While Bitcoin is the original (and most famous) cryptocurrency in the world, figuring out how exactly to get your hands on it can be quite difficult for the uninitiated.
As cryptocurrency markets have gained a reputation for massive returns, by now most traditional investors will at least be curious about how to go about trading digital currencies.
Knowing the basics of how to buy, sell and exchange Bitcoin is a good start.
A word of warning - whilst the price of Bitcoin has at times rocketed, it has also effectively collapsed to massive losses with extreme volatility.
Like any investment, it is important to acknowledge the potential pitfalls and determine whether you’re comfortable with the risks associated with these instruments.
Setting up a digital wallet
To store Bitcoin, or other cryptocurrency, one will need a digital wallet.
This are essentially like a Bitcoin bank accounts. These online wallets (hosted either by a bitcoin exchange platform or independent provider) live on your PC desktop, or mobile phone (or indeed, on some other digital device).
A wallet can generate private keys for its user. These are essentially secret pieces of data, used to authenticate transactions and prove ownership.
Private keys should, unsurprisingly, be kept secret as they can be used to access your Bitcoin address and sign off on transactions from your wallet.
In other words, your entire wallet could be emptied if someone got access. Similarly, if you lose or forget the key you won’t be able to access the wallet either.
As is the case with many elements of blockchain and cryptocurrency matters, there’s in reality a wide variety of wallet types and there’s significant variance between platforms and service providers – arguably this is one the fastest moving segments in all of ‘fintech’.
Opening an exchange account
Now you have the means to own and keep digital assets, to actually buy Bitcoin, you’ll also need to access a cryptocurrency exchange.
Hundreds of exchanges are currently operating globally, although, like wallet providers, there’s a lot of variance between them – there’s varying levels of liquidity and regulation, and, geography may also be a decisive factor.
Depending on your location, there may only be a few available - even though the crypocurrency market is supposedly decentralised, the means by which you’ll transfer real world monies in exchange for digital assets is governed by real world jurisdiction.
Frankly, it is better to do some research to be clear which exchanges are more easily accessible in your specific region.
That being said, here are a few of the better known exchanges.
The largest Bitcoin exchange in terms of volume (by US dollar value) is Bitfinex, although there are other high-volume exchanges such as Coinbase, Bitstamp, and Poloniex.
For trading small amounts of Bitcoin, most reputable exchanges should be appropriate.
Albeit, the recent surge in interest has revealed some amount of strain on buy and sell operations so an element of caution and patience may be understandable, from a traditional investor’s point of view.
Regulatory position environment continues to evolve
Know-your-client (often abbreviated to KYC) and anti-money laundering regulations increasingly clamp down on cryptocurrency trading.
Investors can expect to provide verification of identity themselves, at least for the reputable exchanges and service providers.
Once you have an account, most exchanges will accept payments vie bank transfers and credit cards, as well as PayPal in some cases.
Transactions take place on the customer’s behalf, and deposit it in an automatically generated wallet on the exchange.
The process can vary between a few minutes to a few hours, depending on the size of the exchange and any network bottlenecks.
Once purchased, the Bitcoins can be moved to an off-exchange wallet.