Decide where to buy bitcoin
There are a few different ways to buy bitcoin and other cryptocurrencies, including exchanges and traditional brokers.
Cryptocurrency exchanges
You can purchase bitcoin from several cryptocurrency exchanges. Many charge a percentage of the purchase price. Do your due diligence to find the right one for you. Some of the more popular exchanges include:
- Coinbase: This is a popular choice for U.S. bitcoin buyers, in part because you can easily link your bank account. Coinbase also offers access to etherium, litecoin and other cryptocurrencies. On each transaction, Coinbase charges a spread (an adjustment in the purchase or sale price of investment) of about 0.5%, plus a fee.
- Binance: The world’s largest exchange by volume for all cryptocurrencies, Binance charges a 0.1% fee for all crypto trades (some discounts are available), plus a withdrawal fee. Generally, you can only make purchases using cryptocurrency, though Binance did recently add the option to pay by credit card for an additional fee (this option is unavailable in some U.S. states).
- Gemini: This U.S.-based crypto exchange trades bitcoin, ether, bitcoin cash, litecoin and zcash. Transaction fees range from $0.99 to 1.49% of your order, depending on the size of the purchase or sale, plus a fee of about 0.5%.
- Coinmama. This exchange trades in eight cryptocurrencies, including bitcoin. Coinmama requires a minimum $60 purchase and charges a transaction fee of 5.9% (plus an additional 5% fee for credit card purchases).
Traditional stockbrokers
The choices among traditional brokers that give customers a way to buy and sell bitcoin are few right now — Robinhood was the first mainstream investment broker to offer bitcoin (Robinhood Crypto is available in most, but not all, U.S. states). Like its stock-trading platform, Robinhood charges no fees for bitcoin trades. TradeStation also offers crypto trading, including bitcoin, as does eToro — which also features a unique social trading platform.
Other brokers have announced plans to offer cryptocurrency trading in the near future.
Other ways to buy or invest in bitcoin
- Bitcoin ATMs. These work like normal ATMs, only you can use them to buy and sell bitcoin. Coin ATM Radar shows more than 3,000 bitcoin ATMs around the U.S.
- Peer-to-peer bitcoin owners. You can buy bitcoins directly from other bitcoin owners, much like you would buy items on Craigslist, through peer-to-peer tools like Bisq, Bitquick and LocalBitcoins.com. Use extreme caution if buying bitcoin directly from individuals.
- Bitcoin futures. TradeStation offers a way for investors to trade on bitcoin futures, but this is pro-level stuff, not for amateurs. Here’s how to get started trading futures.
- Grayscale funds. Grayscale Investments is a digital currency asset manager. Two of its investment trusts — Grayscale Bitcoin Trust (its ticker symbol is GBTC) and Grayscale Ethereum Classic Trust (ETCG) — are publicly traded over the counter, which means you can buy them through many discount brokers. There are fees, and GBTC often trades at a premium, that is, GBTC shares often cost more than bitcoin, even though bitcoin is its only holding. The thinking is that some investors are willing to pay extra to buy bitcoin through a traditional exchange, without needing to worry about wallets and storage.
2. Decide how to store bitcoin
Bitcoins can be stored in two kinds of digital wallets: a hot wallet or a cold wallet. With a hot wallet, transactions generally are faster, while a cold wallet often incorporates extra security steps that help to keep your assets safe but also take longer.
Hot wallet
With a hot wallet, bitcoin is stored by a trusted exchange or provider in the cloud and accessed through an app or computer browser on the internet. Any trading exchange you join will offer a free bitcoin hot wallet where your purchases will automatically be stored. But many users prefer to transfer and store their bitcoin with a third-party hot wallet provider, also typically free to download and use.
Why choose a wallet from a provider other than an exchange? While advocates say the blockchain technology behind bitcoin is even more secure than traditional electronic money transfers, bitcoin hot wallets are an attractive target for hackers. As Bitcoin.org warns: “Many exchanges and online wallets suffered from security breaches in the past and such services generally still do not provide enough insurance and security to be used to store money like a bank.”
There are many hot wallet providers, offering a range of wallet types. Here are a few:
- Coinbase: Also a popular bitcoin currency exchange, Coinbase offers free online hot wallets and insures losses due to security breaches or hacks, employee theft, or fraudulent transfers.
- Electrum: Software that allows your bitcoin to be stored on your laptop or desktop computer.
- Blockchain: Like Coinbase, Blockchain is an online hot wallet; unlike Coinbase, Blockchain isn’t a currency exchange and is considered a less attractive target for hackers.
- Mycelium: A mobile-only bitcoin wallet, with versions available for Android or iPhone users.
Although some hot wallet providers offer insurance for large-scale hack attacks, that insurance may not cover one-off cases of unauthorized access to your account.
Cold wallet
A cold wallet is a small, encrypted portable device that allows you to download and carry your bitcoin. Cold wallets can cost as much as $100 but are considered much more secure than hot wallets.
Cold wallet providers include:
- Trezor: This company offers small, key-size cold wallets ranging from about $80 to $170.
- Ledger Nano: Designed like a thumb drive, Ledger Nano has cold wallets ranging from about $60 to $120.
When creating accounts for your digital wallets and currency exchange, use a strong password and two-factor authentication.
Make your purchase
After linking your bitcoin wallet to the bitcoin exchange of your choice, the last step is the easiest — deciding how much bitcoin you want to buy. While bitcoin made news in May by cresting to $8,000 for the first time in a year, bitcoin (trading symbol BTC or XBT) can be bought and sold for fractional shares, so your initial investment could be as low as, say, $25.
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