How to buy Bitcoin?
Firstly, this guide is gonna be real simple. Like absolutely for beginners. So bear with me if you have some knowledge already.
Before we start, you are going to need 2 things:
1. Money (duh)
2. Internet connection (which you should already have because you’re here on this webpage!)
So… how do you buy crypto?
Like any product or goods, we buy it in a marketplace online. We use our fiat (real money), go to an exchange, and exchange that money for cryptocurrencies like Bitcoin. Sounds easy enough?
Wait… what exactly is an exchange, and how does it work?
You’ve probably heard of Coinbase; that’s an example of an exchange. An exchange is simply a platform where people… exchange goods. Just like a stock market exchange, where people buy and sell their stocks, the same goes for cryptocurrency exchanges, where people buy and sell cryptocurrencies.
In crypto, there are 2 main kinds of exchanges:
1. Fiat-to-crypto exchange – Where you can use fiat (money) to buy crypto, or sell crypto for money (cashing out). Usually these exchanges have very few coins, only listing the main core coins such as Bitcoin, Ethereum and Litecoin. The currency pair would look something like BTC/USD = $10,000 – indicating that 1 BTC is worth USD$10,000. (In a currency pair, the first symbol is always 1).
2. Crypto-to-crypto exchange – Where you can only use crypto to buy other crypto; for eg, Using Bitcoin to buy other alternative coins (altcoins) like Ripple. An example would look like XRP/BTC = 0.00012133 – meaning that 1 XRP (Ripple) is worth 0.00012133 BTC. If you need to find out how much is that in real money, just multiply 0.00012133 with the current BTC price, for eg 0.00012133 * USD$10,000 = USD$1.2133. These exchanges usually list many different cryptocurrency pairs. However, you cannot cash out and sell your crypto for cash, so you need to change them at a fiat-to-crypto exchange.
Some exchanges can simply be a mix of both!
So an exchange is the ‘company’ that sells me crypto and takes my money?
Well not exactly. Most of the time, the exchange simply acts as a matchmaker between buyers and sellers, so you’re actually buying crypto off someone else, at the price point that you’re willing to buy and he’s willing to sell. That’s about it!
How does the exchange make money then?
As always, the exchange isn’t just here to do charity and make our lives a better place out of goodwill. They charge fees for this service, sometimes a flat rate, sometimes a % of the order. These small fees may not seem much, but when you add up hundreds of thousands of trades each day, they do add up to a hefty amount. Each exchange has their own rates on fees, so be sure to check them out before making a trade.
Okay enough small talk, how do I get started?!
Well first of all, you need to register at a fiat-to-crypto exchange. For beginners, I would highly recommend Coinbase due to its simple interface. They also have an amazing mobile app which allows me to trade easily when I’m on the go outside. The fees are slightly higher compared to others, but I find it reasonable still in exchange for the convenience and assurance. Not to mention that they’ve been one of the pioneer exchanges from the start, so they’re relatively established and safe. Do your own diligence, find out what works for you! You can have a list of all exchanges here.
The registration process will not take long, but the verification process will. Most of the time, you would only be able to start trading only after you’re approved and verified, so don’t expect to start buying anything off the bat. Usually you would need to provide documentary/photo proof of your identity and address, such as ID card/passport/driver’s license, and a recent bill of some sort mailed to your residence as proof of address. Once you’re done submitting, you can only wait. This might take anywhere from 2 days to weeks, to months even, depending on how busy they are, so I would advise you to just register at as many exchanges as possible since the verification takes some time. If you submit the wrong documents, or the photos are not of high quality enough, chances are your verification will get rejected or delayed, so do ensure you don’t mess up this part!
If you want to buy Altcoins, you need to do the same thing again, but this time for crypto-to-crypto exchanges. There are many more options now, and some not even requiring verification (Binance), whilst some still do (Poloniex). Read the Altcoins Guide for more info.
There are so many exchanges, which do I sign up for??
Before you sign up, you usually want to check which exchanges have the coin you want to buy, because every exchange lists different coins. The best way is to check at Coinmarketcap website. You will see a list of all the coins, find the one that you want to buy and click on it. For example if I want to buy Ripple (XRP), I would find and click on that. Under ‘Markets’ tab, you will be able to see all the current exchanges it’s available on, and what pairs. If you see anything ending with a fiat symbol at the back like XRP/USD or XRP/EUR etc, then it means those coins can be traded directly with money (fiat-to-crypto exchanges). If you see something else not so familiar to you like XRP/BCH or XRP/ETC then those are coins (crypto-to-crypto exchanges). Register at those exchanges, submit documents for verification if required, and just wait. Alternatively, you can just use Coinscanner to automatically search for you easily!
Alright, I’m verified! What do I do next?
First, you need to get fiat (money) into the exchange, only then you can buy coins. There are many ways to do this, depending on the exchange, and the country you’re from.
- Link your bank account, and then do an internet banking transfer over – Usually the best option, low fees and fast
- Wire transfer – Takes some time, and high chance of getting bounced or stuck due to processing or wrong information entered, which may result in your money being in transit for weeks. Remember you’ll still be charged wire fees even if it bounces!
- Online transfer via 3rd party like Paypal, Xfers, etc – Fast and average fees, but usually needs some form of verification initially
- Linking a Debit card / Credit card – Almost immediate but high fees, and you should not be ‘investing’ with credit anyways 🙂
Okay, I’ve deposited money into the exchange. Now how do I buy?
Great! You’re almost there to being a cryptocurrency investor! Log in to your fiat-to-crypto exchange, and ensure there are sufficient funds in there. Once confirmed, find a ‘Markets’ or ‘Exchange’ tab, it differs across exchanges. Select the pair that you want to buy. For eg if you want to buy Bitcoin using USD, then you should be looking for BTC/USD. Click buy on that pair, and you will be presented with two options (usually), the Market Order and the Limit Order.
1. Market Order – The easy way for beginners. Enter how much you want to buy (for eg USD$500), click this and everything is done for you, buying your specified amount at the current market price when you clicked the button. Market BUY orders purchase the cheapest available on the order book, and market SELLS fill the most expensive buy order on the books.
Pros: Usually immediate filling (means your trade order is successful and you get your coins without delay)
Cons: No control over the price, may pay a much higher price than what you intended or what is shown on the screen
2. Limit Order – This is slightly more advanced but not too hard to use. Here, you can choose how much you’re willing to pay for the coin. For eg, if BTC/USD is $10,000 now, but I only want to buy if it’s at USD$9,800. So you enter the limit order of BTC/USD $9800 and wait. You will see the order there, and should still be open (not executed) because the price hasn’t dropped to $9800 yet. When it hits $9800 a few hours later (maybe?) then it will execute, you will get your BTC at a cheaper price of $9800. If it doesn’t drop to $9800, then nothing will happen, you will still have your cash intact, no fees no nothing. Limit orders are usually set to expire by end of day, but some has the option to never expire.
Pros: Higher control over the price point you want to enter, and potential deal if someone keys wrongly and sells cheaply.
Cons: Order takes some time to fill, or may not even fill if the price continues moving in the opposite direction. You might now have to purchase it at an even higher price than before if you are fearful on missing out. Also, there is a chance you can mess this up by entering the price wrongly (maybe a digit more or less, or wrong decimal point), then you might have a problem in the case you sell extremely low or buy extremely high.*Not all exchanges have these options. For eg Coinbase does not have limit orders, only market orders. If you want to do limit orders on Coinbase you have to do it on GDAX (They are the same company, just GDAX is a more ‘advanced’ version).
What if I don’t have enough money to buy a whole Bitcoin?
Don’t worry, you don’t have to buy it as a single coin, not many of us have the cash to do so, now that Bitcoin is about USD$11,000 a coin!
For eg, Bitcoin is divisible by up to 8 decimal places, the unit is called a ‘Satoshi’. In theory, you can have less than a cent or penny invested in Bitcoin. If you only have $500, you can buy $500 worth of Bitcoin, and that will give you $500/$11,000 = 0.04545454 Bitcoin. The same goes for all other coins, you can just buy with any amount you’re comfortable. However, investors will usually buy higher amounts at a lower frequency to save costs on transaction fees. Doesn’t make sense to buy $10 worth of Bitcoin when the fee is already $16-25, and rising.
Choose whichever buy method you’re comfortable, and viola! Congratulations! You are a now a cryptocurrency investor! Go on to the ‘funds’ or ‘wallet’ tab to check, you should see your newly bought coins there. The amount will be slightly lesser due to after offsetting the transaction fees. That’s it!
*This article is intended as educational material and not as professional financial advice. As always, do your due diligence and research. Remember, only invest what you can afford to lose!