How to Invest in Bitcoin? A Step-by-Step Guide
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’s essential to understand how cryptocurrency works. Bitcoin uses virtual “coins” or “tokens” instead of physical money. These coins have no intrinsic value and are not influenced by gold or silver prices.
Cryptocurrency operates on a digital technology known as blockchain. Blockchain technology is a complex system of coding mechanisms, which is what makes Bitcoin and other cryptocurrencies decentralized and secure. Blockchainensures the transparency and security of digital transactions, which is a key advantage over traditional payment systems.
Every time money moves from one Bitcoin wallet to another, the transaction is logged on the blockchain. Wallets have a private key that is used to sign transactions, verifying the origin and authenticity of the transaction. This cryptographic signature prevents any changes to the transaction once it’s been initiated. After a transaction is recorded, the process of mining begins to confirm the transaction.
Mining ensures neutrality in the transaction and helps computers agree on the current state of the blockchain system. A transaction is confirmed when it is encapsulated in a cryptographic block. To learn more about Bitcoin mining and its importance in securing the blockchain, check out this post that explains mining in depth.
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Privacy and Security in Bitcoin
Privacy is a key concern for investors looking to invest in Bitcoin. Before you begin, it’s important to understand that while your private keys are secret, the balance of a public address is visible to everyone.
Think of your public address like your email address. While anyone can send you an email (like Bitcoin transactions), only you can access the inbox (your private keys) and read the messages.
You can create multiple public addresses for your Bitcoin. This allows you to distribute your Bitcoin investments across different addresses for added privacy. A common strategy is to keep your larger holdings at public addresses not directly linked to those used for daily transactions.
Each Bitcoin transaction has a transparent history, visible on the blockchain. However, user information is not revealed. Only a user’s public key appears next to a transaction, which makes the transaction confidential, though not entirely anonymous.
Now that we’ve covered privacy basics, let’s dive into how to invest in Bitcoin, step by step.
How to Invest in Bitcoin – A Step-by-Step Guide
Step 1: Choose a Crypto Exchange
Cryptocurrency exchanges are a convenient option for beginners to start investing in Bitcoin. They offer a variety of features and multiple cryptocurrencies to trade and invest in. Additionally, they allow you to withdraw your crypto coins to your online wallet for safe storage.
There are several types of cryptocurrency exchanges. Some allow you to remain anonymous, requiring no personal information. This can be beneficial for certain demographics, such as refugees living in countries with limited banking infrastructure.
However, most popular exchanges require users to submit identification. Some of these exchanges include:
- Coinbase
- Binance
- Kraken
When signing up for an exchange account, remember to enable two-factor authentication and choose a strong, complex password for added security.
Step 2: Get a Bitcoin Wallet
When you purchase Bitcoin or any other cryptocurrency, you need to store it in a wallet. This is where all your cryptocurrency is safely kept. There are two types of wallets you can use:
- Hot Wallet
- Cold Wallet
2a) What Is A Hot Wallet?
A hot wallet is an online wallet. Some cryptocurrency exchanges will provide you with a hot wallet when you open an account with them. Hot wallets are convenient because they allow easy access to your coins via the internet. Examples of hot wallets include Electrum and Mycelium.
While hot wallets are great for convenience, they do not offer the best security. If someone hacks into your hot wallet, your coin information could be at risk.
2b) What Is A Cold Wallet?
A cold wallet, on the other hand, is the safest method of storing your coins. A cold wallet is a physical hardware device that stores your digital money. Typically, it is a portable device similar to a flash drive. Most cold wallets cost between $60 and $200. Popular cold wallets include Ledger Nano and Trezor.
To determine which wallet is the best choice for you, consider how much you are investing. For example, if you’re only buying small amounts of Bitcoin, a hot wallet may be sufficient.
However, if you’re trading or investing larger amounts of Bitcoin, you should consider investing in a cold wallet for added security.
Step 3: Connect Your Wallet to a Bank Account
As mentioned earlier, depending on the type of exchange you use, you’ll need to upload identification proof. This could include documents like your driver’s license or social security card. In some cases, you may also need to provide information about your employer and your source of funds. The process is similar to setting up a traditional brokerage account.
Once you’ve created an account on the exchange and set up a digital wallet, you can connect your bank account to it. Alternatively, a credit or debit card can also be used for this purpose.
By linking your exchange or wallet to your bank account, you’ll be able to buy and sell Bitcoin.
Step 4: Acquire Bitcoin and Start Investing
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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