How to Invest in Bitcoin? A Step-by-Step Guide
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Bitcoin’s popularity over the last few years cannot be overstated. It has become a popular choice amongst investors nowadays. More and more people are turning to Bitcoin as a viable way of investing. A lot of those people are successfully making profits off of it, too.
So, if you are someone who is wondering how to invest in Bitcoin, this article is for you. We will go through the process of investing in Bitcoin step by step. This beginner’s guide on Bitcoin investing will help you get started in the world of cryptocurrencies.
Table of Contents
Before You Buy Bitcoin…
Before you learn how to invest in Bitcoin, it is important to know how cryptocurrency works. Bitcoin uses virtual “coins” or “tokens” instead of physical money. These coins have no intrinsic value and are not affected by gold or silver.
Cryptocurrency works on a digital technology that we call “blockchain.” Blockchain is a complex system of coding mechanisms. This is what makes Bitcoin decentralized. Blockchain also works to make Bitcoin and other cryptocurrencies highly secure.
Any time money goes from one Bitcoin wallet to another, it is logged in the blockchain. Wallets have a private key that is used to sign transactions. This is done to verify and prove the origin of a transaction. The signature also helps from changing the transaction in any way once it is given. Once a transaction takes place, the process of “mining” begins to confirm them.
Mining ensures that there is neutrality in the transaction. Moreover, it also allows computers to agree on the system’s state. A transaction is confirmed when it is encapsulated in a cryptographic block. To learn more about mining, check out this post that explains mining in depth.
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Privacy and Security in Bitcoin
Privacy is an extremely important thing for investors who want to invest in Bitcoin. Before you invest in Bitcoin, remember that the private keys that you have are secret and the balance of a public address is visible.
You can create multiple public addresses. You can then distribute the collection of Bitcoin across these addresses. A useful strategy is to keep investments at public addresses that are not directly linked with those for transactions.
Every transaction on Bitcoin has a transparent history. But that is not the case when it comes to identifying user information. Only a user’s public key appears next to a transaction. This makes transactions confidential but not entirely anonymous.
With that out of the way, let’s talk about how to invest in Bitcoin, step by step.
How to Invest in Bitcoin – A Step-by-Step Guide
Step # 1: Choose a Crypto Trading Platform
Exchanges are a convenient option for beginners to start investing in Bitcoin. They offer plenty of features and multiple cryptocurrencies to trade and invest in. They will also let you withdraw your crypto coins to your online wallet for safe storage.
There are many different types of cryptocurrency exchanges. Some allow you to remain anonymous. They do not require any personal information from you. This is great for certain demographics, such as refugees living in countries with no infrastructure for proper banking.
However, most popular exchanges require users to submit identification. These exchanges include:
- Coinbase
- Binance
- Kraken
Remember to use two-factor authentication and a complex password combination for your exchange account when signing up.
Step # 2: Get a Bitcoin Wallet
When you purchase a crypto coin, you need to store it in a wallet. This is where all cryptocurrency is stored. There are two types of wallets that you can get:
- A hot wallet
- A cold wallet
2a) What Is A Hot Wallet?
A hot wallet exists online. Some exchanges will provide you with a hot wallet when you open an account with them. Hot wallets are convenient because you can access your coins through the internet easily. Some examples of hot wallets are Electrum and Mycelium.
While great in terms of convenience, hot wallets do not provide the best security. If someone hacks your hot wallet, your coin information can be at risk.
2b) What Is A Cold Wallet?
A cold wallet, on the other hand, is the safest method of storage for your coins. A cold wallet is an actual hardware piece that stores your digital money. Usually, it is a portable device that is similar to a flash drive. Most cold wallets cost between $60 to $200. Popular cold wallets include Ledger Nano and Trezor.
To know which wallet would be the best choice for you, you might want to consider how much you are investing. For example, if you are only buying small amounts of Bitcoins, then a hot wallet is fine for you.
But if you are going to be trading or investing large amounts of the coin then you should investigate a cold wallet.
Step # 3: Connect Your Wallet to a Bank Account
As mentioned earlier, you will have to upload identification proof depending on the type of exchange you use. These documents may include your driver’s license or a social security card. Sometimes, you would also need to upload information about your employer and your source of funds. The entire process is more or less the same as when you set up a usual brokerage account.
Once you create an account on the exchange and create a digital wallet, you can then connect your bank account to it. A credit or debit card is another option that you can use for this purpose.
By connecting your exchange or wallet to your bank account, you will be able to buy and sell Bitcoins.
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Step # 4: Place a Bitcoin Order
Now, you are all ready to start investing in Bitcoin! Your cryptocurrency exchange will have everything you need to start buying Bitcoin. Before you buy, you will have to decide how much you want to purchase.
Some coins cost thousands of dollars. But your initial investment can be as low as $25. Some exchanges offer both market and limit orders and some also offer stop-loss orders.
The crypto exchange platform Kraken offers the most order types. Examples include stop-limit, stop-loss, take-profit, market, limit, and take-profit limit orders.
Exchanges also offer ways to set up running investments that happen repeatedly. Coinbase, for instance, offers recurring buys for every day, week, or month.
It is important to remember that investing in Bitcoin is risky. It is important that you carefully educate yourself on the topic. In addition to that, you should also take a good look at your risk tolerance and investment strategy before you buy Bitcoin.
Step # 5: Store Your Bitcoin Investments Safely
Once you have bought bitcoin, you can then store them in crypto wallets safely. Keeping crypto outside of the exchange and in a personal wallet gives you more security.
Furthermore, it also gives Bitcoin investors more control over the private key to the funds. Your exchange will likely offer you a wallet. But I recommend using your wallet if you plan to become a long-term cryptocurrency investor.
Further reading: Cryptocurrency for Beginners: Key Concepts You Need to Know
Conclusion – How to Invest in Bitcoin
Many people prefer Bitcoin over the normal way of investing due to its decentralized nature. Supporters of the currency often tout it as the future of investing.
On the other hand, many people are skeptical of Bitcoin. This is because of the currency’s volatility. However, all the debate aside, there is no doubt that Bitcoin is only going up in its popularity.
Whether or not Bitcoin is a good investment for you depends on your situation. Investing in Bitcoin is not good or bad in any way. Ultimately, it depends entirely on your risk tolerance and financial goals.
Therefore, before you invest, think about your own goals, needs, and wants.
With that said, I hope this article gave you an idea of how to invest in Bitcoin and get started in the world of cryptocurrencies. There is a potential for great profits when you invest in Bitcoin if you are careful and do your research.
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