How To Invest In Bitcoin Fractions

Bitcoin is a decentralised digital currency that operates without the oversight of banks and governments. It is one of the most widely used types of cryptocurrency, with virtual coins or tokens used in place of physical cash.

Bitcoin's value comes from its finite supply, as well as its store of value and payment system. It can be purchased from cryptocurrency exchanges, such as Coinbase, Binance, Kraken, and Gemini, or through peer-to-peer money transfer apps like PayPal, Venmo, or Cash App.

When buying Bitcoin, it's important to consider the risks involved. It is a highly volatile asset, prone to large and fast swings in value, and there are security risks associated with owning digital currencies. As with any investment, it's crucial to do your research and consult financial professionals before making any decisions.

Hot wallets vs cold wallets

Hot wallets and cold wallets are two types of cryptocurrency wallets that offer varying levels of convenience and security.

Hot wallets are connected to the internet, making them easily accessible and suitable for regular transactions. They are primarily mobile or desktop applications and are free to use. However, they are vulnerable to online attacks and security breaches, which could result in stolen funds. Examples of hot wallet solutions include Metamask, Trust Wallet, and Coinbase Wallet.

On the other hand, cold wallets are offline storage solutions that provide enhanced security for long-term investments. They are less convenient to access and may require additional steps to connect to the internet. Cold wallets include hardware wallets, paper wallets, and offline computers. Hardware wallets, such as Ledger and Trezor, are considered the most secure option. Paper wallets involve printing the public and private cryptographic keys on paper, which can then be stored in a safe location.

The choice between a hot wallet and a cold wallet depends on an individual's specific needs and preferences. Some people use a combination of both, storing smaller amounts in hot wallets for regular transactions while keeping larger investments in cold wallets for long-term security.

How to buy bitcoin with PayPal

Yes, it is possible to buy Bitcoin with PayPal. Here is a step-by-step guide on how to do it:

• Sign up for a PayPal account if you don't already have one.
• Fund your PayPal account by linking it to a bank account, debit card, or credit card. PayPal does not support the use of credit cards or PayPal Credit for crypto purchases.
• Visit the Crypto or "Crypto Hub" section of the PayPal website or mobile app.
• Choose Bitcoin as the cryptocurrency you want to buy.
• Select the amount of Bitcoin you want to purchase. You can also choose a recurring investment frequency (daily, weekly, biweekly, or monthly).
• Review the exchange rate and transaction fee. PayPal earns money from the crypto spread, or the difference between Bitcoin's market price and its exchange rate with the US dollar.
• Confirm the transaction and authorise the purchase.

It is important to note that while you can buy Bitcoin with PayPal, there are limitations to what you can do with it. PayPal does not allow users to transfer Bitcoin purchased on its platform to other accounts or external digital wallets. Therefore, if you want to move your Bitcoin around easily, you may want to consider buying Bitcoin through other platforms that support PayPal as a payment method, such as Coinbase, eToro, or Exodus.

How to buy bitcoin with a credit card

Yes, you can invest in a portion of bitcoin. Cryptocurrency exchanges allow you to purchase fractions of bitcoins, so your initial investment could be as low as $25.

• Research the Credit Card: Not all credit cards support the purchase of Bitcoin. Some examples of cards that do are: American Express, Visa, Mastercard, and Discover. Each of these cards demands unique fees, so be sure to research the fees charged by your payment company.
• Research the Exchange: Some exchanges support the purchase of Bitcoin with a credit card, while others may not. Even when using an exchange that allows credit card purchases, it may take time to process and validate the transaction. Examples of exchanges that support credit card purchases include Binance and Kucoin.
• Link the Credit Card: After finding an exchange that meets your requirements, verify your account by providing personal information to meet Know-Your-Customer (KYC) requirements. Then, link your credit card to the exchange by entering your full name, card details, and billing address.
• Select Bitcoin and Amount: Once your credit card is linked, select Bitcoin and enter the amount you wish to purchase. You will then be redirected to your bank's one-time password transaction page. Follow the instructions, and the Bitcoin will be deposited into your wallet if the transaction is successful.

It is important to note that purchasing Bitcoin with a credit card can result in higher transaction fees and interest rates than regular purchases. Additionally, some credit card companies treat Bitcoin purchases as cash advances, which can lead to higher fees and interest rates. Therefore, it is generally advisable to pay for cryptocurrency purchases with cash or another cryptocurrency.

How to store bitcoin

There are several ways to store Bitcoin, each with its own pros and cons. Here are some of the most common methods:

Hot Wallets

Hot wallets are connected to the internet, making transactions generally faster and more convenient. However, they are also more vulnerable to hacking attempts. Examples of hot wallets include:

• Online Wallets: These are apps installed on internet-connected devices such as computers, phones, or tablets. While convenient, they are less secure since they generate private keys on these devices.
• Mobile Wallets: These are programs hosted on mobile devices, allowing for quick and easy transactions. However, they are not very secure, as mobile devices can be lost or stolen.
• Exchange Wallets: Crypto exchanges like Coinbase often provide integrated hot wallets. While convenient, they are less secure since they are attractive targets for hackers.

Cold Wallets

Cold wallets are not connected to the internet, making them a much more secure option for storing Bitcoin. However, they are less convenient for frequent transactions. Examples of cold wallets include:

• Hardware Wallets: These are small, encrypted devices similar to USB drives that store your private keys offline. Examples include Ledger, Trezor, and Coldcard. They are considered the safest option for storing Bitcoin but can be more complicated to set up and use.
• Paper Wallets: This involves printing your public and private keys on paper and storing them in a safe place. While very secure, there is a risk of physical damage or loss, and it is a less convenient method for frequent transactions.
• Desktop Wallets: These are programs downloaded and installed on a computer. While they offer more security than online or mobile wallets, they are still connected to the internet and are therefore vulnerable to hacking attempts.

Additional Considerations

When choosing a Bitcoin wallet, it's important to consider your needs and risk tolerance. Here are some additional tips for secure Bitcoin storage:

• Backup Your Wallet: Regularly back up your entire Bitcoin wallet to prevent loss due to computer failure or other issues. Ensure your backups are also stored securely and include all necessary files.
• Use Strong Authentication: When creating accounts for your Bitcoin wallets, use strong passwords and enable two-factor authentication for added security.
• Update Your Software: Keep your wallet software and operating system up to date to patch security vulnerabilities and reduce the risk of hacking.
• Use Multiple Wallets: Consider using multiple wallets for different purposes, such as a hot wallet for frequent transactions and a cold wallet for long-term storage.
• Seed Phrases: A seed phrase is a series of randomly generated words that act as a master password for your wallet. They are easier to memorise and store than private keys and can be used to recover your wallet if it is lost or stolen.

How to invest in bitcoin indirectly

Investing in Bitcoin can be a complicated and risky process. For those who want to invest in Bitcoin without holding the cryptocurrency themselves, there are a few options for indirect investment. Here are some ways to gain exposure to Bitcoin without purchasing the coins directly:

• Invest in companies that hold Bitcoin: Some publicly traded companies have added Bitcoin to their balance sheets. For example, Tesla and MicroStrategy have directly invested in Bitcoin. By investing in these companies, you can gain exposure to Bitcoin without holding the cryptocurrency yourself.
• Look at companies with technology related to Bitcoin or blockchain: Some companies have technology related to trading cryptocurrencies or use blockchain technology. For instance, Square and Paypal allow users to trade cryptocurrencies on their platforms, while Riot Blockchain and Galaxy Digital focus specifically on cryptocurrencies and blockchain. Big technology companies such as Microsoft, IBM, Google, SAP, and Amazon also utilise blockchain technology in different parts of their businesses.
• Invest in hardware companies: Graphics processing units (GPUs) are necessary for computers to solve the complex equations involved in blockchain technology. Investing in companies that manufacture these GPUs, such as Nvidia, can provide exposure to the crypto market without directly investing in Bitcoin.
• Consider cryptocurrency funds: Some companies, such as Grayscale and Osprey, offer funds that hold Bitcoin and other cryptocurrencies. Investing in these funds can provide a more familiar structure for retail investors who are uncomfortable with the complexities of direct cryptocurrency investments.
• Exchange-traded funds (ETFs): A Bitcoin-backed ETF, such as the one offered by Grayscale Bitcoin Investment Trust (stock ticker GBTC), allows investors to gain exposure to Bitcoin without actually owning it. While there may be a premium over investing directly in Bitcoin, ETFs are traditional investment vehicles with shares titled in the investor's name, providing a sense of security and familiarity.
• Bitcoin futures: Bitcoin futures are financial contracts that oblige the buyer to purchase Bitcoin and the seller to sell Bitcoin at a predetermined future date and price. This can be a way to speculate on the future price of Bitcoin without actually owning the cryptocurrency.

Frequently asked questions