Bitcoin is a well-known cryptocurrency that offers tech enthusiasts an alternative form of money. Cryptocurrencies such as Bitcoin offer a relatively new method of tracking and verifying asset ownership, which enables the Bitcoin network to operate. In addition to functioning as a mode of payment, many people buy and hold Bitcoin as an investment, although it’s important to note that Bitcoin investments are extremely risky.

If you want to join the ranks of Bitcoin investors, you have several options to buy the world’s biggest and most popular cryptocurrency. Here’s a detailed look at the required steps to buy Bitcoin.

How to Invest in Bitcoin in 4 Steps

The easiest way for most people to buy Bitcoin is through a brokerage account or cryptocurrency exchange account. You can buy Bitcoin using most digital wallets as well, but in this section we will focus on the easiest way to buy:

1. Choose the Right Bitcoin Exchange or Brokerage

   Start your Bitcoin purchase by choosing the best place to buy and store your digital currency. Popular places to buy Bitcoin include Coinbase, Robinhood, eToro, FTX, Gemini, and BlockFi, among many others. Take note of fees and the reputation of the exchange when picking where to buy Bitcoin. Also, if you plan to transfer your Bitcoin out of the brokerage account, make sure that feature is supported, as not all brokerages give you that option.
   

2. Open an Account With Bitcoin Support

   Once you’ve picked your ideal account, it’s time to open your brokerage or cryptocurrency account. For those in the United States, plan on sharing your basic contact information and valid identification to meet the exchange’s know your customer (KYC) requirements.
   

3. Fund Your Account With Fiat (Government-Backed) Currency

   Once your account is open, it’s time to add funds. The fastest and cheapest way is typically with an online funds transfer from a connected bank account. Depending on your exchange, you may also be able to use payment apps like PayPal. Some cryptocurrency exchanges give you instant access to trade, while others may require you to wait for funds to clear before buying. If you can buy cryptocurrency immediately, you may have to wait until the deposit clears before you can withdraw funds from the account.
   

4. Enter a Purchase Order

   When you think the moment is right, click the buy button to enter an order. The exchange will turn your dollars into Bitcoin, stored in the same cryptocurrency account, similar to holding stocks in a brokerage account. Once your trade executes, you are officially a Bitcoin owner.
   

What You Need to Know Before You Invest in Bitcoin

Bitcoin is an exciting digital currency that began an online currency and digital asset revolution. Bitcoin uses a triple-entry bookkeeping system that powers a decentralized system run by many participating computers around the world, known as miners. Bitcoin was first created in and reached a peak value of more than $60, per coin in early However, the price is highly volatile compared to other assets, such as stocks and diverse ETFs.

If you move forward and make a Bitcoin purchase, you can choose between storing your Bitcoin in the same exchange account you used to buy the currency or external software, hardware, or paper cryptocurrency wallet. Offline storage with a hardware wallet, known as cold storage, is considered the safest and most secure place to keep your Bitcoin.

Understand the Risks of Investing in Bitcoin

As mentioned, Bitcoin is a relatively new and risky asset. While it’s possible that Bitcoin could double, triple, or even 10x in value over a short period of time, it could also drop to zero. Bitcoin is also susceptible to government actions and could be made illegal or severely limited, as recently happened in China. With Bitcoin or any other cryptocurrency, only invest what you can afford to lose.

If you keep your Bitcoin offline, it’s essential to keep your access information secure and available, as losing your wallet information could lock you out of your currency.

Pros and Cons of Investing in Bitcoin

Pros Explained

• Relatively easy to buy: You can easily buy Bitcoin using a cryptocurrency exchange, brokerage, or another account with Bitcoin support. It’s as easy as buying stock and other common investments.
• Offers an alternative currency and investment strategy: Bitcoin can act as a hedge against inflation and other currency risks. It also offers a unique investment outside of traditional financial markets.
• Secure: The blockchain technology behind Bitcoin makes it very secure and difficult to hack. All coins are tracked from inception through current ownership in a public ledger.

Cons Explained

• Highly risky and volatile: Bitcoin’s value is very volatile. The currency lost about half of its value over about three months in the first half of
• Potential for hacks and other losses: If you don’t keep your Bitcoin access information secure, hackers may be able to access and steal your currency. In some cases, even large exchanges have experienced losses.
• Requires some level of technical knowledge: While you don’t need advanced computer or programming skills, you’ll need to use a computer and the internet to buy, sell, and exchange Bitcoin and other cryptocurrencies.

How to Start Investing in Bitcoin

Here’s a more detailed look at the steps involved in buying Bitcoin for the first time:

Open an Account

Once you choose your brokerage or exchange, start by opening your account. For most cryptocurrency exchanges, the online account opening process takes just a few minutes if you have your information readily available. You need a cryptocurrency wallet, included in most cryptocurrency exchange accounts, to store your digital assets.

Plan to enter your name, address, phone number, email, and Social Security number to activate a cryptocurrency account. Some require additional information, like a picture of your driver’s license or passport, to access all account features. The experience is similar to opening any typical brokerage or bank account.

Decide Which Cryptocurrency to Buy

Bitcoin is the largest and most popular cryptocurrency by market capitalization. While Bitcoin is arguably the most important digital currency, most exchanges also give you access to currencies such as Ethereum, Cardano, Stellar Lumens, or Dogecoin.

Each currency has its own unique use cases, potential benefits, and market risks. Most cryptocurrencies are arguably riskier than Bitcoin, so invest with care.

Make Your First Transaction

To purchase Bitcoin, enter the amount of Bitcoin (abbreviated "BTC") in your exchange’s trading tool. You will need enough of your local currency for the transaction to go through once you click the button to submit.

Bitcoin transactions occur instantly on some exchanges, while others may process a transaction on the Bitcoin blockchain that takes some time to complete. Standard Bitcoin transactions require four confirmations and take about 40 minutes to complete, according to an exchage called Kraken. However, you can choose to pay higher transaction fees for faster processing times with some exchanges.

Alternatives to Buying Bitcoin Directly

If you want to buy cryptocurrency through a third party, you can take advantage of a growing number of alternative investment options.

For example, Grayscale Bitcoin Trust enables investors to invest in Bitcoin through a traditional investment fund that in some ways is similar to an ETF. The shares of this fund trade with the symbol GBTC on the OTC exchange OTCQX, and can be purchased through your brokerage account.

Another way to get indirect exposure to Bitcoin and the crypto industry is through other cryptocurrency and blockchain industry-focused ETFs, like Siren NASDAQ NexGen Economy (BCLN), Bitwise Crypto Industry Innovators (BITQ), and Capital Link NextGen Protocol ETF (KOIN). Consider fees and risks when investing in any ETF, particularly one focused on a relatively new industry.

What to Watch Out for After You Invest in Bitcoin

Bitcoin is risky and volatile. The price rises and falls very quickly and sometimes with little notice. A Twitter message by Elon Musk or a negative message from a government official could be enough to send Bitcoin’s value into a tailspin.

While Bitcoin and other cryptocurrencies may be a reasonable asset to hold in your investment portfolio, don’t invest more than you can afford to lose, and consider keeping cryptocurrency as a relatively small portion of your overall investments.

Should I Invest in Bitcoin?

Everyone has to make their own choice about whether they believe Bitcoin’s price will go “to the moon” or the dumps. If you decide to invest in Bitcoin, invest with caution and avoid putting too much of your net worth into this highly volatile asset.

If you find the idea of active stock trading intimidating, you probably won’t enjoy the high-speed, 24/7 cryptocurrency marketplace. But if you have the stomach for risk and don’t mind riding out the ups and downs of Bitcoin’s price, there’s no reason Bitcoin can’t be a part of your long-term investment strategy.

Advanced Strategies for Investing in Bitcoin

If you enjoy the Bitcoin marketplace, you can advance your strategy to include Bitcoin futures, decentralized exchanges, and automated trading strategies.

Bitcoin futures, like futures of other commodities, are derivative products with Bitcoin as their underlying securities. Derivatives are typically riskier than investing directly in the underlying security, and that means Bitcoin futures carry an even greater risk than directly buying Bitcoin.

Although it may be riskier and involve a better understanding of cryptocurrencies, another way to buy Bitcoin is through a decentralized exchange. Unlike Kraken or Gemini, which are centralized exchanges, platforms such as Exodus and Bisq allow you to connect with third-party buyers or sellers directly. Exodus does this through its app, whereas Bisq has software that you can run on your computer to give you access to a peer-to-peer network.

While using decentralized exchanges gives you more control over your Bitcoin and trading, it does have a few drawbacks.

Fees may be higher or lower than centralized exchanges depending on the currency you purchase, market rates, and how you enter the trade. If you’re not careful, it’s easy to spend a lot more on network fees when using a decentralized exchange. There is also more opportunity for you to make a mistake or send to the wrong wallet address, as centralized exchanges take care of much of this for you. Decentralized exchanges may also have a limited selection of cryptocurrencies and might not allow the trade of cryptocurrency options.

Another advanced strategy to buy Bitcoin that may not be suitable for beginner investors is using automated trading. There are many applications or trading bots, such as Cryptohopper, that have algorithms that make trades based on market conditions. Signing up for something like that will let the bot make trades on your behalf to take advantage of small price fluctuations, but it can be risky.

Frequently Asked Questions (FAQs)

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

If you’re new to the world of crypto, figuring out how to buy Bitcoin, Dogecoin, Ethereum and other cryptocurrencies can be confusing at first. Thankfully, it’s pretty simple to learn the ropes. You can start investing in cryptocurrency by following these five easy steps.

1. Choose a Broker or Crypto Exchange

To buy cryptocurrency, first you need to pick a broker or a crypto exchange. While either lets you buy crypto, there are a few key differences between them to keep in mind.

What Is a Cryptocurrency Exchange?

A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Exchanges often have relatively low fees, but they tend to have more complex interfaces with multiple trade types and advanced performance charts, all of which can make them intimidating for new crypto investors.

Some of the most well-known cryptocurrency exchanges are Coinbase, Gemini and www.oldyorkcellars.com While these companies’ standard trading interfaces may overwhelm beginners, particularly those without a background trading stocks, they also offer user-friendly easy purchase options.

The convenience comes at a cost, however, as the beginner-friendly options charge substantially more than it would cost to buy the same crypto via each platform’s standard trading interface. To save on costs, you might aim to learn enough to utilize the standard trading platforms before you make your fist crypto purchase—or not long after.

An important note: As someone new to crypto, you’ll want to make sure your exchange or brokerage of choice allows fiat currency transfers and purchases made with U.S. dollars. Some exchanges only allow you to buy crypto using another crypto, meaning you’d have to find another exchange to buy the tokens your preferred exchange accepts before you could begin trading crypto on that platform.

What Is a Cryptocurrency Broker?

Cryptocurrency brokers take the complexity out of purchasing crypto, offering easy-to-use interfaces that interact with exchanges for you. Some charge higher fees than exchanges. Others claim to be “free” while making money by selling information about what you and other traders are buying and selling to large brokerages or funds or not executing your trade at the best possible market price. Robinhood and SoFi are two of the most well-known crypto brokers.

While they’re undeniably convenient, you have to be careful with brokers because you may face restrictions on moving your cryptocurrency holdings off the platform. At Robinhood and SoFi, for instance, you cannot transfer your crypto holdings out of your account. This may not seem like a huge deal, but advanced crypto investors prefer to hold their coins in crypto wallets for extra security. Some even choose hardware crypto wallets that are not connected to the internet for even more security.

2. Create and Verify Your Account

Once you decide on a cryptocurrency broker or exchange, you can sign up to open an account. Depending on the platform and the amount you plan to buy, you may have to verify your identity. This is an essential step to prevent fraud and meet federal regulatory requirements.

You may not be able to buy or sell cryptocurrency until you complete the verification process. The platform may ask you to submit a copy of your driver’s license or passport, and you may even be asked to upload a selfie to prove your appearance matches the documents you submit.

3. Deposit Cash to Invest

To buy crypto, you’ll need to make sure you have funds in your account. You might deposit money into your crypto account by linking your bank account, authorizing a wire transfer or even making a payment with a debit or credit card. Depending on the exchange or broker and your funding method, you may have to wait a few days before you can use the money you deposit to buy cryptocurrency.

Here’s one big buyer beware: While some exchanges or brokers allow you to deposit money from a credit card, doing so is extremely risky—and expensive. Credit card companies process cryptocurrency purchases with credit cards as cash advances. This means they’re subject to higher interest rates than regular purchases, and you’ll also have to pay additional cash advance fees. For example, you may have to pay 5% of the transaction amount when you make a cash advance. This is on top of any fees that your crypto exchange or brokerage may charge; these can run up to 5% themselves, meaning you might lose 10% of your crypto purchase to fees.

4. Place Your Cryptocurrency Order

Once there is money in your account, you’re ready to place your first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum to more obscure cryptos like Theta Fuel or Holo.

When you decide on which cryptocurrency to purchase, you can enter its ticker symbol—Bitcoin, for instance is BTC—and how many coins you’d like to purchase. With most exchanges and brokers, you can purchase fractional shares of cryptocurrency, allowing you to buy a sliver of high-priced tokens like Bitcoin or Ethereum that otherwise take thousands to own.

The symbols for the 10 biggest cryptocurrencies based on market capitalization* are as follows:

1. Bitcoin (BTC)
2. Ethereum (ETH)
3. Tether (USDT)
4. Binance Coin (BNB)
5. Cardana (ADA)
6. Dogecoin (DOGE)
7. XRP (XRP)
8. USD Coin (USDC)
9. Polkadot (DOT)
10. Uniswap (UNI)

*Based on market capitalization as of June 28,

5. Select a Storage Method

Cryptocurrency exchanges are not backed by protections like the Federal Deposit Insurance Corp. (FDIC), and they’re at risk of theft or hacking. You could even lose your investment if you forget or lose the codes to access your account, as millions of dollars of Bitcoin already has been. That’s why it’s so important to have a secure storage place for your cryptocurrencies.

As noted above, if you’re buying cryptocurrency via a broker, you may have little to no choice in how your cryptocurrency is stored. If you purchase cryptocurrency through an exchange, you have more options:

• Leave the crypto on the exchange. When you buy cryptocurrency, it’s typically stored in a so-called crypto wallet attached to the exchange. If you don’t like the provider your exchange partners with or you want to move it to a more secure location, you might transfer it off of the exchange to a separate hot or cold wallet. Depending on the exchange and the size of your transfer, you may have to pay a small fee to do this.
• Hot wallets. These are crypto wallets that are stored online and run on internet-connected devices, such as tablets, computers or phones. Hot wallets are convenient, but there’s a higher risk of theft since they’re still connected to the internet.
• Cold wallets. Cold crypto wallets aren’t connected to the internet, making them your most secure option for holding cryptocurrency. They take the form of external devices, like a USB drive or a hard drive. You have to be careful with cold wallets, though—if you lose the keycode associated with them or the device breaks or fails, you may never be able to get your cryptocurrency back. While the same could happen with certain hot wallets, some are run by custodians who can help you get back into your account if you get locked out.

Alternatives Ways to Buy Cryptocurrency

While buying cryptocurrency is a major trend right now, it’s a volatile and risky investment choice. If investing in crypto on an exchange or via a broker doesn’t feel like the right choice for you, here’s are a few options to indirectly invest in Bitcoin and other cryptocurrencies:

1. Wait for Crypto Exchange-Traded Funds (ETFs)

ETFs are extremely popular investment tools that let you buy exposure to hundreds of individual investments in one fell swoop. This means they provide immediate diversification and are less risky than investing in individual investments.

There is a huge appetite for cryptocurrency ETFs, which would allow you to invest in many cryptocurrencies at once. No cryptocurrency ETFs are available for everyday investors quite yet, but there may be some soon. As of June , the U.S. Securities and Exchange Commission (SEC) is reviewing three cryptocurrency ETF applications from Kryptcoin, VanEck and WisdomTree.

2. Invest in Companies Connected to Cryptocurrency

If you’d rather invest in companies with tangible products or services and that are subject to regulatory oversight—but still want exposure to the cryptocurrency market—you can buy stocks of companies that use or own cryptocurrencies and the blockchain that powers them. You’ll need an online brokerage account to buy shares of public companies like:

• Nvidia (NVDA). This technology company designs and sells graphics processing units, which are at the heart of the systems used to mine cryptocurrency.
• PayPal (PYPL). Already a popular choice for people buying items online or transferring money to family and friends, this payments platform recently expanded to allow customers to buy and sell select cryptocurrencies with their PayPal and Venmo accounts.
• Square (SQ). This payment services provider for small businesses has purchased over $ million in Bitcoin since October In February , the firm disclosed that Bitcoin made up around 5% of the cash on its balance sheet. In addition, Square’s Cash App allows people to buy, sell and store cryptocurrency.

As with any investment, make sure you consider your investment goals and current financial situation before investing in cryptocurrency or individual companies that have a heavy stake in it. Cryptocurrency can be extremely volatile—a single tweet can make its price plummet—and it’s still a very speculative investment. This means you should invest carefully and with caution.

Investing in Bitcoin (BTCUSD) can seem complicated, but it is much easier when you break it down into steps. Investing or trading Bitcoin only requires an account at a service or an exchange, although further safe storage practices are recommended.

There are several things that aspiring Bitcoin investors need: a cryptocurrency exchange account, personal identification documents if you are using a Know Your Customer (KYC) platform, a secure connection to the Internet, and a method of payment. It is also recommended that you have your own personal wallet outside of the exchange account. Valid methods of payment using this path include bank accounts, debit cards, and credit cards. It is also possible to get bitcoin at specialized ATMs and via P2P exchanges.

Before You Buy Bitcoin

Privacy and security are important issues for Bitcoin investors. Anyone who gains the private key to a public address on the Bitcoin blockchain can authorize transactions. Private keys should be kept secret—criminals may attempt to steal them if they learn of large holdings. Be aware that anyone can see the balance of a public address you use. The flip side to this public information is that an individual can create multiple public addresses for themselves. Thus, they can distribute their stash of Bitcoin over many addresses. A good strategy is to keep significant investments at public addresses that are not directly connected to ones that are used in transactions.

Anyone can view a history of transactions made on the blockchain—even you. Although transactions are publicly recorded on the blockchain, identifying user information is not. On the Bitcoin blockchain, only a user's public key appears next to a transaction—making transactions confidential but not anonymous. In that sense, Bitcoin transactions are more transparent and traceable than cash because all of them are available for public view, unlike private cash transactions. But Bitcoin transactions also have an element of anonymity built into their design. It is very difficult to trace the transacting parties—i.e., the sender and recipient of the bitcoin—on the cryptocurrency's blockchain.

International researchers and the FBI have claimed they can track transactions made on the Bitcoin blockchain to users' other online accounts, including their digital wallets. For example, if someone creates an account on Coinbase, they must provide their identification. Now, when that person purchases bitcoin, it is tied to their name. If they send it to another wallet, it can still be traced back to the Coinbase purchase that is connected to the account holder's identity. This should not concern most investors because Bitcoin is legal in the U.S. and most other developed countries.

Buying Bitcoin 

Source: TradingView

We have broken down the steps to buying bitcoin below. Remember that you still need to do your research and select the best option for yourself based on your circumstances.

Step 1: Choose a crypto trading service or venue

The first step in buying bitcoin consists of choosing a crypto trading service or venue. Popular trading services and venues for purchasing cryptocurrencies include cryptocurrency exchanges, payment services, and brokerages. Out of these, cryptocurrency exchanges are the most convenient option because they offer a breadth of features and more cryptocurrencies for trading.

Signing up for a cryptocurrency exchange will enable you to buy, sell, and hold cryptocurrency. It is generally best practice to use an exchange that allows its users to withdraw crypto to their own personal online wallet for safekeeping. For those looking to trade Bitcoin or other cryptocurrencies, this feature may not matter.

There are many types of cryptocurrency exchanges. Because the Bitcoin ethos is about decentralization and individual sovereignty, some exchanges allow users to remain anonymous and do not require users to enter personal information. Such exchanges operate autonomously and are typically decentralized, which means they do not have a central point of control.

Although such systems can serve nefarious purposes, they can also provide services to the world's unbanked population. For certain categories of people—refugees or those living in countries with little to no infrastructure for government credit or banking—anonymous exchanges can help bring them into the mainstream economy.

Right now, however, most popular exchanges are not decentralized and follow laws that require users to submit identifying documentation. In the United States, these exchanges include Coinbase, Kraken, Gemini, FTX, and www.oldyorkcellars.com, to name a few. These exchanges have grown significantly in the number of features they offer.

The crypto universe has grown rapidly in the last decade, with many new tokens competing for investor dollars. With the exception of Bitcoin and certain prominent coins, such as Ethereum, not all of these tokens are available at all exchanges. Each exchange has its own set of criteria to determine whether to include or exclude the trading of certain tokens. 

Coinbase, Kraken, and Gemini offer Bitcoin and a growing number of altcoins. These three are probably the easiest on-ramps to crypto in the entire industry. Binance caters to a more advanced trader, offering more serious trading functionality and a better variety of altcoin choices. FTX, a fast-growing crypto exchange that has garnered a multibillion-dollar valuation, offers a restricted number of altcoins to U.S. investors. However, traders outside the U.S. have a greater choice of tokens on its platform.  

An important thing to note when creating a cryptocurrency exchange account is to use safe Internet practices. This includes two-factor authentication and a long, unique password that includes a variety of lowercase letters, capitalized letters, special characters, and numbers.

Step 2: Connect your exchange to a payment option

After you have chosen an exchange, you will need to gather your personal documents. Depending on the exchange, these may include pictures of a driver's license or Social Security card, as well as information about your employer and source of funds. The information you may need can depend on the region you live in and the laws within it. The process is largely the same as setting up a typical brokerage account.

After the exchange has verified your identity, you will be asked to connect a payment option. At most exchanges, you can connect your bank account directly or you can connect a debit or credit card. Although you can use a credit card to purchase cryptocurrency, it is not a good idea because cryptocurrency price volatility could inflate the overall cost of purchasing a coin.

Bitcoin is legal in the United States, but some banks may question or even stop deposits to crypto-related sites or exchanges. It is a good idea to check to make sure that your bank allows deposits at your chosen exchange.

There are varying fees for deposits via a bank account, debit, or credit card. It is important to research the fees associated with each payment option to help choose an exchange or to choose which payment option works best for you.

Exchanges also charge fees per transaction. These fees can either be a flat fee (if the trading amount is low) or a percentage of the trading amount. Credit cards incur a processing fee in addition to the transaction fees.

Step 3: Place an order

You can buy bitcoin (or other cryptocurrencies) after choosing an exchange and connecting a payment option. In recent years, cryptocurrency exchanges have slowly become more mainstream. They have grown significantly in terms of liquidity and their breadth of features. The operational changes at cryptocurrency exchanges parallel the change in the perception of cryptocurrencies. An industry that was once thought of as a scam or one with questionable practices is slowly morphing into a legitimate one that has drawn interest from all the big players in the financial services industry.

Now, cryptocurrency exchanges have gotten to a point where they have nearly the same level of features as their stock brokerage counterparts. Crypto exchanges today offer a number of order types and ways to invest. Almost all crypto exchanges offer both market and limit orders, and some also offer stop-loss orders. Of the exchanges mentioned above, Kraken offers the most order types. Kraken allows for market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders.

Aside from a variety of order types, exchanges also offer ways to set up recurring investments, allowing clients to dollar-cost average into their investments of choice. Coinbase, for example, lets users set recurring purchases for every day, week, or month.

Step 4: Safe storage

Bitcoin and cryptocurrency wallets are a place to store digital assets more securely. Having your crypto outside of the exchange and in your personal wallet ensures that only you have control over the private key to your funds. It also gives you the ability to store funds away from an exchange and avoid the risk of your exchange getting hacked and losing your funds.

Although most exchanges offer wallets for their users, security is not their primary business. We generally do not recommend using an exchange wallet for large or long-term cryptocurrency holdings.

Some wallets have more features than others. Some are Bitcoin only, and some offer the ability to store numerous types of altcoins. Some wallets also offer the ability to swap one token for another.

When it comes to choosing a Bitcoin wallet, you have a number of options. The first thing you will need to understand about crypto wallets is the concept of hot wallets (online wallets) and cold wallets (paper or hardware wallets).

Hot wallets

Online wallets are also known as hot wallets. Hot wallets are wallets that run on Internet-connected devices such as computers, phones, or tablets. This can create vulnerability because these wallets generate the private keys to your coins on these Internet-connected devices. Though a hot wallet can be very convenient in the way you are able to access and make transactions with your assets quickly, storing your private key on an Internet-connected device makes it more susceptible to a hack.

This may sound farfetched, but hot wallet holders who haven't set up enough security run the risk of losing funds to theft. This is not an infrequent occurrence, and it can happen in a number of ways. For example, boasting on a public forum such as Reddit about how much bitcoin you hold while you are using little to no security and storing it in a hot wallet would not be wise. That said, these wallets can be made secure so long as precautions are taken. Strong passwords, two-factor authentication, and safe Internet browsing should be considered minimum requirements.

These wallets are best for small amounts of cryptocurrency or cryptocurrency that you are actively trading on an exchange. You could liken a hot wallet to a checking account. Conventional financial wisdom would say to hold only spending money in a checking account while the bulk of your money is in savings accounts or other investment accounts. The same could be said for hot wallets. Hot wallets encompass mobile, desktop, web, and exchange account custody wallets. 

As mentioned previously, exchange wallets are custodial accounts provided by the exchange. The user of this wallet type is not the holder of the private key to the cryptocurrency that is held in this wallet. If an event were to occur wherein the exchange is hacked or your account becomes compromised, you would lose your funds. The phrase "not your key, not your coin" is heavily repeated within cryptocurrency forums and communities.

Cold wallets

The simplest description of a cold wallet is that it is not connected to the Internet and therefore stands at a far lesser risk of being compromised. These wallets can also be referred to as offline wallets or hardware wallets. These wallets store a user's private key on something that is not connected to the internet and can come with software that works in parallel so that the user can view their portfolio without putting their private key at risk. 

Perhaps the most secure way to store cryptocurrency offline is via a paper wallet. A paper wallet is a wallet that you can generate off of certain websites. It then produces both public and private keys that you print out on a piece of paper. The ability to access cryptocurrency in these addresses is only possible if you have that piece of paper with the private key. Many people laminate these paper wallets and store them in safe deposit boxes at their bank or even in a safe in their home. These wallets are meant for high-security and long-term investments because you cannot quickly sell or trade bitcoin stored this way.

A more common type of cold wallet is a hardware wallet. A hardware wallet is typically a USB drive device that stores a user's private keys securely offline. Such wallets have serious advantages over hot wallets because they are unaffected by viruses that could infect one's computer. With hardware wallets, private keys never come into contact with your network-connected computer or potentially vulnerable software. These devices are also typically open source, allowing the community to determine their safety through code audits rather than a company declaring that they are safe to use.

Cold wallets are the most secure way to store your bitcoin or other cryptocurrencies. But they require more technical knowledge to set up.

A good way to set up your wallets is to have three things: an exchange account for buying and selling, a hot wallet to hold small to medium amounts of crypto you wish to trade or sell, and a cold hardware wallet to store larger holdings for long-term durations.

How to Buy Bitcoin With PayPal

You can also buy bitcoin through payment processor PayPal Holdings, Inc. (PYPL). There are two ways to purchase bitcoin using PayPal. The first and most convenient method is to purchase cryptocurrencies using your PayPal account that is connected to a payment mechanism, such as a debit card or bank account. The second option is to use the balance of your PayPal account to purchase cryptocurrencies from a third-party provider. This option is not as convenient as the first because very few third-party sites allow users to purchase bitcoin using the PayPal button.

Four cryptocurrencies—Bitcoin, Ethereum, Litecoin, and Bitcoin Cash—can be purchased directly through PayPal. With the exception of those who live in Hawaii, residents of all states can either use their existing PayPal accounts or set up new ones. You can also use your cryptocurrencies to purchase products and services through the "Checkout With Crypto" feature.

To set up a crypto account with PayPal, the following information is required: name, physical address, date of birth, and tax identification number.

It is not possible to use a credit card to purchase Bitcoin using PayPal. During the buying process, PayPal will display a price for the cryptocurrency. But that price is subject to rapid change due to the volatility of cryptocurrency markets. It is a good idea to make sure you have more than the price you budgeted for the purchase in your bank account. 

When you buy bitcoin directly from PayPal, it makes money off the crypto spread or the difference between Bitcoin's market price and its exchange rate with USD. The company also charges a transaction fee for each purchase. These fees depend on the dollar amount of the purchase. For example, a flat fee of $ is charged for purchases between $ and $ Thereafter, the fee is a percentage of the overall dollar amount. For example, a fee of 2% of the total amount is charged for crypto purchases between $ and $

One disadvantage of purchasing cryptocurrencies through PayPal is that you cannot transfer the crypto outside the payment processor's platform. Therefore, it is not possible for you to transfer your purchased bitcoin from PayPal's wallet to an external crypto wallet or your personal wallet.

The other disadvantage of using PayPal is that very few exchanges and online traders allow the use of the payment processor to purchase payment. eToro is among the few online traders that allow the use of PayPal to purchase bitcoin on its platform.

How to Buy Bitcoin With a Credit Card

The process for purchasing bitcoin with credit cards is similar to the process for buying it with debit cards or through automated clearing house (ACH) transfers. You will need to enter your credit card details with the exchange or online trading firm and authorize the transaction. In general, however, it is not a good idea to purchase bitcoin with credit cards. There are a couple of reasons for this.

First, not all exchanges allow bitcoin purchasing with credit cards due to associated processing fees and the risk of fraud. This decision may work out in the best interests of customers. This is because credit card processing can tack additional charges onto such transactions. Thus, in addition to paying transaction fees, you will end up with processing fees that the exchange may pass onto you.

The second reason is that credit card purchases can be expensive. Credit card issuers treat bitcoin purchases as cash advances and charge hefty fees and interest rates on such advances. For example, American Express and Chase both count purchases of cryptocurrencies as cash advance transactions. Thus, if you purchase $ worth of bitcoin using an American Express card, you will pay $10 (current cash advance fee for such transactions) plus an annual percentage fee of 25%. What's more, the credit card company also limits you to $1, worth of bitcoin purchases per month.

An indirect method of purchasing bitcoin using a credit card is to get a Bitcoin rewards credit card. Such cards function like your typical rewards credit card except they offer rewards in the form of bitcoin. So, they invest the cash back earned from purchases into Bitcoin. One example of a Bitcoin rewards card is the BlockFi Bitcoin Rewards Credit Card. Beware, however, that the annual fees for these cards may be steep and there may be additional costs associated with the conversion of fiat currencies into crypto.

Alternative Ways to Buy Bitcoin

Bitcoin ATMs

Bitcoin ATMs act like in-person bitcoin exchanges. Individuals can insert cash into a machine and use it to purchase bitcoin that is then transferred to online wallets for users. Bitcoin ATMs have become increasingly popular in recent years—even retail giant Walmart Inc. (WMT) is testing a pilot program that will offer its customers the option of purchasing bitcoin. Coin ATM Radar can help to track down the closest machines.

However, ATMs are an expensive option. There are two charges associated with ATM bitcoin purchases: a purchase fee and a conversion fee for converting a fiat currency to bitcoin. Both fees are fairly steep compared to those of other options. For example, the worldwide average purchase fee at Bitcoin ATMs is % (of the purchase amount) and % for sales at ATMs.

P2P exchanges

Unlike decentralized exchanges, which match buyers and sellers anonymously and facilitate all aspects of the transaction, there are some peer-to-peer (P2P) exchange services that provide a more direct connection between users. LocalBitcoins is an example of such an exchange. After creating an account, users can post requests to buy or sell bitcoin, including information about payment methods and prices. Users then browse through listings of buy and sell offers, choosing the trading partners with whom they wish to transact.

LocalBitcoins facilitates some aspects of the trade. Although P2P exchanges do not offer the same anonymity as decentralized exchanges, they allow users the opportunity to shop around for the best deal. Many of these exchanges also provide rating systems so users have a way to evaluate potential trade partners before transacting.

Mainstream brokerages  

Very few mainstream brokerages offer bitcoin purchase and trading capabilities due to the uncertainty surrounding the regulatory status of cryptocurrencies. Robinhood Markets, Inc. (HOOD), an app popular with retail investors, is one exchange that offers crypto trading facilities. It charges 0% commission for cryptocurrency trades and purchases and makes money from payment for order flow, passing its trading volume onto other trading platforms or brokerages.

The absence of a commission fee may be an enticing prospect for beginners, but there are a couple of catches to that offer. First, Robinhood does not have the breadth of features and coins offered by prominent crypto exchanges like Coinbase. Robinhood had enabled trading on its platform for seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Dogecoin, and Ethereum Classic. In contrast, you can trade more than cryptocurrencies on Coinbase. The exchange also offers various order types to minimize risk and offset losses during trading. 

The Robinhood platform also does not have a hosted wallet. Therefore, if you want to purchase cryptocurrencies through Robinhood, you will have to factor in additional costs for an online wallet provider.

How to Sell Bitcoin

You can sell bitcoin at the same venues where you purchased the cryptocurrency, such as cryptocurrency exchanges and P2P platforms. Typically, the process of selling bitcoin on these platforms is similar to the process for purchasing it.

For example, you may only be required to click a button and specify an order type (i.e., whether the cryptocurrency should be sold instantly at available prices or whether it should be sold to limit losses) to conduct the sale. Depending on the market composition and demand at the venue, the offering price for Bitcoin may vary. For example, exchanges in South Korea traded bitcoin at a so-called kimchi premium during the run-up in its prices back in   

Cryptocurrency exchanges charge a percentage of the crypto sale amount as fees. For example, Coinbase charges % of the overall transaction amount as fees.

Exchanges generally have daily and monthly withdrawal limits. Therefore, cash from a large sale may not be immediately available to the trader. There are no limits on the amount of cryptocurrency you can sell, however.

The Bottom Line

The process for purchasing bitcoin is slightly more complicated than the process to buy regular equity or stock. This is mainly because the cryptocurrency ecosystem and infrastructure are not as well developed as those of mainstream trading.

A bitcoin purchase process consists of four steps: selecting a service or venue for the purchase, connecting with a payment method, placing an order, and ensuring safe storage for your purchased cryptocurrency. Each of these steps requires research and a careful assessment of the pros and cons of each service. You can also buy bitcoin at Bitcoin ATMs or from payment services like PayPal and mainstream brokerages like Robinhood.