We have learned about “how much Bitcoin is worth” in part 7 of our Bitcoin basics series. We will look at how to buy and sell Bitcoin in this article.
Given Bitcoin’s recent emergence and the fact that it is backed by technology (mathematical proof) rather than any other asset, many prospective investors find the process of purchasing or selling Bitcoin to be complex or complicated.
This is not always the case, though. Bitcoin can be received as payment for services rendered or goods provided, given as a gift, or purchased on an exchange or institutional service of one’s choice, just like other fiat currencies.
It would be best if you familiarized yourself with your country’s tax laws and other rules before purchasing Bitcoin (or any other digital money). As we discussed in Is Bitcoin Legal? Countries around the world have taken varying positions on cryptocurrencies, with some expressing support and others threatening to regulate or outright prohibit trading in the digital currency. As a result, your decision to purchase Bitcoin may or may not be subject to taxes, stipulations, or other applicable regulations, and you should exercise caution before proceeding.
What Are the Best Places to Buy and Sell Bitcoin?
Bitcoin can be purchased or sold in a variety of ways. Though regulations vary by country, digital currency can be obtained very readily by exchanging fiat cash (such as the US dollar) for Bitcoins at online exchanges or specific ATMs or accepting it as peer-to-peer currency.
Exchanges for cryptocurrencies
Most investors prefer to purchase bitcoin through an exchange or custodial service that allows them to convert fiat currency for bitcoin. This usually entails a conversion, which may or may not include a transaction charge paid to the exchange.
There are numerous online exchanges in various parts of the world that take a variety of different currencies. Typically, governments control online exchanges, and they must follow two sets of significant requirements: “anti-money laundering” (which prevents illegal activity’s goods from looking as legitimate money) and “know your customer” (which ensures that traders need to register their identities on services as a proof of their involvement).
Before traders may trade, most exchanges need them to connect their personal bank account (where fiat currency can be sent or received) and provide documents that authenticate their identification.
The amount of verification necessary before trading, transaction fees, trading limitations, and fiat currencies allowed varying by the exchange.
Peer-to-peer Bitcoin Transactions
If you choose not to use an internet exchange, you can always take Bitcoin as a ‘peer-to-peer transaction. This includes a customer delivering fiat currency or other commodities to a seller, following which the seller provides the buyer an assigned quantity of bitcoin.
It is vital to realize that because Bitcoin does not rely on a central bank or government to function, transactions are only between two parties.
It takes around fifteen minutes to validate these, and they are not refundable. You are relying on the goodwill of another party to comply with your request if you request a refund.
Peer-to-peer transactions can be carried out in a variety of ways. The most common technique is for a recipient to supply their Bitcoin wallet or keychain’s Public Key, after which a sender will allocate bitcoin to that address. The transaction will be “verified” after a typical fifteen-minute delay, and the transfer will appear in both parties’ wallets as well as on the Blockchain.
There are other peer-to-peer parties and platforms. Because the process of transferring Bitcoin requires confidence, cryptocurrency meetups have been known to occur, in which transacting parties meet in person or in a group to make the transaction.
Some services have also developed to help with this transaction and to help secure trust by putting monies in escrow until the transaction is complete.
The cost of obtaining bitcoin using these methods varies. Some vendors may charge a fee above and beyond the prices published on exchanges for privacy or convenience, or the conversion may be decided prior to or during the meeting.
ATMs that Accept Bitcoin
The use of an ATM, which may already be available in your location, is a relatively new technique for purchasing bitcoin.
Bitcoin ATMs often charge a ‘commission’ fee of three to eight percent in addition to the regular exchange rate. While this may be costly, bitcoin ATMs are usually the most secure way to complete a transaction.
Users typically enter cash or a debit/credit card into a bitcoin ATM and scan a QR code stored within a mobile wallet on their smartphone of choice to utilize the machine. The ATM then issues a paper receipt with codes and instructions for transferring the newly purchased bitcoin to a user’s mobile wallet.
What Is Bitcoin Trading and How Does It Work?
The most common way to trade bitcoin is through an exchange, which is a platform where traders can place “orders” to purchase or sell bitcoin at specific prices on this platform.
Exchanges often publish a ‘high’ and ‘low’ amount; this reflects the lowest or most incredible value that one complete bitcoin has sold for in a twenty-four-hour period.
Traders eager to transact signal their willingness to ‘buy’ or ‘sell’ on an exchange. This allows a trader to indicate how many bitcoins they are willing to purchase or sell and the amount of fiat currency they are willing to pay.
Limit orders and market orders are the two types of orders available.
Limit orders allow dealers to set their bitcoin prices, regardless of whether they are greater or lower than the market price. The interested seller is free to fulfill these orders in whatever way they see fit, and their willingness to do so is entirely up to them.
Market orders allow traders to immediately purchase an allocation of bitcoins that best matches the best matching order available on the market, effectively allowing consumers to buy bitcoins at the current exchange price.
When a trader approves one of these orders, the payment is scheduled to occur. Once processed (which can take up to fifteen minutes depending on the number of unverified transactions on the Blockchain), the assigned bitcoin is transferred from one party to another.
Purchased bitcoin is held on the exchange until traders want to transfer the coins to a bitcoin wallet or keychain of their choosing.
It is vital to know that exchange security varies, making them an appealing target for hackers attempting to steal cryptocurrency. Keeping a strong password and two-factor authentication to secure one’s account is a sensible approach.
We will go over how to secure and store your bitcoin in part nine of our Bitcoin Basics series.