Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
Cryptocurrencies, like Bitcoin, are entirely digital currencies that can be used as online versions of cash. Transactions using cryptocurrencies are highly secure and can’t easily be shut down by governments. And though transactions are public—everyone can see that someone sent $10 worth of Bitcoin to someone else—the identities of the sender and recipient remain anonymous.
Many people buy Bitcoin to send money around the world cheaply, unanimously and securely. Because the whole economy is virtual, cryptocurrency transactions come with very low fees compared to wire or bank transfers. Some people use Cryptocurrency for buying narcotics online anonymously. Others trade tokens on the volatile market with the hopes of winning big. There’s a chance to make—or lose—a lot of money by trading Bitcoin. Cryptocurrencies, for the most part, aren’t backed by fiat currencies, and their values are almost entirely dependent on market speculation. Bitcoin is an exciting, new space to get involved in. Here’s how to get involved.Wealthsimple Invest is an automated way to grow your money like the worlds most sophisticated investors. Get started and we'll build you a personalized investment portfolio in a matter of minutes.
1. Figure out how much Bitcoin to buy
The quick answer is: only buy as much as you’re willing to loose. When you trade Bitcoin there’s a chance you could make—or lose—a lot of money. Many people have lost a fortune to Bitcoin, and some have become overnight millionaires.
Bitcoin used to cost just fractions of pennies, but late in 2017 the price skyrocketed to around $20,000. It’s since crashed, now sitting at around $8,000. While some people became overnight millionaires,others have ended up losing a fortune. Before you invest a penny in Bitcoin it’s wise to make sure you enough money to keep the cat fed, have a solid emergency fund and retirement plan. Then figure out how much money you’re willing to risk loose to Bitcoin—if any.
2. Decide where to buy Bitcoin
Here’s how to get your hands on it:
A cryptocurrency exchange is a digital marketplace where cryptocurrencies are bought and sold for other cryptocurrencies. This is where 99% of cryptocurrency trades take place. You can trade hundreds of cryptocurrencies, including “stablecoins”—coins pegged to fiat currencies, like the US dollar. There are a few things to watch out for when choosing to trade through exchanges, however: exchanges technically control the crypto that’s held in exchanges—even if it’s in your wallet on the exchange—so, should the owners decide, they could drain the exchanges of user funds. Popular, regulated exchanges include Binance, Gemini, and Coinbase, could be safer than unregulated or unknown exchanges: Binance, for instance, last year created a “Secure Asset Fund for Users”, an emergency fund that could be accessed in an extreme situation.
These are a small number of kiosks that allow users to purchase Bitcoin using debit or credit cards. Bitcoin ATMs aren’t particularly common yet. They sometimes charge very high fees, and can have less than ideal exchange rates.
You can buy your Bitcoins directly from other people on marketplaces like LocalBitcoins.com and Paxful, trading them for anything you want. But watch out for scammers: On Paxful, it’s possible to sell Bitcoin for Xbox Live gift cards, although sellers frequently receive worthless cards in exchange. These systems, though, are getting more secure: more importantly, they are quick, cheap, and easy to use.
Over the Counter (OTC)
OTC trading is a type of trading that occurs outside of exchanges, just like peer-to-peer trading. But OTC trading generally refers to brokers that help high-net-worth clients trade millions of dollars worth of cryptocurrencies. This means that their trades probably aren’t registered on the public ledger, making them more discreet. Reputable companies here include Bitstocks, ItBit, and Circle Trade.
Find someone in your area who’ll take cash for Bitcoins. In France, they’ve formalised this process: it’s possible to buy vouchers for cryptocurrencies in cornershops.
3. Choose a Bitcoin Exchange
Buying cryptocurrencies from exchanges is perhaps the simplest, safest, and most convenient way to buy . There are many exchanges out there, and they all come with distinct advantages and disadvantages. Educating yourself about the features of each will make your first Bitcoin experience much smoother.
It’s not just the price of Bitcoin you’ve got to take into account; fees come in all shapes and sizes: Exchanges will sometimes ask for a fee to deposit or withdraw cryptocurrencies, alongside some additional trading fees. There are generally two sorts of trading fees: market maker fees—fees that are paid when you add liquidity to an exchange’s order book, and taker fees—fees paid when you take liquidity away from our order book. Trading fees generally decrease the more Bitcoin you trade, encouraging larger investments.
Some exchanges offer lower fees than others, but these often come at the cost of privacy, security, or insurance. As such, it’s important to gain a more rounded opinion of exchanges before you trade on them. Without sufficient expertise, you might end up with a bad deal.
Though there are hundreds of exchanges, first time buyers are wise to stick to large, reputable exchanges. When trading a volatile, new currency like Bitcoin, you’ll need all the information you can get. To work out what’s the best deal for you, here’s a handy guide to three major cryptocurrency exchanges.
Binance is one of the largest cryptocurrency exchanges. It serves most of the world’s countries, though it has subsidiaries for specific countries. It’s based in Malta, a nation known for being friendly towards cryptocurrencies. Binance lists over 500 coins, including Bitcoin, and trades almost a billion dollars per day. Binance’s CEO, Changpeng Zhao, regularly tweets with investors and shares his opinions.
Binance charges some of the lowest trading fees in the industry; just 0.1 percent for market makers and takers. This can be reduced to 0.075 percent if you hold Binance’s own token, BNB. But like most exchanges, the more you trade, the bigger your discount. Binance offers a “VIP” tiered system, in which the platform offers further discounts if you’ve traded a certain amount of Bitcoin over a 30-day period.
For VIP 1, the first tier of Binance’s discount system, your maker fee drops to 0.09 percent, and your taker fee stays at 0.1 percent, if you trade at least 100 Bitcoins in a 30-day period, and hold at least 50 BNB. Though this doesn’t seem like much, these percentage points can add up for users who trade millions of dollars worth of Bitcoin.
Binance also asks users to pay a flat fee for withdrawals, paid in the form of the currency you’re taking off the exchange. For Bitcoin, the withdrawal fee is 0.0005 BTC, currently worth around $4.
Binance also provides a wallet to store your Bitcoin. Like all cryptocurrency exchanges, it’s recommended that you take your Bitcoin off of exchanges as soon as possible: if Binance were to suddenly shut down, it’d be difficult to get your money back.
San Francisco-based Coinbase is one of Binance’s main competitors, and both battle for pole position in the cryptocurrency exchange industry. It has over 30 million users, and has traded a cumulative total of over $150 billion. Coinbase is backed by industry giants like Andreessen Horowitz and the New York Stock Exchange.
What’s different about Coinbase, though, is that its services are split into two. First, you have Coinbase, which technically isn’t an exchange. Rather, Coinbase sells you coins directly, just like a broker, instead of providing a platform that matches trades with other users. This makes Coinbase incredibly easy to use; buying Bitcoin directly from Coinbase is as simple as buying something off of Amazon.
Though buying directly from Coinbase is convenient, the drawback is that this method is relatively expensive: Coinbase charges the greater of either a variable fee of around 0.5 percent, or a flat fee. The variable fees depends on where you are. For Canadians, the variable fees for buying through credit or debit cards are 3.99 percent. The flat fees are as follows: for purchases less than or equal to $10, Coinbase charges a fee of $0.99; for purchases between $10-25, $1.49; for $25-$50, $1.99; and for $50-200, $2.99.
Coinbase also offers a more traditional exchange, Coinbase Pro, designed for more advanced users. On Coinbase Pro, you can sell and buy cryptocurrencies from other users, just as you would on Binance, or any other regular cryptocurrency exchange.
Maker and taker fees are five times more expensive than on Binance for users who are trading less than $10,000 a month: both 0.5 percent. In fact, for maker and taker fees to rival that of Binance, an investor would have to spend at least $100,000 every thirty days to reach Binance’s maker fee of 0.1 percent, and $50 million to reach its taker fee.
On the plus side, unlike Binance, there are no withdrawal fees, and, like Binance, there are no deposit fees—as long as you’re depositing or withdrawing digital assets, not US dollars. It costs $25 to withdraw from crypto to USD, and $10 to deposit it.
Coinbase also serves as a wallet to store digital currencies like Bitcoin.
Gemini is the exchange run by the Winklevoss twins, the duo who sued Mark Zuckerberg for stealing the idea for Facebook, and who bought around 1 percent of all Bitcoin supply before the Bitcoin bubble popped. Gemini is their cryptocurrency exchange.
Gemini’s main offering is that, unlike other cryptocurrency exchanges, it’s fully backed by regulators. It has carefully secured the backing of regulators like the New York Department of Financial Services (NYDFS) to list the privacy coin Zcash on its platform, and its stablecoin, the Gemini Dollar.
Courting regulators, though, comes at a price, and Gemini’s fees are just as high as Coinbase. The transaction fees for trades less than or equal to $10, are $0.99; for purchases between $10-25, it’s $1.49; for $25-$50, $1.99; for $50-200, $2.99; and for greater than $200, it’s $1.49. In addition to transaction fees, there’s a “convenience fee,” which is 0.5 percent above the cost of the coin at the time of purchase.
Gemini is geared toward institutions and wealthy investors. It offers institutional custody services that are backed by New York Banking Law, and its custody infrastructure, which guards wallets in safes kept in offline facilities, is distributed across the world. Gemini offers insurance, too.
4. Select a Bitcoin Wallet
When possible, cryptocurrencies should be stored in wallets, essentially bank accounts for cryptocurrencies. Importantly, if you store your Bitcoin on cryptocurrency exchanges, the exchanges technically have control over the crypto. But if you withdraw to a wallet, you have complete control over your digital assets. This is very important: if you keep your funds in exchanges, there’s a chance that the exchange might go bust, or the owners run away with customer funds.
When picking out a Bitcoin Wallet, make sure that you consider backup and security features. There are generally two forms of wallets: hot and cold wallets.
A hot wallet is one connected to the internet: if a hacker managed to gain control of it via some malicious code, then they’d be able to get to your Bitcoins. But it’s more convenient: these wallets are connected to the internet, via mobile, desktop, or web apps, meaning you can use them straight away. They’re also free. Popular hot wallets include Electroneum or Trust Wallet.
By contrast, a cold wallet is one that’s not connected to the internet. Cold wallets store Bitcoins on something physical, like a USB stick, that you can buy from a shop. This makes them incredibly difficult to hack, and a great long-term storage solution.
Think of the hot wallet as the one you carry to the mall: it’s full of cash, but easier to steal. By contrast, a cold wallet is the equivalent of storing your cash in a safe: it’s very secure, but isn’t very convenient to use.
5. Decide how to pay for Bitcoin
There are endless currencies and payment methods you can use to buy crypto, from PayPal to Spotify subscription gift cards. Most common payment methods include wire or bank transfer, other cryptocurrencies, and credit or debit cards. Some methods, like other cryptocurrencies or payment cards, are faster than bank or wire transfers, which can take a few days. But remember: paying through a bank transfer from your personal bank account isn’t protected by the same insurance products as a credit card purchase, nor is, obviously, swapping 10 months of Xbox Live for some Bitcoins.
6. Purchase Your Bitcoin
Remember to exercise caution: always remember to invest only in the amount of Bitcoin that you feel comfortable with losing money on, and start slowly. Accept that you’re unlikely to become an overnight success, and set time aside to learn the market before making any large investment decisions.Wealthsimple Invest is an automated way to grow your money like the worlds most sophisticated investors. Get started and we'll build you a personalized investment portfolio in a matter of minutes.