Buying bitcoin has been one of the best decisions I’ve made in my life.
I’m not saying it is going to change your life, but buying bitcoin changed mine forever.
Who knows what can happen when you try something so revolutionary?
A stumbling block for many people is figuring out how to get a few dollars worth of bitcoin in the first place.
In this complete tutorial, you’re going to learn, step-by-step, how to buy bitcoin.
Since buying my first bitcoins in 2013 I’ve used bitcoin to:
- Donate to charities.
- Give bitcoin to new users.
- Get discounts on Amazon
- Make investments around the globe.
- Just plain buy stuff (conference tickets, books, toys, etc.)
While sharing how cool bitcoin is, I’ve helped dozens (maybe hundreds?) of people get their first bitcoin.
The One Thing you Must Know Before Buying Bitcoin
Don’t buy bitcoin if you are looking for a get rich quick scheme.
Bitcoin will not make you rich overnight.
In fact I’ve invested more money than most in bitcoin for the past 2 years and I’m not rich yet.. :)
Unfortunately many bitcoin buyers have dreams of overnight riches and those dreams do not come true in my experience.
Google Trends illustrates this trend perfectly. Google search volume for bitcoin hit an all-time high at the same time the price went up 10x in November 2013.
As the price declined so did search volume, despite the fact that the bitcoin industry is much farther along than it was in 2013.
If bitcoin drops in price over the next six months they sell. If bitcoin doubles in price they sell. In neither case do they become rich.
No one knows where the bitcoin price will go and bitcoin’s price fluctuates a lot. This can make it a dangerous place for inexperienced investors putting thousands of dollars on the line.
OK I’m sure you get it - bitcoin’s price swings a lot.
How Bitcoin Works (An Overview)
Bitcoin makes money work like email.
Bitcoin users can quickly zip money off to anyone anywhere in the world and receive money from anyone anywhere in the world.
It is empowering, fast, efficient, and secure.
The technology underpinning bitcoin is complicated (just like the tech that makes email work) fortunately just like with email there are lots of service providers that make bitcoin easy to buy and to use.
Today I’m going to show you step-by-step how to quickly buy bitcoin.
- Coinbase - the option most people want.
- LocalBitcoins - if you NEED bitcoins today.
- Buying bitcoin with a brokerage account (IRA, 401K, etc.)
- BitWage - how to get a portion - or all - of your salary in bitcoin.
- Exchanges - for bitcoin traders and experienced investors.
- Why Bitcoin Mining is a bad way to get bitcoins.
Buy Bitcoin with Coinbase
Coinbase is the way 99% of people should buy bitcoin.
It is fast, safe, and convenient.
This is the way I acquire most of my bitcoin. I have purchased hundreds of bitcoins from them since 2013.
There are a couple of reasons not to use Coinbase.
Coinbase won’t allow people who don’t have a bank account to purchase bitcoin.
For users without bank accounts I recommend LocalBitcoins (covered below).
For a small number of you who have stock investment experience you might prefer using your brokerage or an exchange to purchase bitcoin. I’ll cover those scenarios as well.
The reason I recommend most people use Coinbase is because it is fast, safe, and convenient.
###Coinbase is fast.
After a 24 hour straightforward setup process, bitcoins are credited to your account instantly.
Coinbase is safe
Why am I telling you Coinbase is safe? To get bitcoin from Coinbase you will need to confirm your identity with them. With identity theft being so common this worries some people.
Why does Coinbase need your identify?
The reason is legal compliance, specifically State and Federal Anti-money laundering regulations. Reputable bitcoin companies all need to collect their customer’s information to comply with these laws.
If you are put off by the need to verify your identity, I get it. Yes it sucks. If giving your ID is a showstopper then LocalBitcoins is a better option for you.
Back to safety. Coinbase has $106 million in investment from notable companies like the New York Stock Exchange, and USAA. Top-notch venture capital firms like Andreessen Horowitz, Union Square Ventures, and Y Combinator have put their trust in Coinbase.
Not enough? Remember how Coinbase needs your ID? Well that is because Coinbase is regulated by FinCen pursuant to the Bank Secrecy Act (BSA) regulations at 31 CFR 1022.380(a)-(f), administered by the Financial Crimes Enforcement Network (FinCEN).
Here is their registration status on FinCen’s website.
###Coinbase is Convenient
I can buy bitcoin 24/7/365 through Coinbase. I can be laying on my bed in my pajamas and get bitcoin, or I can be out on a beach in the Dominican Republic and get bitcoins from my iPhone.
The Downside of Convenience
Coinbase makes bitcoin easy for non-technical people, just like gmail makes email easy for people.
This comes at a cost. To do this they must maintain control of your bitcoin.
They can freeze / suspend / confiscate your funds. They are subject to Anti Money Laundering Laws and Know Your Customer regulations.
I’ve read about accounts being suspended with no warning given. Personally I’ve received an email letting me know about my violations of their policy including the corrective actions. I expect this won’t concern many people (my warning was for using localbitcoins).
To maintain full control of your bitcoins after purchase you can use a service like Blockchain.info to maintain most of the conveniences and maintain all of the control. In fact I show how to download and install the Blockchain.info wallet in the section on localbitcoins.
How to do it
Instead of walking you through the steps I’m going to do one better and show you the steps in this 4 minute video.
Be prepared to follow along and if you find this article useful, I’d appreciate you using this referral link: Coinbase when you make your first purchase.
Ensure you setup sensible Security
Depending on how much money you have in bitcoin on Coinbase you can increase your security. If you have life changing amounts of money on Coinbase I recommend setting up a Coinbase vault.
The vault will prevent anyone (including you) from immediately accessing your ‘vaulted’ bitcoins, even with the correct username and password.
Vaults can be configured with time delayed withdrawals and / or multiple approvers.
These security mechanisms help prevent the case where a criminal tries to steal your bitcoins.
Buy Bitcoin with LocalBitcoins
Like anything else, sometimes when people decide to buy they want them TODAY.
If you want bitcoins today or don’t want to provide identifying information to a company, LocalBitcoins is a good way to go.
Getting anything today is more expensive / less convenient / etc, than being able to wait, but a lot of people pay extra for next day shipping, etc.
Buying on LocalBitcoins is less convenient, more risky, and more expensive than Coinbase.
I recommend signing up for Coinbase today so in the off chance you do need bitcoin someday you aren’t putting yourself in a bad situation.
LocalBitcoins is like Craigslist. Instead of dealing with a company you will be dealing with an individual.
Typically this means taking cash to exchange with someone you’ve never met to get your bitcoins.
This method is less convenient and safe than Coinbase, but it does enable people to get bitcoin into their digital wallets today.
Watch out for Scams!
Just like Craigslist there are unscrupulous people out there who are trying to con and fraud people out of their money. Be careful, meet in crowded areas, and if it sounds too good to be true it probably is.
How to do it
##Buying Bitcoin with Your Brokerage Account
Investors with a brokerage account will find it more convenient to get access to bitcoin as an asset class without owning bitcoin directly.
Investing in bitcoin can be a complex experience for investors. Oftentimes, investors aren’t sure who to trust as a counterparty to purchase bitcoin from, what price they should pay, and finally, how they can safely and securely store their bitcoin. In contrast, investing in bitcoin through purchasing shares of the Bitcoin Investment Trust offers investors the ability to get exposed to bitcoin without the aforementioned challenges. Since the Bitcoin Investment Trust is a titled security, it is eligible to passed on to beneficiaries under estate laws, is eligible to be held in tax-advantaged accounts (IRAs, 401Ks, etc.) as well as investment/brokerage accounts, and is a familiar structure that not only investors can understand, but as can their lawyers, accountants, and financial advisors. By purchasing shares of the Bitcoin Investment Trust, investors have transparency around pricing, know that the Trust is offered through a SEC and FINRA-regulated broker-dealer, and that the Trust’s assets are safeguarded by a robust third-party custodian.
– Michael Sonnenshein Director Sales & Business Development, Grayscale
GTBC is like an ETF for bitcoin. It trades on the OTC markets.
When looking at the price of GBTC (currently $29.50) and the price of bitcoin ($233) one might wonder why the big price difference?
Again I’ll let Michael explain:
Shares of the Bitcoin Investment Trust are offered to eligible accredited investors on a daily basis at the NAV price, however, these shares are restricted. Following a one year hold period, investors’ shares become unencumbered and eligible for resale on the public markets under the symbol: GBTC. So, the quantity of shares available to be traded in GBTC is dependent on existing investors who have passed their one year mark electing to sell. As a result, GBTC carries some scarcity value. Additionally, it is likely that shares of GBTC carry a premium pricing in the public markets (versus their NAV) since the Bitcoin Investment Trust is the first publicly traded bitcoin investment vehicle and there are those investors who are excited by the novelty of the vehicle and bitcoin and have been waiting to for vehicles like GBTC to debut to get involved. Finally, there are also investors who would like to put tax-advantaged money to work in bitcoin and to the best of my knowledge, bitcoin cannot be purchased with IRA, Roth IRA, or 401K funds, whereas GBTC is eligible to be held in those types of accounts. – Michael Sonnenshein Director Sales & Business Development, Grayscale
How to do it
I recorded a video showing the steps I take to buy 90 shares of GBTC for my Roth IRA through Fidelity.
Buying Bitcoin with your Paycheck
Bitcoin is volatile. It goes up and it goes down.
One way to hedge against the volatility is to dollar cost average bitcoin buys.
BItwage is a service that allows people to buy bitcoins every time they receive a paycheck. This helps people dollar cost average since it happens automatically.
I have been using Bitwage since March 2015 to receive my Startup Grind Lansing reimbursements.
These reimbursements work just like a salary payment from an employer who does direct deposit / ACH function.
How to do it:
- Sign up for BItWage
- Get the payroll information from Bitwage for your employer (you’ll need to go through your HR process to change your direct deposits)
- Use the outputs button to set the bitcoin address where you want your bitcoin salary payments to go.
How to Buy Bitcoin on an Exchange
For those unfamiliar with buying traditional stocks, an exchange is probably overkill. Companies like Coinbase are designed for bitcoin users or infrequent purchasers. Exchanges are designed for investors, day traders, application builders, etc. On the plus side if you want to learn a bit, exchanges typically have the lowest fees.
U.S. Bitcoin traders don’t have a lot of great options.
Bitcoin’s price swings create a lot of volatility, risk, and opportunity. Unless traders are arbitraging between exchanges.
Unfortunately it has been hard for U.S. based investors to trade because the big volume exchanges have been overseas.
I expect a U.S. exchange will dominate trading volume within the next 3 years.
How can you get started today?
This video shows you step-by-step how to register for the Gemini exchange.
##Why Bitcoin Mining is a bad way to get bitcoins
I know the idea of bitcoin mining sounds great.
Plug in a computer, run a program, and watch the money come in.
What is better than the thought of having our computer whirring away earning us cash?
Unfortunately the truth is mining bitcoins profitably is hard.
In fact my first exposure to bitcoin was in December 2011 when I tried to mine bitcoin on my MacBook Pro.
At that time I ran into some tech challenges and gave up. I should have bought bitcoin instead. That would have returned about a 40x increase in my investment.
Today it still makes sense for me to buy bitcoins instead of mining them. One of the biggest challenges is the ever increasing difficulty of mining bitcoins.
Over the past year bitcoin mining difficulty has doubled. That means the same bitcoin mining equipment from a year ago is producing half as many bitcoins.
Are some people mining profitably? Absolutely.
There are also people profitably mining gold. That isn’t me :)
There are miners out there who have advantages over me:
- advantages of scale
- more experience
- advantages of power rates
- access to advanced equipment
- more capital
It is cutthroat competition with lots of smart, well funded, experienced miners fighting tooth and nail for the 25 bitcoins released every ten minutes.
How do I compete? I don’t.
But what I can do instead is buy bitcoins.
Unfortunately I didn’t buy bitcoins in 2011 (they were under $5 back then) but I’m not making that mistake anymore.
Since 2013 I’ve been acquiring bitcoins the same way I would acquire gold, by purchasing - not buying - bitcoins.
Mining gold is hard and I would not be able to do it profitably. Instead if I want gold I can just buy it.
Summary I’ve provided four ways to buy bitcoin and one way to get bitcoin I recommend avoiding.
- Coinbase for day to day buys,
- GBTC for brokerage buying,
- LocalBitcoins for getting bitcoins if you need them today or don’t want to provide identifying information.
- BitWage for buying through your paycheck.
- AVOIDING bitcoin mining - unless you have a way to beat the competition (free power, next generation hardware, etc.)