchange your dollars for Bitcoin. This means you’ll need to take some money out of your own personal wallet and look for someone to sell you Bitcoin. You could wander the street looking for someone to sell you some Bitcoin but the chances of you finding someone are pretty slim. That means you’ll need to go to an exchange which brings buyers and sellers of commodities (in this case Bitcoin) together.

Of course all of this exchange stuff is now done electronically, so the first step is that you’ll need to sign up to a Bitcoin exchange.

There are lots of exchanges around the world that will allow you to purchase Bitcoin however my choice is:

http://btcmarkets.net

I like them because they are local here in Australia and are part of the Australian Digital Commerce Association. You can of course choose any exchange you wish but my advice would be to do some searches for reviews on the Bitcoin exchange before you sign up. Remember, that although Bitcoin exchanges are ‘like’ normal stock exchanges in the functions they perform, they are not as regulated and consumers are not as well protected. Don’t overlook what happened at the Mt Gox exchange a few years ago. So, as with anything Bitcoin, do your homework first.

The above video will show you the process of setting up and account and buying Bitcoin via BTC markets. The process will be very similar on whatever Bitcoin exchange you choose.

When you set up an account at an exchange you’ll need to:

1. Provide proof of you identity. This can be done via submitting a utility bill that contains your details which will then be reviewed by a real person.

2. Set a login and password. Make sure that both of these are strong and that you record these somewhere safe. It is also recommended that you enable two factor authentication on your login to increase its security. Two factor simply means you’ll need to enter your password and typically a randomly generated code from an app on your phone to gain access to your account. This means if your password is ever stolen access till won’t be granted unless the code generator is also available. Again, make sure you copy everything you do here to a safe location.

You’ll next need to transfer funds into you new Bitcoin exchange account so you can buy Bitcoin on the market. There are various way to do this but some form of electronic transfer from your bank account is probably the easiest and cheapest. Also keep an eye on the cost of these transfers as they can eat into you funds, especially if you are only starting out with a small investment (which is recommended).

So now you should have a Bitcoin exchange account as well as some funds in that account. Next step, is to actually purchase Bitcoin. To do this you basically place an order on the Exchange to buy Bitcoin. You can purchase Bitcoin up to the amount of funds you have in the exchange.

There are typically two ways to order on an exchange. ‘At Market’ means you will simply purchase Bitcoin at whatever the market is willing to sell it to you for. These trades are usually executed immediately and happen at the current trading price of Bitcoin. ‘At Limit’ means you set a price at which you are willing to buy Bitcoin. Until someone is found willing to sell you Bitcoin for this amount a trade will not execute.

Thus, think of an ‘at market’ purchase as an immediate buy order and ‘at limit’ as waiting for a set price. Most people will execute ‘at market’ so they can obtain Bitcoin as soon as possible.

All things going well, the exchange will match a Bitcoin seller with your request to buy Bitcoin and the trade will be made. There will also typically be a small transaction fee associated with this trade (a commission for the exchange to facilitate the process).

Now your exchange account will have the funds you deposited withdrawn (and sent to the Bitcoin seller) and you will receive an amount of Bitcoin in return (from the Bitcoin seller). Congratulations, you are now the proud owner of Bitcoin. Welcome to the Internet of Money.

Your Bitcoin funds reside inside a digital wallet at the exchange. This wallet is provided to you generally free of charge by the exchange. It is however best practice to transfer your Bitcoin from the exchange wallet to a wallet you control.

As with Bitcoin exchanges, the range of Bitcoin wallets is vast. Again, it is important to do your research here and find a digital wallet that suits you. My choice was:

http://exodus.io

and

https://airbitz.co/

The reason I chose two is that I wanted one wallet on my desktop (Exodus) and one on my mobile devices (Airbitz). Some wallets support both environments, some don’t. At the end of the day you can have as many wallets as you wish and transfer funds between them as you see fit.

I won’t cover setting up a digital wallet here because it is generally pretty straight forward. However, what I will say is make sure you document EVERYTHING about the setup of the wallet and understand how to BACKUP and RESTORE it because once your funds are in that personal wallet you are solely responsible for the safety of that wallet. Lose access to that wallet and you lose access to your funds. So, backup, backup and backup again.

The main reason I wanted my own wallet is so that I am in full control of my funds and also that exchange wallets are a honey pot for those trying to steal money. If an exchange has lots of customers, most of whom leave their money in exchange wallet, then that is a very juicy target for hackers. Again, lessons from history see Mt Gox.

Your personal digital wallet will have a string of digits like so:

1Q48VMiR152XNuDEkfV3khFdiYoBPGH4V4

that is the transfer address you use to move you funds from the exchange wallet to your personal wallet. Make sure you get that transfer address correct because once you transfer any funds, even incorrectly, they are GONE. Remember, because this is still new technology, there are not a lot of default safety nets here. The emphasis falls on YOU to check everything. In theory, this default protection is what you pay for when you use the traditional banking system but why should you pay for that if you can do it yourself?

After a few minutes you should see that your personal digital wallet has the funds you transferred form the exchange wallet. Be patient, the transfer can take 10 or so minutes to complete.

If you wish to buy more Bitcoin you add more funds to you exchange account, go to the market and purchase more. To sell Bitcoin, you transfer from your personal wallet back to the exchange and then sell on the market.

All of this is a little technical but it is certainly getting much easier. In summary then you need to:

1. Set up an account on a Bitcoin exchange

2. Transfer funds into your exchange account

3. Buy Bitcoin on the market at the exchange

4. Transfer the Bitcoin to your own personal digital wallet (recommended)

Hopefully, that will get you started in the world of cryptocurrency. make sure you do your research when it comes to both exchanges and wallets before you proceed. I’ll go into more depth on all of these topics soon so watch out for more articles from me on Bitcoin, blockchain and cryptocurrency.