Talk of Bitcoin and other ‘cryptocurrencies’ is everywhere – but it can be difficult separating fact from opinion.
If you search any forum or social media platform and you’ll find wildly different recommendations about what to buy, where to buy it and how it works. We’ll cut through those foggy opinions and tech jargon to explain the following:
- What Bitcoin and other cryptocurrencies are
- How they work
- How you can buy them
- Some of the benefits and risks involved
Whether you’re looking to invest – or you’re just interested in the what the future of currency might look like, we’ll lend a hand…
What is Bitcoin?
Bitcoin is the most commonly known ‘cryptocurrency’ – a type of digital currency that is built on cryptographic codes and a decentralised ledger called the ‘blockchain’.
This blockchain is spread across powerful computers around the globe. The individuals and companies who own these computers use them to ‘mine’ the currency – essentially cracking difficult codes and establishing security throughout the chain to create the digital units.
The way cryptocurrencies are created mean there can only ever be a finite number – there are around 16 million Bitcoins in circulation out of a possible 21 million.
Why do cryptocurrencies exist?
It’s important to understand that unlike physical currency, cryptocurrencies are not issued by governments – which means they are not and cannot be controlled or have fees levied upon it by those governments or central banks.
Because of this, Bitcoin and its peers are often the currency of choice for people who want to remain more anonymous online – it’s often reported that these people tend to be criminals – and while there’s an obvious preference for something close to anonymity for those engaging in illegal transactions, the majority of cryptocurrency buyers see investment value in an alternative approach to currency.
How can I buy Bitcoin?
The process we’re about to explain isn’t unique to Bitcoin and, depending on which broker you use, could extend to virtually any other cryptocurrency.
- Find and create a Bitcoin Wallet
Because Bitcoin has no physical form you need a digital ‘wallet’ in which the code will be held. There are 5 different kinds of wallet you can create:
- Desktop – A desktop wallet involves downloading a large piece of software that holds your Bitcoin on your computer. Not normally a good option for beginners. Check out: Bitcoin Core, Multibit and Armory for some trusted and established options.
- Mobile – Similar to a desktop wallet but a smaller piece of software that holds your Bitcoin on a mobile device. Mycelium, Xapo and Wirex are reputable mobile options.
- Online – The fact that online wallets mean you don’t hold your currency in person can raise some security issues, but this is generally made up for in their ease of use and speed, making online wallets a good beginner option. info is one of those most popular with 8 million wallets, although BitGo’s security measures also make it a popular choice. You can also check out this guide should you be looking to purchase Bitcoin in the UAE – Official Guide about How to buy Bitcoin in UAE
- Hardware – Hardware wallet providers offer a physical device that allows super safe offline storage of large quantities of Bitcoin. KeepKey, Trezor and Ledger Nano provide sleek and secure solutions.
- Paper – A paper wallet provider allows you to print your Bitcoin on to paper, essentially creating a kind of voucher. This is both safe – as it’s offline – and dangerous because it can be destroyed or lost! BitcoinPaperWallet and BitAddress are both simple and reputable paper solutions.
All options have pros and cons. People often start out online – progressing to hardware or paper based wallets further down the line.
- Think security
Whichever wallet provider you opt for, setting up your security measures should be your next step. This is most important when you’re working with any wallet that requires an active internet connection – a potential weak point with hackers and malware programs might have an opportunity to exploit your exposure.
For online wallets, make sure you have two-factor authentication set up on the account.
- Choose a broker
Your next step is to find a broker from whom you can purchase your Bitcoin. Essentially, brokers turn your real credit or debit card money into your chosen cryptocurrency – it’s useful to think of them like a Bureau de Change – they don’t produce the money – they just facilitate the exchange.
As of September 2017, one Bitcoin is valued at around £2885/$3900 – so you might be pleased to hear that brokers are happy to deal in fractions of coins too. Since there’s no physical element to a Bitcoin amount – these can be low – 0.0001 Bitcoin is a perfectly reasonable transaction to make.
It’s important to understand that digital currency comes with potential security issues – and brokers will do their utmost to ensure you and the currency is safe. This will often mean going through significant identification checks – so expect to be uploading pictures of your passport or driving licence to prove who you are.
- Ready to buy!
You’re set up and secure – so the next thing to do is decide how you’d like to spend your money. When you spend your physical currency, you’ll be rewarded with the appropriate amount of Bitcoin in return – and it’ll come to you as a lengthy indecipherable code. Don’t worry if transactions take some time – this can just mean that money being transferred internationally.
You might find that some online wallets that also offer a brokerage service don’t actual reveal the code to you – and that’s fine – you’re essentially trusting the broker in the same way you would your bank.
You’ll now be able to check your balance at any time – usually against some indication of the current trading value of the currency.
- The next move is yours…
The next step in Bitcoin ownership is entirely up to you! If you’re buying Bitcoin with the express idea of spending it then you’re now free to do so. Alternatively, you might want to sit on your digital currency and see how it performs against more familiar options. Or you could look to invest, if you do plan to go down this route then take a look at the mineweb.net Bitcoin IRA investment guide.
In 2010, when Bitcoin was in it’s infancy, a developer spent 10,000 (at the time worth very little) on 2 pizzas. The same 10,000 Bitcoin would now be worth around £29 million pounds. We can’t tell you how to handle your investment – but just be aware, Bitcoin and other cryptocurrencies can fluctuate massively – so seek professional advice before you invest in pizzas…