5 things to know before buying bitcoin for the first time

The most important things to know before buying bitcoin

The things to know before buying bitcoin include the technology that helps run its network, its advantages, and how to store and buy or sell Bitcoin. So, if you ever searched for an article that gives you all the basics about Bitcoin in one place, you’ve found it!

What is Bitcoin?

Created in 2009 by Satoshi Nakamoto, Bitcoin was imagined as an alternative to our traditional financial ecosystem. It has the goal to be decentralized, away from the control of any government and central banks. 

As such, new bitcoins are created by a mathematical process called mining in contrast to FIAT money which is printed by central banks. This allows the network to be decentralized, without anyone being able to shut it down, control its governance, or issuance of new bitcoins. 

Every transaction on the Bitcoin network is recorded on a public ledger (the blockchain) that is freely accessible to anyone. This creates a trustless and transparent network, governed by the people using the network, instead of a central governing body. 

In short, bitcoin is a peer-to-peer digital currency, where users don’t need a third party to send coins to each other.

What are the advantages of Bitcoin?

Because it’s decentralized, Bitcoin offers some clear advantages over traditional currencies, including: 

• Permissionless – no one needs permission to use the Bitcoin network. All you need to do is create a wallet and you can start sending and receiving coins. Moreover, Bitcoin is borderless, which means that this feature allows individuals from all around the world to participate in the growing internet economy. 
• Highly secure – the distributed Bitcoin ledger is simultaneously present on millions of computers around the world. This allows for the network to be extremely resistant to change and doesn’t present a single point of failure like centralized server systems. 
• Fraud resistant – because bitcoins are simple transaction records on the blockchain, they cannot be duplicated or counterfeit. Additionally, bitcoin transactions are permanent, which entirely eliminates chargeback fraud attempts. 
• Deflationary – there are only 21 million Bitcoins that will be ultimately mined. This limited supply acts as a deflationary measure and acts as a hedge against FIAT inflation. 
• Fast and cost-effective remittances – finally, because there are no costly third-parties handling the transactions, international bitcoin transfers are both fast and cheap compared to international FIAT remittances. 

These advantages have helped the price of Bitcoin increase by more than 1 million percent since it was first made available for purchase back in 2009.

How do you store Bitcoin?

The blockchain uses cryptography to be able to locate Bitcoins on the ledger and sign transactions. More precisely, the following codes are used: 

• The private key – which acts as the PIN code to your coins and is used to sign the transactions on the blockchain. Because only the owner of the private key can spend Bitcoins, it’s imperative that this key is kept secret.
• The public address – which acts as the account number for your coins. This is the address that you will be sharing online whenever you wish to receive bitcoins from another user or a trading platform. 

So, to store your Bitcoin keys, you will need a specialized piece of software called a bitcoin wallet. Consequently, there are different types of wallets, serving different types of Bitcoin users and purposes. 

• Mobile wallets – these smartphone apps allow you to store your keys on your phone. They are handy for daily usage, but not recommended for storing high amounts of bitcoin because smartphones can be easily lost or stolen. Popular mobile wallets include Exodus and Mycellium. 
• Desktop wallets – these software solutions turn your computer into your personal Bitcoin vault. They have handy interfaces to handle your transfers and can be used to store larger amounts of Bitcoin. The caveat is that your computer remains a vulnerable piece of hardware that needs to be updated frequently. Some popular choices are Electrum and Armory. 
• Hardware wallets – these USB devices are specifically designed to store Bitcoin keys and use military-grade hardware to encrypt them. They provide the best of both worlds – high security and a great user interface for daily transactions. The only caveat is that, unlike their software counterparts, they aren’t free. Some of the best hardware wallets are the Trezor and Ledger devices. 

Where to buy and sell Bitcoin?

Now that you are familiar with the advantages of Bitcoin and know how to store it, we can finally give you some pointers on how to buy it quickly and safely. Keep in mind that if you are buying from a regulated exchange, Bitcoin purchases require that you undergo an identification procedure known as KYC. 

These have been made mandatory in most countries as they allow government agencies to track the usage of Bitcoin for money laundering, funding terrorism, and other criminal activities. 

With that in mind, there are several great methods of acquiring Bitcoin including: 

• Crypto exchanges – which usually offer a wide variety of payment methods, such as credit cards or bank transfers. While convenient, the disadvantage with crypto exchanges is that they use an online wallet to store your coins and keep custody of your keys. The most popular exchanges are Binance, Coinbase, and Kraken. 
• Crypto brokers – these platforms offer a smaller choice of popular cryptocurrencies and offer a good range of payment methods like PayPal or other popular digital wallets. The main advantage of crypto brokers is that they will send your Bitcoin straight to your wallet. Popular choices are Coinmama and Paybis. 
• Peer-to-peer bitcoin exchanges – these platforms act as a middleman between people that want to buy and sell bitcoin. Sellers can place their offers and buyers can find the best offer that suits them. The biggest advantage is that these require minimal KYC and offer the largest selection of payment methods, including credit, debit, checks, gift cards, and every digital payment processor you can imagine. Paxful and LocalBitcoins are the best p2p crypto exchanges. 
• Bitcoin ATMs – for those that are lucky enough to have a Bitcoin ATM near their residence, these machines are similar to cash ATMs. In addition to traditional payment methods like debit or credit, Bitcoin ATMs usually accept cash as well Moreover, if the amount is not too large, they will require minimal KYC, allowing you to quickly convert your cash money to Bitcoins and vice versa. 

Wrap-up

Bitcoin is the original cryptocurrency that jump-started an entire industry involving blockchain technology. Even though its price can be volatile in the short term, one of the things to know before buying bitcoin is the fact that its value has been steadily increasing over the years. 

That said, its success is undeniable, both as a currency and a store of value. More and more people are adopting Bitcoin, and with institutional investors joining the financial revolution, Bitcoin is certainly here to stay and grow.