How Do Beginners Buy Bitcoin?
Looking in from the outside, Bitcoin can often seem too daunting and complex to dive into. Like learning to ride a bike, getting started with Bitcoin presents an initial hurdle, but with time and practice, it will surely become second nature. In this short guide, we'll break down how to buy Bitcoin, starting with a quick overview of why so many have made it their main savings vehicle or added it to their portfolio as a long-term investment.
This post is for educational purposes only and should not be taken as individual investment advice.
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Why Invest in Bitcoin
Bitcoin is a fundamentally new asset class that is becoming increasingly relevant on the global stage. Individuals, firms, and countries are finding Bitcoin's unique characteristics increasingly deserving of their attention and capital. Below, we've highlighted some of the key characteristics that set Bitcoin apart from other assets.
Limited Supply
Bitcoin's supply is limited to 21 million coins and is, therefore, completely resistant to debasement. Bitcoin's absolute scarcity makes it the perfect tool for long-term wealth preservation.
Decentralized Network
Unlike traditional financial systems that rely on a central authority, Bitcoin operates as a global network of users, where no single entity governs the protocol. This means there is no CEO making decisions for Bitcoin. Instead, anyone can run the Bitcoin software and participate in the network governance.
No Intermediaries
Bitcoin operates as a peer-to-peer monetary system, eliminating the need for financial intermediaries to facilitate transactions or maintain balances. The absence of intermediaries makes Bitcoin resistant to financial censorship and seizure and free of discrimination. You do not need permission to use Bitcoin; it is open to anyone with an internet connection and allows you to transact with anyone, anywhere, anytime.
Ownership Control
With Bitcoin, you can take full control over your assets by holding Bitcoin in a wallet that only you can access. This mitigates counterparty risk and enables full financial sovereignty. Once you assume custody of your Bitcoin, no one can take it from you, granting its holders with near-perfect property rights.
24/7 Accessibility
Bitcoin trades 24/7/365, meaning you always have access to your money.
Digital, Borderless, and Inclusive
Bitcoin's digital nature allows it to transcend geographical borders and provides a faster and cheaper alternative for global payments compared to traditional financial systems. This also means that Bitcoin is accessible anywhere with an internet connection, allowing it to provide services to regions that are financially underserved or experiencing economic instability.
Bitcoin, Not Crypto
While many platforms will allow you to invest in other cryptocurrencies, prioritizing Bitcoin over alternative coins (altcoins), especially for newcomers, is a prudent decision driven by Bitcoin's unique characteristics, stability, and security. As the only decentralized cryptocurrency absent a CEO or founding team, Bitcoin stands apart, offering a level playing field for all participants where founders are not being enriched by retail investors.
Moreover, Bitcoin enjoys unique regulatory clarity, recognized as a commodity rather than a security. This distinction sets Bitcoin apart as a safer option, as regulatory frameworks around it provide a more transparent landscape compared to other cryptocurrencies.
Finally, Bitcoin has a clear monetary policy: a maximum supply of 21 million and a reduction in the issuance of Bitcoin every four years. Bolstered by its decentralization, no one entity can ever change Bitcoin's monetary policy. In contrast, other cryptocurrencies are subject to change at the will of their founders and often not in the interest of their investors.
Preparing to Buy Bitcoin
Having reviewed the unique attributes that make Bitcoin a compelling investment, let's explore how to buy Bitcoin and make it a seamless addition to your investment portfolio. Buying Bitcoin today is easier than ever before. A variety of exchanges have made Bitcoin increasingly accessible to individuals around the world.
The main consideration when choosing where to buy your Bitcoin is whether the exchange allows you to withdraw your Bitcoin to your own wallet after purchasing, as this choice impacts the degree of control you have over your Bitcoin.
Here's some key terminology to be familiar with before buying your first Bitcoin.
Bitcoin Exchange
A Bitcoin exchange is an online platform where users can buy, sell, or trade Bitcoin with traditional fiat currencies. Most exchanges will provide a Bitcoin wallet for you when you set up your account. However, they will be custodial and hold your Bitcoin on your behalf.
Bitcoin Wallet
A digital wallet, often in the form of an app or small hardware device that enables users to send, receive, and secure their Bitcoin. When you create an account with an exchange, they will often also provide a wallet for you. As a rule of thumb, it is always advisable to withdraw your Bitcoin to your own wallet after you purchase it on an exchange, regardless of which exchange you choose to buy from.
Bitcoin Exchanges
When you buy Bitcoin on an exchange and leave it in the exchange wallet, you essentially have a Bitcoin IOU. While convenient, this ultimately means you trust their custodial services' security while exposing yourself to counterparty risk, which can turn into a loss of funds. FTX is an infamous example of a poorly managed casino masquerading as a legitimate exchange, not holding its customer's funds. And even for well-respected exchanges, your Bitcoin can be subject to withdrawal limits.
The common adage to encourage self-custody is "Not your keys, not your coins." If you're starting with small purchases or holding the equivalent to pocket cash on a payment app like Strike or CashApp (mentioned below), it's not worth panicking about. But if you accumulate a sizeable stack or make a long-term savings allocation, self-custody is a wise investment.
Below, we've compiled a list of platforms you can use for buying and selling Bitcoin in the United States that allow you to withdraw your Bitcoin and take full custody after purchasing:
River Financial
River Financial offers individuals instant Bitcoin purchases and recurring orders. They are number one on this list for being Bitcoin-only and having built their own multisig cold storage for holding client funds, meaning they do not use a third-party custodial service. River also supports the Lightning Network—a layer built on top of Bitcoin that offers cheap and instant payments. Additionally, River allows withdrawals to your personal Bitcoin wallet.
Swan Bitcoin
Swan Bitcoin is a platform known for its easy-to-use dollar-cost-averaging (DCA) feature, specializing in white-glove support for high-net-worth individuals, family offices, businesses, and trusts. While they hold your Bitcoin on your behalf, they also encourage withdrawals to your personal wallet.
Strike
Strike is a payments app that simplifies Bitcoin transactions using the Lighting Network for day-to-day use and global remittances. It's celebrated for its user-friendly design and ease of use. Most importantly, they allow you to withdraw your Bitcoin to your personal wallet when ready.
Cash App
Cash App is a financial services and payment app often used as a mobile bank. And it's a user-friendly place to buy, hold, and sell Bitcoin. However, it is custodial, meaning they hold your Bitcoin on your behalf. They still support withdrawals of your Bitcoin to your personal wallet.
Coinbase
Coinbase is a popular cryptocurrency exchange that offers both custodial and non-custodial services. In the custodial version, they hold your Bitcoin for you, while in the non-custodial Coinbase Wallet, they provide you with a seed phrase for complete control over your funds. Given the past failures of numerous crypto exchanges used for trading, it is recommended not to leave any meaningful amount of Bitcoin on their exchange.
Alternative Bitcoin Buying Options
If you want to buy Bitcoin with cash or prefer to use a peer-to-peer platform over an exchange, here are some options.
Bitcoins ATMs
Bitcoin ATMs are physical machines that allow users to buy or sell Bitcoin using cash or credit/debit cards. Similar to traditional ATMs, Bitcoin ATMs provide a convenient way for users to access and transact in Bitcoin in person.
Peer-to-Peer Platforms
Peer-to-peer (P2P) platforms connect buyers and sellers directly, enabling them to trade Bitcoin without the need for an intermediary. These platforms facilitate direct transactions between users, often providing a secure escrow service to ensure the fair exchange of Bitcoin. Examples include HodlHodl or Bisq.
However you decide to purchase your first Bitcoin, the next step is to consider how you want to store it.
Types Of Wallets
When it comes to choosing a Bitcoin wallet to use, the main considerations are custodial vs. non-custodial and 'hot' vs. 'cold' wallets. These defining characteristics and understanding your risk profile will help you choose the wallet type that best aligns with your security needs and preferences.
What Are Custodial Wallets?
Custodial wallets hold your private keys for you; this means you are entrusting a third party to hold your Bitcoin. While custodial wallets offer ease of use and simplify Bitcoin custody, you're subject to counterparty risk. If the exchange or wallet service fails, you could lose your Bitcoin.
What Are Non-Custodial Wallets?
Non-custodial wallets offer ultimate control over your Bitcoin. When you open a non-custodial wallet, you receive your private keys, making you the sole guardian of your Bitcoin and granting you full control over your funds. This absolves any counterparty risk.
What Are Hot Wallets?
Hot wallets, often called 'mobile wallets,' are like your everyday wallet but for Bitcoin. They are connected to the internet, which makes them great for quick and convenient transactions, but they aren't recommended for significant long-term savings. Hot wallets, which include mobile apps easily accessible on your mobile device, as well as desktop and browser-based platforms, offer convenience and quick access to your Bitcoin. However, their online connectivity exposes them to potential cyber threats. While hot wallets are cost-effective and convenient, they are generally less secure than cold wallets.
What Are Cold Wallets?
Cold wallets, sometimes called 'offline wallets,' are the Fort Knox of Bitcoin storage. These wallets are entirely offline and come in the form of a small hardware device similar to a USB drive. While cold wallets have an upfront cost and are a bit more technical, they are renowned for their high level of security compared to hot wallets. As such, cold wallets have become the go-to way for safeguarding larger amounts of Bitcoin.
Below, we've compiled a list of popular Bitcoin wallets:
(Note: If you buy a hardware wallet, purchase it directly from the manufacturer to remove the risk of the device being tampered with.)
Blue Wallet
Blue Wallet is a mobile Bitcoin wallet that is available for iOS and Android and is one of the easiest to use. It is a hot wallet, meaning it is connected to the internet, allowing for convenient and quick access to funds. Users can manage their Bitcoin holdings and make transactions using Blue Wallet's user-friendly interface. Here’s a BTCSessions tutorial on Blue Wallet (See Tutorial).
ColdCard Mk4
ColdCard Mk4 is a hardware Bitcoin wallet recognized as one of the best cold storage devices on the market. It's a cold wallet offering air-gapped transactions, providing enhanced security by keeping private keys offline. Recognized for its cyberpunk look and endless features, the ColdCard Mk4 is one of the most suggested devices in space. Here's a BTC Sessions tutorial on the ColdCard MK4 (See Tutorial).
Blockstream Jade
Blockstream Jade is a hardware wallet developed by Blockstream. It is designed to be an affordable, cold storage wallet and offers air-gapped transactions to ensure private keys are stored offline for maximum security. You can use the Jade in conjunction with a variety of desktop wallets or use Blockstream Green, a hot wallet with additional features like two-factor authentication. Here’s a BTC Sessions tutorial on the Blockstream Jade (See Tutorial).
Trezor Model One
Trezor Model One is a commonly used, affordable hardware wallet. Combined with the Trezor Suite app, this is a beginner-friendly entrance to Bitcoin self-custody. While used for crypto more broadly, Trezor offers bitcoin-only firmware for their devices to reduce the risk of bugs or security issues from supporting other cryptocurrencies. Here's a BTC Sessions tutorial on the more expensive Model T (See Tutorial).
Theya's 2-of-3 Multisig
For enhanced security or shared custody with family members, trust, or financial advisors, multisig offers self-custody without relying on a single wallet provider or hardware device. While multisig wallets require a bit more technical knowledge, they are considered the pinnacle of cold storage and the most secure way to self-custody your Bitcoin.
Theya streamlines the creation of a 2-of-3 multisig vault with its user-friendly app and support of popular hardware wallets. Learn more about multisig and schedule a free consultation when you're ready to upgrade your wallet security.
For beginners, here's a general overview of quickly setting up a hot wallet.
How To Self-Custody After Buying Bitcoin
Once you've bought Bitcoin to start your long-term savings or to experiment with, a mobile wallet is an excellent first step in self-custody. It ensures you maintain complete control over your Bitcoin and mitigate any counterparty risk while giving hands-on experience in how this revolutionary technology works.
Opening a personal wallet is simple; just download a Bitcoin wallet app like Blue Wallet or Blockstream Green. From there, it will guide you through setting up the wallet, which will involve writing down your 12-24 word seed phrase (private keys), which should always be kept secret and safe.
After setting up your wallet, you can take full control of your Bitcoin by transferring it from the exchange to your new wallet. Follow these steps:
- Open your newly created personal wallet, click 'Receive' and copy your receiving address.
- Return to your exchange wallet, select 'Send,' and paste the address you copied from your wallet. Confirm the transaction.
- Your Bitcoin will appear in your wallet shortly, granting you full control over your funds.
Mobile wallets, like the ones mentioned above, fall into the 'hot wallets' category and are suitable for beginning to accumulate Bitcoin. As your Bitcoin holdings grow, it is advisable to transition to a 'cold wallet' secured by a hardware device like a Blockstream Jade or ColdCard.
And again, when you're ready for enhanced protection from loss and theft, Theya’s 2-of-3 multisig vault is a simple setup away.
A Note On Bitcoin ETFs
If you have made it this far and are still unsure about buying and holding your own Bitcoin, a Bitcoin ETF may be the product for you. While not real Bitcoin, Bitcoin ETFs offer a way to gain exposure to the price action of Bitcoin in your traditional investment accounts. While this level of exposure might be where your comfort level is, it's key to recognize that Bitcoin ETFs don't give you access to real Bitcoin, but rather a paper claim for Bitcoin that is being held for you in the form of the ETF.
With ETFs, you simplify the process of owning Bitcoin but retain none of the benefits of using Bitcoin as money, such as its unconfiscatable nature, uncensorable transactions, and global payment abilities.
Conclusion
For some, Bitcoin is their preferred savings vehicle. For others, it's an integral part of a diversified portfolio. Regardless, learning the basics of Bitcoin and taking control of your assets is a rewarding experience. As you embark into the world of Bitcoin, remember the importance of secure storage, continuous learning, and staying informed about the evolving world of Bitcoin.
The decision of what exchange or wallet to use will come down to your level of expertise and desired level of security. We recommend you continue your research so you may find the best product fit for you. Whether starting with a small amount or diving in head first, Bitcoin's accessibility and decentralized nature make it an asset for everyone to explore.