Bitcoin is the world’s most popular and expensive cryptocurrency. Luckily, knowing how to invest in bitcoin is not as complicated as it may seem. This is partly why there are so many speculators in the market.
This article will assist in learning how to invest in the cryptocurrency by highlighting a step by step process. You’ll find that acquiring BTC is not that difficult, as long as you’re willing to spend a bit of time learning the basics.
Preliminaries To Set You Up For Success
If the world of Bitcoin is new to you, we would suggest viewing our guides on Bitcoin and cryptocurrencies to orientate yourself before learning how to invest in these digital assets. This will minimize any confusion over cryptocurrency terminology. Also, note that there is a difference between cryptocurrency investment and cryptocurrency trading.
Even though each bitcoin is currently worth almost ten thousand dollars, users can own fractions of a token. This effectively means that most people that are interested in learning how to invest in bitcoin can afford to get in on the game.
Since its inception, a limit was set for the number of coins that are allowed in circulation to 21 million. This maximum number will be reached soon. If the cap on the number of BTC is kept and then reached, this will eventually affect the price, for better or worse. This must be kept in mind when learning how to invest in bitcoin.
Furthermore, the value of the digital asset as an entity is dependent on a few other factors, such as investor and public sentiment, and its potential adoption into the mainstream financial markets. The value of competing cryptocurrencies is also a factor, but even Ethereum, which is second-placed in terms of total market capitalization, is far behind the ‘original coin’.
With the above in mind, we can now get to the nuts and bolts of learning how to invest in bitcoin.
Before You Start: Required Tools Of The Trade
If you want to invest in bitcoin there are a few bases to cover. Before going into the step by step process, it’s worth knowing about the process in general.
You’ll need to acquire a digital crypto wallet and create an account at an exchange. We’ll go through that in a bit more detail below. The payment method can be done with a simple bank account, or by using either a debit or credit card.
There are other ways to get BTC, such as at dedicated bitcoin ATMs and direct peer-to-peer digital exchanges, but we won’t be covering them in this article.
Transactions with bitcoin (or any other cryptocurrency) are done via public and private key encryption. For this reason, a private key must be just that: private.
You must also keep in mind that the individuals you transact with can see the balance of your currency in the public address you used to do the transaction. For this reason, it’s perhaps wise to keep significant investments apart from public addresses where transactions are often performed.
With that out of the way, let’s delve into the different steps which will give you an understanding of how to invest in bitcoin.
How To Invest In Bitcoin: Step By Step Guide
1. First step: Getting a bitcoin wallet
Before all else, you’ll need to acquire a digital wallet to store the bitcoin you’ll be investing in.
There are a few options to choose from regarding the types of digital wallets out there, but they generally fall into the category of “software” and “hardware” styles.
Software Wallets
Software digital wallets are applications that interact with your bank account to provide access to your bitcoin. This also facilitates easy access to your bitcoin.
A problem with this type of wallet is that they’re provided by third parties. When looking for a digital wallet, make sure to use one from reputable third parties that have a user base who vouch for its excellence. In other words, make sure that where you end up storing your bitcoins is a safe bet.
One of the most popular and reputable digital wallets from a third party is the one provided by Coinbase. We’ll go into Coinbase in a bit more detail below, but for now, it is a digital cryptocurrency exchange that also provides a wallet as part of its services. This makes it easy for someone beginning with their investments, as the exchange can be directly connected to a wallet.
There are, of course, several other options out there to choose from. For those looking for increased security, you could try Mycelium, but the nature of the increased security means that it’s more difficult to use. Blockchain Wallet is a popular and well-known example, while Bitcoin Core is the official Bitcoin wallet that one could also use.
Hardware Wallets
Hardware wallets, by comparison, take your bitcoins offline. A physical medium is used, which separates your investments from any interference by allowing you to store your private keys on the hardware. This has a direct bearing on the security of your investments as your private keys are severed from any intrusion through an internet connection.
They are usually kept in a device that looks similar to a regular flash drive. The most well-known manufacturers are Ledger and Trezor. While one should always be careful of receiving hardware that is created to house such sensitive material, these two companies are reliable and their hardware is extensively used.
2. Second step: Connecting your bank account
Purchasing bitcoin requires a connection between your wallet and your bank account or cards. It’s up to you to decide how you’d want to set up the banking side of things. In learning how to invest in bitcoin, take note of the fees associated with transactions, especially if you’re dealing with large sums.
Linking your wallet directly with your bank account allows for the buying and selling of BTC directly to and from your account. Although, using a bank account linked to Coinbase, for example, could take up to five days to process.
If you are using a debit or credit card, the wait time is drastically decreased to a few minutes. Most popular exchanges, however, limit the buying of crypto in this way to smaller amounts relative to the use of bank accounts. Furthermore, selling your BTC or moving it into a bank account is difficult if your wallet is directly connected with your debit card.
3. Third step: Joining an exchange
Exchanges are the digital marketplaces where cryptocurrencies, including bitcoin, are traded for fiat currencies or altcoins.
Take note that different exchanges vary in what they offer, and can span the spectrum with regards to reliability and popularity. Other things to take note of include security, exchange rates, processing fees, and the number and types of cryptocurrencies available.
Most exchanges have wallets built into their system and are available for users, although not all treat security as their main concern. For this very reason, it’s advisable to only use Coinbase’s wallet if you are a first-time user and would prefer using one on an exchange.
Otherwise, you can set up your own wallet if you feel confident in doing so, which is advisable for security reasons, especially with long-term or large investment sums.
As stated above, Coinbase is the safest beginner’s bet. It’s limited in that you can only buy at the market price with higher premiums, but you are ensured of increased security and ease of use.
Once you’ve got the lay of the land and understand the intricacies of the other exchanges out there, you could branch. As of writing, Binance is the world’s largest crypto exchange, and you could even use the more advanced Coinbase Pro for more active trading.
It’s up to you to research exchanges and decide on a suitable one to meet your requirements. They all offer different services and, once you’ve gained confidence in how to invest in bitcoin, you can shift to whichever exchange suits your needs.
4. Fourth step: Place those orders
Once you’ve set up all of the above, you can get ordering your coins. Even if you don’t have extensive capital, you can invest in fractions of an entire coin to enter the market. This can still be worth a lot, especially in terms of long-term investment.
After you’ve moved your fiat currency into your exchange account, you can begin to trade it for bitcoin. Thereafter, your bitcoin is transferred into your wallet. The process can go the other way as well, by trading bitcoin for fiat currency, depending on the exchange.
The Rewarding World of Bitcoin Investment
The above should help you gain your footing with regards to knowing how to invest in bitcoin.
We went through the general overview of what a potential investor needs to do. This culminated in the four main steps you’ll need to perform to begin your bitcoin investment journey, thereby learning the basics of how to invest in bitcoin.
Remember to do your research in order to acquire the wallets and exchange accounts that will work for you.
