Let’s start this out as stating that we are not saying you SHOULD buy bitcoin. We also aren’t stating that you shouldn’t. We’ll leave that decision up to you. Hopefully this helps anyone interested in learning how to set up a bitcoin wallet.
OK, so you’ve learned the basics about bitcoin, the next step is to get some bitcoins. But how? This guide will tell you what you need to know.
You can buy bitcoins from either exchanges, or directly from other people via marketplaces.
You can pay for them in a variety of ways, ranging from hard cash to credit and debit cards to wire transfers, or even with other cryptocurrencies, depending on who you are buying them from and where you live.
Surprisingly, it’s still not easy to buy bitcoins with your credit card or PayPal, depending on your jurisdiction.
This is because such transactions can easily be reversed with a phone call to the card company (ie ‘chargebacks’). Since it’s hard to prove any goods changed hands in a transfer of bitcoins, exchanges avoid this payment method and so do most private sellers.
However, the options have recently grown for consumers in some countries.
In the US, Coinbase, and Circle offer purchases with credit cards. Bittylicious, CoinCorner and Coinbase offer this service in the UK, accepting 3D Secure-enabled credit and debit cards on the Visa and MasterCard networks.
Underbanked consumers in the US can turn to expresscoin, which recently launched to serve this market, accepting money orders, personal checks and wire transfers.
First, get yourself a bitcoin wallet
Next, you will need a place to store your new bitcoins. In the bitcoin world, they’re called a ‘wallet’ but it might be best to think of them as a kind of bank account.
Depending on the security levels you want, different wallets will provide different levels of security. Some act like everyday spending accounts and are comparable to a traditional leather wallet, while others tout military-grade protections.
The main options are:
(1) a software wallet stored on the hard drive of your computer
(2) an online, web-based service or
(3) a ‘vault’ service that keeps your bitcoins protected offline or multisig wallet that uses a number of keys to protect the account.
Most have their vulnerabilities: if you store bitcoins locally on your computer, make sure you back up your wallet regularly in case the drive becomes corrupted; and online web wallets employ varying degrees of security against hackers, from quite good (multi-factor authentication) to quite poor (ID and password).
For more on storing bitcoins, see our guide on the subject.
Exchanges and Online Wallets
Bitcoin newcomers will find a variety of exchanges and wallets competing for their business.
Some are full-blown exchanges for institutional traders, while others are simpler wallet services with a more limited buying and selling capabilities.
Most exchanges and wallets will store amounts of digital and/or fiat currency for you, much like a regular bank account.
Exchanges and wallets are the best option if you want to engage in regular trading and speculation, don’t need total anonymity and don’t mind lengthy bureaucratic setup procedures that usually involve proof of identity and supplying detailed contact information.
This is the law in most countries and no regulated exchange can get around it, as any company interfacing with the current financial system must meet ‘know your customer’ (KYC) and anti-money laundering (AML) requirements.
The best exchange option also depends where you’re located.
For more information, you can check out this list of major bitcoin exchanges/wallets around the world, and the payment options they allow.
Coinbase is a popular wallet and exchange service that will also trade US dollars and euros for bitcoins. The company has web and mobile apps. Originally a US-only service, Coinbase has recently opened up to a large number of European countries.
Once you’ve set up your account, you’ll probably need to link an existing bank account and arrange to move funds between it and your new exchange account via wire transfer. This usually entails a fee. Some exchanges allow you to make a deposit in person to their bank account (that is, via a human teller, not an ATM).
While people in most countries can transfer money to overseas accounts, fees are much higher and you may face more long delays changing your bitcoins back into fiat currency (should you still wish to do that).
If you are required to link a bank account to use the exchange, it may only admit banks from that country.
There are also Advisory Services that will help you set up your wallet and store your bitcoin, but we’ll wait to see some legitimacy of the groups before recommending any as trustworthy. Remember, never give up your key.
Warnings about exchanges, wallets and banks
Despite the proof of identity requirements, remember exchanges and wallets don’t provide the same protections banks do.
For example, there is often no or limited insurance for your account if the exchange goes out of business or is robbed by hackers, such as was the case with the infamous failed exchange Mt Gox.
Bitcoin does not have legal status as a currency in most of the world, and authorities usually do not know how best to approach thefts. Some larger exchanges have replaced customer funds after a theft from the exchange itself, but at this stage they are not legally obliged to do so.
Further, if a theft from your personal wallet occurs due to a security or password lapse on your part, you do not have any guaranteed way to recover your funds.
Some existing banks see digital currency refuse to work with funds that were the result of digital currency transactions, citing regulatory uncertainty.
Check the list below first to see if your bank may have taken action against users in the past, and for your protection, open an account with a bank known to be more bitcoin-friendly.
Here are some banks known to discriminate against bitcoin.
Though a relatively new concept, bitcoin ATMs are growing in number.
Like a face-to-face exchange but with a machine, you insert your cash and either scan your mobile wallet QR code or receive a paper receipt with the codes necessary to load the bitcoins onto your wallet.
Exchange rates vary, and may be anything from 3% to 8% on top of a standard exchange price.
Buying bitcoins is not always as easy as newcomers expect. The good news is the number of options is increasing, and it is getting easier all the time. Several easier options are also on the way for those interested in purchasing the other cryptocurrencies as well. We’ll report on the ones we feel are any good once they’ve been around for a little while.
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