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What is a Cryptocurrency?

Cryptocurrencies have gained popularity as a means of exchange in the last decade. Through advanced cryptography, data is protected against hackers, making it a secure, efficient, and decentralized method of buying and selling goods.

To comprehend this digital asset better, let’s compare it to other forms of digital money.

What is Bitcoin?

The world’s first decentralized cryptocurrency, bitcoin – the most famous, now widely used for payments and investments.

Unlike traditional money, bitcoin isn’t printed and doesn’t go through a centralized payment gateway or central bank. Transactions occur on blockchain-based networks accessible by the public, enabling anyone to use “digital money” for purchases.

Accessible to everyone for transactions, bitcoin’s market fluctuations have been experienced by many investors since its significant rise in the investment arena some years ago.

History of Bitcoin

The history of cryptocurrencies started in the early ‘1980s. An IBM research professional, Martin Hellman, began delving into cryptography to secure networks and enable electronic fund transfers. His vision paved the way for developing digital cash.

Considered a revolutionary concept, electronic cash gained traction, with the term “cryptocurrency” first coined in 1988 by Wei Das, a computer engineer and cryptocurrency developer.

Bitcoin’s creation is shrouded in mystery. It is attributed mainly to Satoshi Nakamoto, a mysterious person (or can be a group of developers) who is reported to have developed the digital money and published its proof of concept used to test the feasibility of the blockchain project.

Nakamoto was influenced by the ideas of his predecessors to come up with bitcoin’s whitepaper. In 2008, he registered the Bitcoin.org domain.

A year after, Satoshi made the first bitcoin transaction by sending 10 bitcoins to Hal Finney, an early bitcoin contributor.

Then came what would be touted as bitcoin’s most bizarre transaction: One bitcoin owner purchased two delivery pizzas for the price of 10,000 Bitcoin units.

Back then, bitcoin still had little value so nobody knew that in today’s world, that pizza delivery is worth approximately $50 million!

And oh, Bitcoin Pizza Day is celebrated every May 22nd to commemorate the first public trading of the world’s most popular cryptocurrency.

How Bitcoin Works

For a regular bitcoin user, the entire process of sending and receiving bitcoin may be simple enough.

In reality, it’s more complicated than that so I’ve written a much simpler explanation below.

All bitcoin transactions are recorded on a public ledger called the blockchain. User A sends 1 bitcoin to User B who then uses this to pay for services to User C.

This provides everyone the ability to verify each transaction that contains digital signatures, which are recorded as a “block” and then secured in the blockchain.

This decentralized setup allows users to confirm transactions through a peer-to-peer network in real-time and in a safe and automated way.

Oftentimes people ask – Can the recording be cheated? And the answer is no.

Transactions must be similar to all computers connected to the network so there’s no need for the central bank or other financial institutions to certify each transaction and take a commission out of it.

Bitcoin transactions are processed through expensive computer hardware to help in bitcoin mining, a process where bitcoins are generated by solving complex algorithms in which transaction info is distributed to the network.

Mining bitcoins secure the network by adding each transaction to the blockchain and then releasing new bitcoins into the network.

In essence, the more problems hardware solves, the more bitcoins are mined.

However, the supply of bitcoins was designed to be fixed at 21 million BTC by Nakamoto.

The algorithms then become more difficult to compute as more bitcoins are mined in order to keep the total number of digital money growing at a fixed rate.

Why Buy Bitcoin?

Buying a bitcoin has numerous advantages that are explained in detail below.

Increased Transparency in all Transactions

Anyone can find complete information about bitcoin and the blockchain online.

Highly Secured Digital Currency

All transactions have a unique cryptographic fingerprint and a protocol where all networks (called “nodes”) agree on its history.

A Permanent Public Ledger

All transactions are recorded in the blockchain.

Low Transaction Fees

Very minimal fees that would otherwise have been expensive when third parties are involved similar to a traditional transaction.

Accepted in Many Countries

Bitcoin isn’t constrained by locality, unlike fiat money. In countries where it is legal, it is easy to transact using bitcoin.

Unlimited Transaction Regardless of the Day

Anyone can use bitcoin without being restricted by bank holidays or branch closing times.

Ensured Privacy

Unlike in online payments where merchants can track their spending, bitcoin users’ anonymity is guaranteed because of the network’s privacy protection feature.

Limitations of Bitcoin

There are, however, limitations as to what one can do with bitcoin. These consist of:

Limited Business Acceptance of Bitcoin

While many establishments now accept bitcoin (Xbox Store, Expedia), there are still many businesses that have yet to embrace its use.

High Volatility

Bitcoin is subject to erratic price volatility. From as high as $1,100 in value in 2017, it has dwindled toLess than 50% from its peak value.

Vulnerability to Fraud

Bitcoin users are often targeted by hackers and financial scammers. A popular Thai actor and his siblings defrauded unsuspecting investors of around $24 million worth of bitcoin in 2018. Local authorities revealed another scam worth $1.3 million of bitcoin in early 2019.

Lack of Refund Policy

It’s challenging to request a bitcoin refund in case of failed, canceled, or fraudulent transactions.

Excessive Electricity Use when Mining

Mining bitcoin consumes significant amounts of electricity, much of which comes from electric plants contributing to air pollution.

Bitcoin Wallet

To buy and send bitcoin, you must download a reliable and secure bitcoin wallet, which is software used to store the private key (or address) of a bitcoin address.

Each bitcoin user has a private key (address) used to send or purchase bitcoins from another address. These keys are impossible to copy and are perfect for irreversible transactions.

Upon creating a wallet, you receive a random private key (address) that always starts with the number 5, for example:

5Pb9GLw0qbAjRoqiiAA71MzPL0TsSST58hWXMqeSzZydYMBB4KU

NOTE: This is just a sample private key (address). Please do not send your bitcoin to this address.

On the other hand, when receiving bitcoins, you require a public key (address) that always starts with the number 1, such as:

1ByBDSERswWftqHFq5Bu4z4PFw7mJvNRN4

NOTE: This is just a sample public key (address). Please do not send your bitcoin to this address.

Bitcoin wallets come in different forms including desktop, mobile, web, hardware, and paper. Desktop wallets are installed on desktop computers, mobile wallets are suitable for travelers needing to buy and sell bitcoins.

Web wallets are accessible via any browser and are great for online purchases. Hardware wallets provide extra security against hackers by storing bitcoin information. Paper wallets are QR codes printed on paper, ensuring safety from online hacks.

How to Buy Bitcoin

There are various ways to purchase bitcoin, listed and explained in detail below:

1. Use a Bitcoin ATM

A Bitcoin ATM (BATM) is an automated cubicle enabling bitcoin transactions through buying (one-way) or buying and selling (two-way). You can insert cash or use a credit card to exchange for bitcoin without the need for a bank account like traditional ATMs. A small fee is deducted automatically.

Currently, there are approximately 1,500 active BATMs worldwide, with a majority in the United States and some in Europe and select Asian cities.

2. Become a Bitcoin Miner

Start mining bitcoin by setting up specialized hardware. Bitcoin mining equipment varies in cost from $1,000 to $3,000 based on hash rate, durability, and electricity usage.

Ensure efficient mining by setting up storage equipment, generators, and cooling fans for your mining operation to run smoothly.

Since the first bitcoin was mined, the mining difficulty has increased to control crypto inflation, making profitability for home-based miners challenging against large mining companies.

3. Buy Bitcoins Offline

Peer-to-peer bitcoin trading or in-person transactions offer another method to purchase bitcoins. Arrange meet-ups to exchange cash or goods for bitcoin, but exercise caution due to recorded incidents of theft in offline transactions.

4. Use a Trusted Exchange

Consider participating in a trading exchange for a safe and cost-effective way to buy bitcoin. A bitcoin trading exchange platform facilitates the buying and selling of bitcoin.

Bitcoin can be exchanged for fiat money such as USD and can also be used for storing digital currency after purchasing. One of the leading trading exchanges today is Coinbase, based in San Francisco, established in 2012 and has received significant funding. Coinbase, a popular site continuously enhances its infrastructure to support global trading and strengthen security measures.

Coinbase is a trusted platform with over 25 million users in 30 countries and is known for its compliance with U.S. regulations, backing by reputable institutions, transparent operations, secure storage options for cryptocurrencies, insurance against hacking, and support for various digital currencies. It offers low buying amounts, multiple payment methods, enhanced account security, and excellent customer support, making it ideal for newcomers to Bitcoin.

To create a Coinbase account, visit the registration page and click “Get started,” then enter your details like first name, last name, email, password, and state. Verify your account by clicking the link sent to your email and set up two-step verification with your mobile number. If you don’t have a mobile number for text messages, consider using Google Voice.6
Enter the authentication code that was sent to your mobile device.

Step 7
Fill out the form to Verify your identity, then click Continue.

Step 8
Click Verify your ID link located in the middle right of the page.

Step 9
Click Driver’s License or State Issued ID.

Step 10
Take pictures of the front and back of your driver’s license using any of the options on this page.

Step 11
Wait for a verification email in your inbox.  Once you receive the verification, return to your Coinbase account.

Step 12
Click Add payment method

Step 13
Choose funding method.  An instant debit card option is available, while others may take 5-7 days.

 

Step 14
Provide the billing address linked to your debit card.

Step 15
Enter your debit card details and then click the Add Card button.

Step 16
Go to your online bank account and retrieve the 2 holds. Enter them into this box to verify your debit card.

Buying Bitcoin on Coinbase

Now that you have a Coinbase account, you can start purchasing bitcoin on the platform.

Use the following steps for desktop and mobile bitcoin purchases.

For Desktop Users:

Step 1
Click the Buy/Sell menu on the Coinbase dashboard.

Step 2
Select Bitcoin in the Buy section.

Step 3
Choose your preferred payment method.

Step 4
Enter the dollar amount of bitcoin you wish to buy. The website will show its equivalent value in bitcoin (BTC).

You can also input the bitcoin amount, and the corresponding dollar value will be displayed.

Step 5
The purchase details will be on the right side of the page. If everything is correct, click the Buy Bitcoin instantly – $XXX.XX button on the left panel, with XXX.XX being the fiat money value.

Step 6
A confirmation message will appear. Click the Confirm Buy button.

Step 7
A check icon will appear when your purchase is successful. Click the View dashboard button to return to the dashboard.

Step 8
Check the summary of your account. Also, review your recent bitcoin purchase. Congratulations, you’re now a bitcoin owner!

For Mobile Users (iOS and Android):

Step 1
Tap the Buy icon on the Navbar at the bottom of the Coinbase dashboard.

Step 2
Confirm you are in the BTC section. If you wish to buy other cryptocurrencies like ETH or LTC, tap the respective buttons.

NOTE: When buying bitcoin, enter the dollar amount under USD. The website will show the equivalent bitcoin (BTC) value. You can also input the bitcoin amount under BTC, and see its corresponding dollar value.

Step 3
Select the wallet where you want to deposit your bitcoin.

Step 4
Click on Buy in the upper right-hand corner. The total fees will be shown based on the account used.NOTE: Using a credit card incurs higher fees.

Step 5:
Authenticate the purchase.

Congratulations, you’re now a bitcoin owner!

Using Bitcoin:

Now that you have bitcoin on your Coinbase account or wallet, what can you do with it?

Pay for Goods and Services:

Order your favorite food, pay for mobile apps or games, book your staycation, or subscribe to a dating site using digital money.

Hold on Until the Price Increases:

Store your bitcoin in your private wallet or platform account until a surge in value is good to have it exchanged for USD.

Convert to Other Cryptocurrencies:

Buy Etherium, Litecoin, or other cryptos using your bitcoin balance.

Send Money Overseas:

Arrange for your digital money to be transferred to loved ones who are located abroad.

Donate to Charity:

Many charitable organizations now accept bitcoin to support their causes. This includes digital library projects, vocational training programs in poor communities, and even healthcare.

Sell:

If you need extra cash, you can withdraw your bitcoin and have its USD or local currency equivalent deposited to your bank or PayPal account.

How to Sell Bitcoin on Coinbase:

With your Coinbase account, you can sell bitcoin easily. I’ve organized the steps for desktop and mobile users.

IMPORTANT: You may only withdraw money from selling your bitcoin in your Coinbase wallet if you have enough funds in your bank account and it is added to your Coinbase account.

For Desktop Users:

Step 1:
On the Coinbase dashboard, click the Buy/Sell menu.

Step 2:
Click the Sell section. Select Bitcoin.

Step 3:
Select the source on the Sell From drop-down menu where you want to sell bitcoins from.

Step 4
Select the account where you want to deposit the amount on the Deposit To dropdown menu. If you have a new account that you may want to add, click Add a new account.

Step 5
Enter the dollar amount of bitcoin that you want to sell. The website will display its equivalent bitcoin (BTC) value. You may also enter the bitcoin amount and its corresponding dollar value will be displayed.

Step 6
On the right side of the page, the transaction details will be displayed.
If the information is correct, click the Sell Bitcoin instantly – $XXX.XX button, where XXX.XX represents the fiat money value.

NOTE: A small fee will be deducted from your specified amount.

Step 7
A confirmation message will be displayed. Confirm your transaction.

Step 8
Click the View dashboard button to return to the dashboard.

Step 9
Check the summary of your account together with your latest transaction.

For Mobile Users (iOS and Android):

Step 1
Tap the Accounts icon on the Navbar at the bottom of the Coinbase dashboard.

Step 2
Select the wallet where you want to sell bitcoins from.

Step 3
Tap the Sell button.

Step 4
On the USD field, enter the dollar amount of bitcoin that you want to sell. The website will display its equivalent bitcoin (BTC) value.

You may also enter the bitcoin amount on the BTC field, and its corresponding dollar value will be displayed.

Step 5
Select the account where you want to deposit the amount on the Deposit To dropdown menu.

Step 6
Tap the Sell Bitcoin button.

Step 7
Authenticate the transaction by clicking the Confirm sell button.

Step 8
A confirmation message showing that your sell was successful will be displayed. Click the Go to accounts button to view your transaction history.

How to Receive Bitcoin on Coinbase

To receive bitcoin from other users, follow the steps below.

Step 1
Touch the Accounts icon on the Navbar located at the bottom of the Coinbase dashboard.

Step 2.
Choose the wallet from which you wish to receive bitcoins.

Step 3
Press the QR code located on the upper right corner.

Step 4
Your bitcoin address will appear. Tap Copy address.

Step 5
A confirmation message will pop up confirming that your bitcoin address has been copied to your clipboard.

Step 6
Share the address with anyone who will send you bitcoin.

Avoiding Bitcoin Fraud

Following the immense popularity of bitcoin, many scammers have found ingenious ways to dupe unsuspecting bitcoin users.

These scams include: Malware and ransomware to access your bitcoin account, Ponzi-related cryptocurrency schemes, Fake coins or tokens offered through shady initial coin offering (ICO), Unsolicited emails that takes users to a link to a scam website or also known as phishing, Fake wallets and exchanges that drain a user’s bitcoin account, Prize giveaways that lure users to send their private information to claim fake rewards.

To avoid bitcoin fraud, here are a few tips: Do not share your private key (address) with anyone, Make sure to keep it in private so that no one can access your account, Deal only with credible providers and platforms, Read online professional reviews by experts and how they assess the legitimacy of providers, Keep your devices free from malware, Install antivirus software and updated it regularly, Use platforms with a 2-factor authentication. Coinbase ensures that any transaction is secured through this extra security layer, Use a hardware wallet, Store your private keys (addresses) in a physical vault to keep hackers from accessing your files.

How to Buy Bitcoin FAQ

How do you Buy Bitcoin?

There are many ways to buy Bitcoin. You can use an exchange like Coinbase, ATM, and other methods outlined in this guide.

Is Buying Bitcoin Safe?

Yes, buying Bitcoin these days is 100% safe if using trusted exchanges like Coinbase.

What can You Buy With Bitcoin?

There are hundreds of goods and services you can buy with Bitcoin. This includes live TV services, cars, food, insurance, and more.

Is Buying Bitcoin Legal?

Yes, buying Bitcoin is 100% legal in the United States, Canada, the UK, and most countries around the world.