The Ultimate Guide: Getting Started With Bitcoin

Bitcoin is a form of digital currency that uses blockchain technology to support transactions between users on a decentralised network. It was created to solve some of the flaws in the cryptocurrency system, such as the fraudulent duplication of coins. Bitcoin is one of the most widely used types of cryptocurrency and its value has increased by more than 763% in just one year.

If you're a beginner looking to invest in Bitcoin, here are the steps you can follow:

1. Choose a broker or crypto exchange: You can buy crypto through a broker or a crypto exchange. Crypto exchanges, such as Coinbase, Netcoins and Kraken, tend to have lower fees but more complex interfaces. Crypto brokers, such as Wealthsimple Crypto, offer user-friendly interfaces but may charge higher fees.

2. Create and verify your account: Sign up and provide personal information, such as your driver's license or passport, to prove your identity.

3. Deposit cash to invest: Fund your account by linking your bank account, authorising a wire transfer or using a debit or credit card for payment.

4. Place your cryptocurrency order: Decide on the cryptocurrency you wish to purchase and enter its ticker symbol, such as BTC for Bitcoin, and the amount you want to buy. You can also buy fractional shares of cryptocurrencies.

5. Select a storage method: Crypto exchanges are vulnerable to theft or hacking, so it's important to choose a secure storage place for your cryptocurrencies. You can either leave your crypto on the exchange or transfer it to a separate hot or cold wallet.

What is Bitcoin?

Bitcoin is a form of digital currency that uses blockchain technology to support transactions between users on a decentralised network. It was launched in 2009 by a pseudonymous figure or group of programmers using the name Satoshi Nakamoto, and it was the first of its kind. Bitcoin can be used as a currency or an investment.

Bitcoin is decentralised by design, meaning that it is not owned or controlled by any single entity. It is open, public, and practically impossible to censor. Anyone can use Bitcoin and contribute to the collaborative development of its software. Bitcoin transactions are auditable and immutable; every transaction can be viewed publicly, and once it has been executed, it is impossible to undo it.

Bitcoin transactions are authenticated through its proof-of-work consensus mechanism, which rewards cryptocurrency miners for validating transactions. Miners are the owners of high-speed computers that independently confirm each transaction, adding a completed "block" of transactions to the ever-growing "chain". The blockchain is a complete, public, and permanent record of every Bitcoin transaction.

Bitcoin is also referred to as "digital gold", and it is the largest cryptocurrency by market capitalisation. It is a pioneering digital currency, and the launch of Bitcoin set in motion the global crypto and blockchain phenomenon.

How to buy Bitcoin

There are several ways to buy Bitcoin, each with its own advantages and disadvantages. Here is a step-by-step guide on how to purchase your first Bitcoin, along with some essential things to keep in mind.

Step 1: Choose a Bitcoin Exchange or Brokerage

Firstly, you need to decide where you want to make your Bitcoin purchase. Most people use a cryptocurrency exchange for this purpose. There is no official "Bitcoin exchange" since it is an open-source technology. However, several exchanges facilitate Bitcoin transactions, acting as middlemen for cryptocurrency investments. Some popular options include:

• Coinbase
• Binance
• Kraken
• Gemini
• Bitfinex
• EToro
• Crypto.com

Step 2: Get a Bitcoin Wallet

When you buy Bitcoin, you will need a "wallet" to store your cryptocurrency. There are two main types of wallets: a "hot wallet" or a "cold wallet."

A hot wallet is one operated by either your cryptocurrency exchange or a third-party provider. Some exchanges will automatically provide you with a hot wallet when you open an account. Hot wallets are convenient because you can access your Bitcoin through the internet or a software program. However, they are not the most secure form of storage. Examples of hot wallets include Electrum and Mycelium.

A cold wallet, on the other hand, is the safest option for storing your Bitcoin. It is a physical hardware device, similar to a flash drive, that stores your Bitcoin offline, making it less vulnerable to hacking. Cold wallets typically cost between $60 and $100. Some popular options include:

• Ledger Nano X
• Trezor Model T
• KeepKey

Step 3: Connect Your Wallet to a Bank Account

Once you have obtained your Bitcoin wallet, you will need to link it to your bank account. This will enable you to purchase and sell Bitcoin. Alternatively, you can link your bank account directly to your cryptocurrency exchange account.

Step 4: Place Your Bitcoin Order

Now you are ready to buy Bitcoin! Your chosen cryptocurrency exchange will have everything you need to make your purchase. You can buy a whole Bitcoin or just a fraction of one, with some exchanges allowing investments as low as $25. Remember to carefully consider your risk tolerance and investment strategy before purchasing any Bitcoin.

Step 5: Manage Your Bitcoin Investments

After buying Bitcoin, you can:

• Use your Bitcoin for online transactions where it is accepted.
• Hold onto your Bitcoin long-term, hoping for it to increase in value.
• Perform day trading by buying and selling Bitcoin with other owners, often facilitated by the cryptocurrency exchange.

Important Things to Keep in Mind

• Volatility and Risk: Bitcoin is a very high-risk and volatile investment. Its value can rise or fall dramatically in a short period, even within a few hours or days. Therefore, it is crucial to understand your risk tolerance and investment strategy before purchasing Bitcoin.
• No Intrinsic Value: Like all cryptocurrencies, Bitcoin has no intrinsic value. It is not backed by any physical asset, like gold, and there is no central regulator ensuring stable value. Its value depends solely on market demand.
• Security: While blockchain technology is secure, hot wallets are vulnerable to hacking. Therefore, consider using a cold wallet or a third-party hot wallet provider with strong security measures. Always use a secure, private internet connection when making financial transactions.
• Investor Protections: Bitcoin and cryptocurrency investments are not insured by the Securities Investor Protection Corporation. Some exchanges provide private insurance, but this does not cover individual online breaches, such as password theft.
• Credit Card Purchases: Avoid buying Bitcoin with a credit card due to high transaction fees and interest rates. It is generally advisable to pay for cryptocurrency with cash or another crypto you own.

How to store Bitcoin

Bitcoin is stored in digital wallets, which are types of computer software that connect to the Bitcoin network. There are several types of Bitcoin wallets, each with its own pros and cons. The best storage option for you will depend on your needs and preferences. Here are some of the most common ways to store Bitcoin:

• Hardware wallets: These are physical devices similar to USB drives that store your private keys in cold storage, meaning they are not connected to the internet. This makes them highly secure, as they are not accessible to hackers. Examples include the Ledger Nano X and Trezor Model T.
• Mobile wallets: These are hot wallets, meaning they are connected to the internet. They are usually self-custodial and allow you to send, receive, and store crypto using your smartphone. While mobile wallets are convenient, they may be less secure than cold wallets.
• Web wallets: These are hosted by a web service and are constantly online. They are convenient but not very secure, as you are essentially letting someone else store your keys for you.
• Desktop wallets: These are programs that reside on your computer. They are more secure than online and mobile wallets but still have an inherent security risk due to their connection to the internet.
• Paper wallets: Paper wallets are physical documents that contain your public address for receiving Bitcoin and your private key. While they are highly secure against hacking attacks, there is a risk of physical damage or loss.

When choosing a Bitcoin wallet, it is important to consider your security, convenience, and accessibility needs. If you plan to actively use Bitcoin for daily transactions, a mobile or web wallet might be a good choice. On the other hand, if you want to hold Bitcoin as a long-term investment, a hardware or paper wallet could be a better option. Additionally, you may want to consider using a combination of wallets for different purposes, such as keeping a small balance in a hot wallet for transactions and storing the majority of your funds in a cold wallet.

Risks and benefits of investing in Bitcoin

Bitcoin is a risky investment with high volatility, and it is generally recommended only if you have a high-risk tolerance, are in a strong financial position, and can afford to lose some or all of your investment. Here are some of the risks and benefits to consider:

Risks

• Volatility: The price of Bitcoin is extremely volatile and can fluctuate significantly over short periods. This makes it difficult to predict whether you will get a return on your investment.
• Security: Bitcoin is susceptible to cyberattacks, hacking, and fraud. If you lose access to your private key or become a victim of fraud, there is often no way to retrieve your lost or stolen Bitcoins.
• Regulation: The cryptocurrency market currently operates with little to no major regulations. The lack of clear and consistent guidelines from policymakers can cause uncertainty and impact how you use or access your Bitcoin.
• Insurance: Bitcoin is not insured by the Securities Investor Protection Corporation (SIPC) or the Federal Deposit Insurance Corporation (FDIC). While some exchanges provide insurance, it is usually limited to specific scenarios.
• Market: As with any investment, Bitcoin values can fluctuate due to high-volume buying and selling on exchanges. It is highly sensitive to newsworthy events, and there is no guarantee of a return on investment.

Benefits

• Decentralization: Bitcoin is designed to be decentralized, without the control of a single government, group, or central bank. This means that users have unrestricted access to their coins and are not subject to the decisions of a centralized authority.
• Accessibility: Cryptocurrencies are easily accessible to everyone, even those without access to traditional banking. Only an internet connection and a crypto wallet are required to get started.
• Lower fees and faster transactions: Crypto transactions can have lower fees and faster transfer times than traditional bank transactions. For example, crypto can avoid the high fees associated with global wires and is accessible within minutes, compared to the standard 24-48 hour bank wire.
• Blockchain technology: Cryptocurrencies operate on blockchain technology, which is fully public and immutable. This means that every transaction is visible and can be tracked at any time, providing transparency and security.
• High return potential: While Bitcoin is highly volatile, it has also yielded high returns in the past, depending on when it was purchased.

How to keep your Bitcoin secure

Bitcoin is a decentralised asset, and its lack of centralised authority means that Bitcoin holders must take full responsibility for securing and protecting their wallets. Here are some ways to keep your Bitcoin secure:

Choose a Reputable Exchange and Wallet Provider

Only deal with reputable cryptocurrency exchanges and digital wallet providers. Well-known platforms like Coinbase, Gemini, Kraken, and Binance are popular choices.

Use Strong Passwords and Two-Factor Authentication

Protect your Bitcoin wallet with a strong password that contains letters, numbers, and punctuation marks. Make sure it's something you can remember, even after many years. In addition, use two-factor authentication whenever possible.

Keep Your Private Key Offline

Take your private key offline and store it in the 'real world'. You can simply write it down on a piece of paper and keep it in a safe, dry place, protected from heat and direct sunlight.

Use Secure Internet Connections

Avoid public networks, as they are often vulnerable and have security flaws. Use your phone's hotspot or a trusted home network instead.

Use Good and Up-to-Date Antivirus Software

Install reliable and up-to-date antivirus software on your devices to protect against viruses and malware. Regularly scan your devices, especially before installing your wallet.

Be Wary of Online Services and Unknown Links

Be cautious of any service designed to store your money online, as they may not provide sufficient security. Additionally, be careful with your online activity and avoid accessing unknown or suspicious links.

Backup Your Wallet Regularly

Back up your entire Bitcoin wallet early and often to protect against computer failure and human error. Store the backups in multiple secure locations, such as USB drives, CDs, or other removable devices.

Keep Your Software Up to Date

Update your Bitcoin software and other applications on your devices regularly to receive important stability and security fixes. This will help keep your wallet safe.

Use an Offline or Cold Wallet for Savings

Use an offline wallet, also known as cold storage, to provide the highest level of security for your savings. Cold wallets are physical storage devices, similar to USB drives, that keep your cryptocurrency keys completely offline.

Diversify Your Portfolio

Diversifying your investment portfolio can help protect you from marketplace volatility. Start with low-risk investments like government bonds or index funds, then move to medium-risk options like real estate or corporate stocks, and finally, allocate a small portion to high-risk investments like Bitcoin.

Frequently asked questions