As the original cryptocurrency, Bitcoin may represent a viable way to build wealth.
If you’re new to the cryptocurrency market, or even if you’ve been following it for some time, you may be wondering, “What is Bitcoin and how can I get started buying and selling it?”
In this article, we’ll answer those questions and offer detailed information on how Bitcoin may fit into your crypto journey.
What Is Bitcoin?
At its most basic, Bitcoin is a digital currency that is not controlled by a central bank, government, or other institution.
Instead, Bitcoin’s financial system depends on thousands of computers distributed around the world. This financial system is known collectively as a blockchain.
A blockchain is a digital database capable of storing transaction records (e.g., buys, sells, and proof of ownership) in a secure, irreversible, and decentralized manner.
Satoshi Nakamoto — not a real person but, rather, a pseudonym for a single individual or a group of individuals — developed and released both the Bitcoin token and transaction technology in 2009.
When it first went public, the Bitcoin protocol was based on a number of existing technologies that had been around for decades.
In fact, the concept of a chain of blocks (or blockchain) wasn’t introduced with Bitcoin. Stuart Haber and W. Scott Stornetta proposed a system for timestamping documents using an unalterable data structure in the early 1990s.
Their system used cryptographic techniques — i.e., complex mathematical calculations — to secure data and prevent it from being altered, forged, or otherwise tampered with once it had been written.
Those cryptographic techniques and the work necessary to solve them contributed to the protocol that Bitcoin adopted when it first went online: mining.
What Is Bitcoin Mining?
When Bitcoin first took the internet by storm more than a decade ago, you could use a simple personal computer to add transactions to the register and create your own new coins.
But, because of the nature of the cryptography involved, once you’ve created a new coin, every subsequent coin becomes more difficult to mine.
New cryptocurrencies are coming online every day because they’re relatively easy to mine, but Bitcoin has been around for so long that the computing power necessary to create new coins has skyrocketed.
Mining Bitcoin these days requires an extremely powerful, customized computer that might cost thousands or even tens of thousands of dollars to build and operate.
The sheer power and expense necessary to solve these problems and make new Bitcoin means that it has become prohibitively expensive for most people in the cryptocurrency market to mine their own coins.
Instead, the vast majority of those involved in the market today buy Bitcoin by converting their local currency (e.g., dollars, yen, pounds, etc.) into said tokens on an exchange or trading platform.
How To Buy Bitcoin
1) Create An Exchange Account
The first step in buying Bitcoin is to create an account with an exchange, like Binance.US.
Doing so will give you the ability to convert fiat currency (e.g., money backed by a local government or bank, such as US dollars) into Bitcoin.
Look for an exchange that offers features that work for your overall strategy whether you’re interested in purchasing Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Dogecoin (DOGE), or other cryptocurrencies.
Consider variables such as:
- Selection of tokens and coins
- Low trading fees
- Advanced trading API
- Recurring buy orders
- Real-time order books
- Numerous cryptocurrency pairs
Partnering with an exchange that offers these features for all of their coins — not just Bitcoin — provides benefits down the road when you want to diversify your crypto portfolio.
2) Fund Your Account
The second step in buying Bitcoin is to transfer funds from a traditional bank account to the exchange account you created in step one.
Most exchanges offer a variety of ways for you to fund your account, including:
- Wire transfer
- Debit card
- ACH (from a bank account)
- Credit card
We recommend verifying that the exchange of your choice offers a funding method that’s convenient for you before signing up. That way, funding your account is as easy and quick as possible.
3) Choose When To Buy
When it comes down to it, buying Bitcoin is all about timing. Like any other asset, if you’re looking to trade Bitcoin, you can earn money by buying low and selling high, so it’s important to monitor the market to determine when it’s most beneficial for you to get involved.
4) Monitor Your Wallet
Once you’ve purchased Bitcoin, monitor your crypto wallet so you can see what the market is doing.
A crypto wallet is a method of storing, accessing, and managing crypto funds. Wallets fall into two categories: hot wallets and cold wallets.
Hot wallets are those that online cryptocurrency exchanges offer their customers. Cold wallets, on the other hand, store cryptocurrency offline (e.g., an external hard drive).
Choose the wallet that’s best for you.
Tips For Successfully Buying Bitcoin
1) Make A Plan
Buying Bitcoin just to have cryptocurrency in your portfolio is not necessarily the best use of your funds. It’s important to have a plan before making any moves.
Whatever plan you create, do your best to stick to it as closely as possible. Let it guide your decisions, and try to resist following any temporary hype into a losing situation.
2) Do Your Research
Before you buy Bitcoin — or any cryptocurrency, for that matter — do your research. Learning the basics about Bitcoin is a good start, but delving deeper into the cryptocurrency market will strengthen your position once you do decide to buy.
However, just researching Bitcoin isn’t always enough. Dig deep into the exchange itself, and don’t be afraid to examine it with a critical eye.
Ask questions such as:
- How many users does the exchange have?
- What do users have to say about the platform?
- What problems does it solve?
- What benefits does it offer?
- Will this exchange still be useful as my portfolio grows?
Get to know both the exchange and the market as intimately as possible, and avoid coins, protocols, trades, and investments that make grand promises but don’t have any real results to show.
To help you in this regard, take a few minutes to read these articles from the Binance.US blog:
- How To Perform Technical Analysis For Bitcoin And Other Cryptocurrencies
- How To Spot Common Crypto Scams And Stay Safe Online
- Bitcoin And The Stock To Flow Model
- What Is Dollar-Cost Averaging (DCA) And Is It Even Worth It?
3) Set Limits
As you’re developing your plan and thinking about the way you want to approach buying and selling Bitcoin (or any other crypto), consider setting limits on the profits and losses your portfolio can handle.
You’ll be better served by knowing when to pull your funds out of the market than by maintaining a losing position — or rushing headlong into a different one — and hoping for the best.
Similarly, set up a stop loss (the point at which you want to get out) so you’re not carried away by emotion, adrenaline, or excitement and end up losing more money than your Bitcoin purchase is worth.
Investing heavily in only one type of cryptocurrency — even one as popular as Bitcoin — can expose you to more risk than necessary.
Instead of putting everything you have into Bitcoin right from the start, diversify your crypto portfolio to include a variety of different coins.
Even hedging your bets by adding just a second option to your Bitcoin buy means your portfolio will be more stable should one of the coins or tokens in your wallet start to drop.
5) Automate Buying And Selling
Buying Bitcoin at a low price and selling it at a high price is certainly a valid plan. But doing so successfully comes with a lot of stress, screen time, luck, and timing.
You can approach buying and selling in a much less stressful way by using any automation offered by the exchange you partner with. Such automation can help you gain ground on the market in the long term.
Consider using automation to set up recurring buy orders — for example, $100 worth of Bitcoin — every month, regardless of the price.
Some of these recurring buy orders will get you less of the currency because prices are high, while other recurring buy orders will get you more of the currency when prices are low.
Overall, consistent automated buys often net more Bitcoin than you could bring in by trying to time the market and place orders all at once.
Earn Bitcoin Rewards With Binance.US
We’ve answered the question, “What is Bitcoin?”, but we know buying crypto for the first time can be nerve-wracking.
Reduce the stress of the process by researching first, creating a plan, taking it slow, and partnering with the right exchange.
Sign up with Binance.US today to start building your Bitcoin holdings.
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