If you’ve heard all the talk about Bitcoin, cryptocurrency, and the blockchain, you may well be tempted to invest in this innovative digital asset. Unfortunately, the cryptocurrency space is a daunting one for newcomers, what with its new technology and various security concerns. However, investing in Bitcoin and other such cryptocurrencies is relatively straightforward when taking the proper precautions. In this article, we’ll show you exactly how to do so.
Investing in Bitcoin Itself
Suppose it’s Bitcoin itself you want to invest in – where you should start? While there are multiple ways you can invest in the future of Bitcoin (which we’ll get back to later), by far the easiest is to purchase actual Bitcoins and hold onto them. With this approach, there are only two steps to invest: purchasing the coins and keeping them safe. Let’s start with the former. Buying Your First Bitcoins
Like with any investment, the first step is to put some money on the table. In the case of Bitcoin, you’ll need to find a willing seller who purchased or mined their coins earlier down the road. The most common way to do this is through internet, with the help of dedicated cryptocurrency exchanges, but there are plenty of alternatives.
Buying Bitcoin Online
The most common approach to buying Bitcoin online makes use of dedicated cryptocurrency exchanges. These platforms allow you to deposit fiat currencies (including major ones like the Dollar or Euro, but also many others) via credit card or bank transfer, and trade them directly for other users’ Bitcoin. The price of the trade is determined by your offer (the so-called Bid) and the seller’s offer (the so-called Ask), plus a small percentage fee for the exchange.
Such services include Coinbase, CEX.IO, and Kraken. They all have their differences, but the sign-up and trading aspects share a lot of similarities and are mostly self-explanatory.
Of course, there are many other online alternatives for more savvy traders. You can, for example, trade gaming currencies or gift cards for Bitcoin on some select websites, or buy directly from other sellers using classified platforms such as LocalBitcoins.com.
Other Ways to Buy
You can also buy Bitcoin offline in a variety of ways. Using the same service above – LocalBitcoins.com – and many others, you can find sellers willing to trade their Bitcoin in person for cash or other goods. In this offline bracket, you could also purchase cryptocurrencies from a friend or family member, or search for local cryptocurrency ATMs in your area.
Although exchanges have their downsides, you should know that they handle a lot of the technical side of purchasing and holding Bitcoins for you. If you choose to buy Bitcoin using any of the alternative methods (online or off) you will have to set up your own cryptocurrency wallet and get familiar with the processes of sending and receiving cryptocurrencies.
Safekeeping of Your Investment
For a serious investment, purchasing cryptocurrencies is only half of the equation. You’ll also need to ensure safekeeping of your investment. Here’s how:
- Buy carefully: When you purchase Bitcoin, make sure to use a reputable exchange service or seller. If you’re not using an exchange’s online storage services, make sure deposit coins into a wallet only you have the private keys for.
- Store offline: To keep your funds out of harm’s way, it’s essential you use a secure wallet. Where possible, store your coins offline in a paper or hardware wallet that doesn’t have any contact with the outside world.
- Keep quiet: Last of all, keep quiet about your investment. If nobody (online or in-person) knows you hold cryptocurrencies, you won’t become a target for the many popular scams.
Investing in Other Cryptocurrencies
For a truly diversified cryptocurrency investment, you may considering investing in other cryptocurrencies or tokens (also known as altcoins). While the process is very similar to investing in Bitcoin, we’ll outline a few of the differences here.
First and foremost, you’ll need to choose the altcoins you’re interested in. If you’d like to learn more about various altcoins, we highly recommend our research platform CoinPaprika.com, where you can search for tokens by category, view detailed price histories, and find valuable links to learn more.
From there on, the investment principles are the same: just buy and store the coin of your choice. In some cases, you might not be able to buy certain tokens directly – instead, you’ll have to purchase more popular cryptocurrencies like Bitcoin or Ethereum, and move these to other exchanges (such as Binance) dedicated to smaller tokens. Safekeeping of these tokens can vary greatly, but our security tips above apply equally.
A Note on Cryptocurrency Derivatives
In addition to simply purchasing and out-right owning cryptocurrencies, you can invest in Bitcoin and other cryptocurrencies by means of other financial instruments – especially Bitcoin derivatives.
These products include futures contracts, options, and Exchange Traded Funds (ETFs). While they are all ways to invest in the future of Bitcoin, they’re slightly different approaches that originated in traditional financial markets.
Futures contracts, for example, are an agreement between a buyer and seller to trade Bitcoin at a predetermined price on some future date. Options contracts are almost the same, but give the buyer the option (hence the name) to cancel the trade when that date rolls around.
ETFs are quite different – these are funds that hold Bitcoin or other assets for you. While the price of the ETF often trades in proportion to the assets it holds, ETFs take care of the asset storage. However, ETFs often need strict government approval, and as of November 2018, not a single Bitcoin ETF has been approved for the United States market.