A Beginner’s Guide: What to Watch out for When Buying Bitcoin
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Buying Bitcoin and other cryptocurrencies can be a complex process, but with the right precautions, you can do it safely. Today there are plenty guides offering help on how to buy Bitcoin, but in our article, we will focus on the safety aspect of the purchase, and what to watch out for when buying the digital currency.
What is Bitcoin?
Bitcoin is a cryptocurrency, created by Satoshi Nakamoto. It is a decentralized form of money that can be sent between two parties using cryptography, making it secure. The currency can be used for different transactions, from buying goods and services to investments. The transactions made are recorded on a public ledger called the ‘Blockchain’ and take place without the need for an intermediary such as a bank or government.
Since the currency is not controlled by any financial institution, its value is set based on supply and demand. Hence, the value of Bitcoin is very volatile and it can both increase and decrease heavily in a short period of time. Therefore, it is important to bear in mind, that when investing in Bitcoin, it has a high risk of losing your money.
What is Blockchain?
The technology behind the cryptocurrency, Blockchain, is a distributed ledger technology where data is stored in multiple locations, making it tamper-proof and secure. The records are stored on several nodes, with each node having a copy of the ledger, making it almost impossible to be hacked.
This technology allows transactions to take place without any third-party involvement and the transactions are stored in blocks that link to each other, creating a chain.
What to watch out for when buying Bitcoin
When you are ready to purchase Bitcoin, there are certain things that you need to consider.
Funding your wallet
The first step is to create a Bitcoin wallet that you can fund. Several wallet providers are availabl, including Blockchain.com, Trust Wallet, Coinbase Wallet, and Exodus. There are several exchanges that offer this service, but it is important to research which one offers the best fees and conditions.
After creating a wallet, funding it can be done either directly with a debit card or by sending in Bitcoin after buying it at a cryptocurrency exchange.
Secure your wallet
It is also important to know how you plan to store your coins after you buy them. Normally this will require setting up your cryptocurrency wallet, which acts like an online banking application that stores your coins safely. There are different types of wallets available, so make sure you do your research before selecting one.
The wallets available today include ‘hot’ and ‘cold’ wallets. The hot wallets are online-based wallets that give you access to your coins from any device with an internet connection. However, these might be vulnerable to hacking. Cold wallets, on the other hand, are physical wallets that provide a higher level of security since they are not connected to the internet.
Choose the right exchange
The next step is to find the right exchange for you. There are several sites available, and it is important to choose one that has a good reputation, is secure and offers competitive rates. Additionally, be sure to check the purchase limits and fees associated with each exchange. Some sites may offer lower purchase limits or higher fees, so it is always advisable to compare a variety of exchanges.
Volatility
As mentioned before, Bitcoins can be very volatile, so you need to be aware of the market trends before completing a purchase. It is always a good idea to set up price alerts and watch for any changes in the market. Furthermore, it is important to be aware of any news or events that could affect the price of your coins.
Volatility won’t stop when you hold Bitcoin or other cryptocurrencies, so it’s important to be aware the value of your holdings may increase o decrease over time.
Conclusion
Buying Bitcoin has become very popular, and has the potential to be an important part of the global financial system. However, it is important to be aware of the various risks and dangers associated with cryptocurrencies, such as volatility. Before you dive into investing in Bitcoin, make sure to do your research and be aware of the different exchanges available, fees, and how secure your coins in a safe wallet.
Featured image via Unsplash.
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