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How to Buy and Sell Bitcoin
Michelle Wilson
|
December 14, 2019
If you’ve been paying attention to current digital culture, you’re probably already familiar with cryptocurrencies. Heralded as the currency of the future, it has made waves in financial systems around the world. Experts continue to grapple with the effects of this cryptocurrency explosion.
Originally conceptualized in 2008 by a founder who goes by the pseudonym Satoshi Nakamoto, Bitcoin has matured and shown some serious staying power. There are quite a few cryptocurrencies available these days like Ethereum or Litecoin, but Bitcoin remains the reigning crypto superpower. We’ll give you a high-level overview of how to buy and sell Bitcoin. But first, a little background.
What is Bitcoin?
Before we get into how to buy and sell Bitcoin, it’s important to understand this cryptocurrency. The purpose of Bitcoin is to create a decentralized currency based on mathematical proof that can be transferred virtually via a secure and verifiable method.
1. Decentralized
The most important distinction between Bitcoin and regular currencies - also known as fiat currencies - is that there isn’t one main bank that controls the network of virtual coins floating around. Instead, it’s maintained by a group of coders who work on a volunteer basis on an open network of computers dedicated to Bitcoin management around the world [1].
The allure of Bitcoin and other types of crypto is avoiding government or central bank authorities. The drawback here is that the currency isn’t backed by anything other than the network of Bitcoin itself.
2. Supply
Another big difference from traditional currencies is the supply. Bitcoin has a maximum upper limit supply of 21 million. An underlying algorithm controls the number of Bitcoin with a few being created every hour. For investors, this makes it an attractive investment because if the demand grows and the supply stays the same, the value will increase.
In contrast, governments and central banks can issue as much currency as they want and manipulate their currency relative to other countries’ currency valuations.
3. Anonymity
Buying and selling Bitcoin is a semi-anonymous process. Each transaction that occurs on the network involves a special protocol that verifies the user has the right amount of Bitcoin and the authority to send them. But the system doesn’t need to know the identity of the sender or recipient.
Each user’s identity is attached to the address of his or her wallet. Of course, law enforcement has ways to track and identify users. For that reason, it’s not a great cybersecurity currency since each transaction is easily tracked in the open, transparent network system.
4. Non-reversibility
Immutability is another feature of Bitcoin. This simply means that transactions can’t be reversed. While this lack of reversibility might make some users hesitant, it ensures that transactions cannot be meddled with.
5. Divisible
Unlike regular currency, you can divide up a Bitcoin into a one hundred millionth portion, which comes out to about a hundredth of a cent. This means that microtransactions can occur which is helpful in contexts like the gaming industry where players can upgrade weapons and other components [2]. It also makes it possible for Bitcoin buyers to buy portions of Bitcoin rather than shelling out several thousand dollars for a single one.
How does a Bitcoin transaction work?
A transaction on the Bitcoin network occurs between Bitcoin wallets. This transfer is recorded in the blockchain which is the public ledger the entire network depends on to keep the system transparent. Bitcoin wallets feature a private key to sign transactions and acts as mathematical evidence that the transaction came from the wallet’s owner [3]. The transaction is publicized to the entire network and confirmed in 10 to 20 minutes. This process is called mining.
Buying or receiving Bitcoin
If you don’t understand the mining process of Bitcoin, you can buy them with cash, credit cards, debit cards, or wire transfers. The best part is that you don’t have to buy an entire Bitcoin which is valued at over $8,000 as of this writing. You can purchase portions or fractions of a Bitcoin based on your individual budget.
The other option is to find a company or side hustle that provides you with Bitcoin instead of traditional paychecks.
Where can I buy and sell Bitcoin?
Getting Bitcoin wallet
Before you can buy Bitcoin, you’re going to want to set up what’s known as a Bitcoin wallet. This wallet isn’t the same one that you keep in your pocket, however. It’s a virtual wallet that serves as secure storage for your cryptocurrency.
Your wallet options include an online service or a software wallet stored on the hard drive of your computer. You can also store your Bitcoin offline by saving the private key code on a USB or piece of paper, but you run the risk of someone stealing it with no way to get it returned.
Coinbase
Coinbase is probably the most popular place to buy, trade, sell, and store your Bitcoin. There are some inherent risks involved in keeping your Bitcoin where you’ve bought it but otherwise, this free service is a good choice for first-time buyers.
You can also buy other types of digital currencies on this site including Ethereum, Litecoin, and Bitcoin Cash. There are also resources available on the Coinbase site such as digital courses you can complete to learn about the different kinds of cryptocurrencies. At the end of the completed course, you earn a set amount of crypto for the currency you learned about.
Electrum
This is another free wallet that is software-based instead of simply online which provides users with another wall of security. It’s a safe, forgiving method for storing your Bitcoin. And because the Electrum servers are decentralized, your wallet never goes down.
There’s also the option of using “cold storage’ which is a way to keep your private Bitcoin keys offline.
Robinhood
Another option is to use Robinhood Crypto to buy and sell commission-free. Robinhood is an app that offers users the ability to invest in both traditional stocks as well as crypto. It’s another good entry-level way to safely explore the world of cryptocurrency.
Bitcoin ATM
A Bitcoin ATM works similarly to a regular ATM. The difference is that you can withdraw and deposit money for the purpose of buying and selling Bitcoin. You can use a Coin ATM Radar to help you find a Bitcoin ATM near you.
Spending your Bitcoin
One note about spending your crypto: the IRS considers cryptocurrency an asset rather than a traditional currency, so each time you send Bitcoin, you must pay a capital gains tax [4]. That’s one reason why it may not be practical to pay for your daily latte with cryptocurrency - at least for now.
Another obstacle to spending Bitcoin are the transaction fees involved. Those fees and taxes together create a major hindrance to using Bitcoin for smaller purchases.
The other hindrance to spending your Bitcoin is finding places that will accept it for purchases. Luckily, the number of establishments open to accepting cryptocurrency is growing.
Places that currently accept Bitcoin:
Because cryptocurrencies are still rather niche, it can be difficult to find establishments that accept this form of payment. However, there are a few places that currently accept Bitcoin and other altcoins including the following:
- Overstock.com
- Microsoft
- eGifter
- Gyft
- Select car dealerships
- Newegg
- Select Shopify stores
- Dish
- Roadway Moving Company
- REEDS Jewelers, Inc.
- Select restaurants
- Expedia
- CheapAir
- Virgin Galactic
There isn’t a major retailer that accepts Bitcoin yet, but that may change in the future if cryptocurrency becomes more popular. You can use Coinmap.org to search for places in your local area that accept Bitcoin, from food establishments to taco shops to law firms.
And, if you’re feeling charitable, there are also a ton of ways you can donate your Bitcoin. The Human Rights Foundation, UNICEF, United Way, The Water Project, and Sea Shepherd are just a few of your donation options.
The Future of Cryptocurrency
The future of Bitcoin is still up in the air. There are some economists and financial analysts who believe the value and use of cryptocurrencies will explode in the near future. Some are arguing that the market capitalization could grow to $5 to $10 trillion for cryptocurrency. But most financial experts are taking a more tempered approach, arguing that the eventual long term value will be much lower. The transaction-based system is also vulnerable to lots of volatility, making it a risky investment for the average person.
The other argument against the adoption of cryptocurrency is its inherent issue of decentralization. As more and more users adopt cryptocurrencies, more governments will be interested in regulating them - which basically erases the entire point of their existence.
Whether or not cryptocurrency will be adopted by the masses remains to be seen, but it’s forcing people, from casual consumers to professional economists, to re-think the approach to electronic money and banking.
About the Author: Michelle Wilson is a contributing writer for HP® Tech Takes. Michelle is a content creation specialist writing for a variety of industries, including tech trends and media news.
[1] Coindesk; What is bitcoin?
[2] Twin Galaxies; Microtransactions: Positives and Negatives of the Industry-Wide Practice
[3] Bitcoin; How it works
[4] IRS; Virtual Currencies
