This guide will walk you through how to buy bitcoin. I’m going to teach you what you need to know to protect your money and not get scammed.
The first thing you NEED to know is that bitcoin is experimental. It even says so on the bitcoin website and bitcoin code repo. This means you must recognize the risk: Any money you invest in bitcoin could be lost.
Now if you’re still reading, here’s the good part: There’s a lot you can do to protect your money and reduce the likelihood of something going terribly wrong. There’s a lot of things going for us that allows us to explore Bitcoin without fear of losing it all:
- Bitcoin has survived the test of time (so far 😉),
- Many wise people have put their trust (and money) in Bitcoin,
- Cryptocurrency is a multibillion dollar industry,
- Bitcoin has very stable rules compared to other currencies,
- Bitcoin is built on code. Everything is written out for everyone to see.
Let’s jump in point and then circle around talk about some extra useful info.
It helps to understand why Bitcoin was introduced before spending your entire life savings.
Bitcoin introduced a way to transact online without a central entity to manage every transaction.
Consider Bitcoin to be digital cash. With cash, you can give it to a friend directly, no bank needed. But when you’re online, you always have to use a 3rd party payment provider (whether it’s PayPal, Apple Pay, a bank transaction, etc). With bitcoin, we can transfer directly without these 3rd parties leaving the power in the hands on the consumers.
From the first lines of the Bitcoin white paper:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
How to Buy Bitcoin
First off, we are going to buy bitcoin with Coinbase. When you sign up using my link and make a purchase of $100, you’ll get $10 added to your account. Worst case scenario? You decide to cash out and get $100+ back in your bank.
When you buy bitcoin, you own that bitcoin. This means that when the time is right, you can sell that bitcoin and get your money back (or more, if done at the right time). You’re just trading your money (Let’s say USD) to another form of money (Bitcoin).
Registering with Coinbase will require a trade of some personal information, likely a photo of your driver’s license, etc. This is normal for any reputable fiat-to-crypto exchange and may take some time to get processed. I got lucky and had my account verified almost immediately.
Where do I store my New Bitcoin?
When you purchase through an exchange like Coinbase, the money sits in a digital wallet on their servers.
Although this works for small amounts, it is not recommended for large amounts or for those who want complete control and protection of their balance.
Instead of leaving your money with a centralized entity (Coinbase, in this case), you’ll likely want to store your Bitcoin in a wallet that only YOU have the keys for…One that’s not on someone else’s servers! Let’s talk about that now.
Anything used to store Bitcoin or other cryptocurrencies is known as a wallet, or crypto wallet.
There are a ton of different wallet types. So many that there is an official Bitcoin webpage designed to help you choose your wallet.
Instead of overwhelming yourself with options, let’s start simple: a mobile wallet.
A mobile wallet is ideal for small to medium amounts of Bitcoin. The private keys are stored locally (not online) on your mobile device.
I use the Coinbase mobile wallet app (this is different than the Coinbase online wallet that is attached to your Coinbase portfolio).
Once you have your mobile wallet, we can transfer from Coinbase to the wallet. Let’s learn how:
Keys and Addresses
With each wallet is associated at least one private key, but often many. Here’s some advise. NEVER EVER EVER EVER share the private key with ANYBODY. It’s not designed to be shared. Instead, you share your public address. Anybody who tells you otherwise is scamming you.
To find your public address, click Receive Bitcoin (BTC) in your wallet.
This address is where we will be sending the money. Now, from the coinbase exchange, open your Bitcoin wallet by visiting your portfolio and selecting Bitcoin:
Next up, use the earlier address in the send bitcoin section:
Once sent, this transaction will show up in the Coinbase online wallet as pending.
Eventually, the transaction will be confirmed (through Bitcoin miners 👏🏻) and appear on the official Bitcoin blockchain in 10+ minutes (time varies). At this point, the money shows up in your mobile wallet!
What Makes Bitcoin Different from Dollars?
It’s built on a distributed database known as a blockchain. What does this mean to you who wants to buy Bitcoin? It means that Bitcoin is not backed by a central authority regulating it or government telling us it has value.
A block is just a a group of transactions. A new block is created about every 10 minutes. When you send Bitcoin, your transaction gets added to a block on the blockchain.
Instead of being managed by a central authority, Bitcoin is backed by a protocol: rules defined in source code. These rules are available for everyone to see as Bitcoin is open source. You can see the Bitcoin source code on GitHub.
There’s also no bank facilitating transactions between people.
Instead, Bitcoin is supported by a distributed network of Bitcoin miners: machines that facilitate transactions without a central authority. These machines are incentivized with new Bitcoin rewarded in exchange for their work. Similar to how gold miners receive gold at the end of their work, Bitcoin miners receive Bitcoin.
New Bitcoin is not easily created. Unlike fiat currency that can be printed on demand, Bitcoin must be worked for through Bitcoin mining. This makes Bitcoin scarce, an attribute of any strong currency.
These are just a few of the many differences between fiat currency and Bitcoin.
Risks of Bitcoin
There’s no bank to protect your Bitcoin. Originally seen as a benefit, the lack of central authorities can come back and bite you.
Consider this: Banks offer a service. They protect your money, they offer loans, they have support teams for any questions, etc. When you get rid of this service, all the responsibility is shifted to you.
You have to protect your Bitcoin. Forget how to access it? There’s nobody to call! Accidentally sent your Bitcoin to the wrong person? Oops!
You also have very little protection from scams. Whenever there is a new technology, especially one directly related to money, there are countless opportunities to lose it all.
The Best Way to Protect Your Bitcoin
By far the best way to protect your bitcoin is to educate yourself. Learn the ins and outs of how Bitcoin works and educate yourself about some of the most popular scams.
Do not be too emotional about Bitcoin and Bitcoin investing. Any promises to quick wealth are more than likely scams.
Pro tip, if you see any comments like this…It’s a scam:
Keep it simple, but not too simple: Make sure you’re secure, but don’t create a 200 character passwords even you cannot remember. Keep in mind, if you lose access, you’re done!
Back up data any time you can. Many wallets (including the coinbase wallet app) will have a seed phrase. This is can be used to generate all of your private keys and effectively move your wallet from one device to another (don’t forget to do this when you get a new phone).
Here is an example seed phrase (these can often be found in the settings of the app):
witch collapse practice feed shame open despair creek road again ice least
I highly recommend you write this down somewhere super secure or memorize it perfectly.
This seed phrase example came directly from the Bitcoin Wiki, a great place to learn more about Bitcoin and online transactions.
Congratulations! You’ve purchased Bitcoin for the first time and are on your way to being a cryptocurrency pro!