Though new bitcoin are minted through mining, and bitcoin can of course (like any other money) be accepted in trade, another easy way to get bitcoin is to buy it with fiat currency.
Most people purchase bitcoin through online exchanges. The majority of bitcoin exchanges operate an order book that matches buy and sell orders. This means that the “price” of bitcoin relative to fiat currency is determined by users of the exchange, through supply and demand.
Buying bitcoin on an exchange typically requires the use of a debit card or direct bank account transfer, and most exchanges require personal information in order to comply with anti-money laundering and know-your-customer regulations.
OVER THE COUNTER
Another common approach to buying bitcoin is the use of an over-the-counter (OTC) desk. Unlike going through an exchange, an OTC desk serves as a middleman that completes Bitcoin transactions without an order book — connecting buy and sell orders directly.
Bitcoin ATMs are kiosks that resemble traditional ATMs but connect users to the internet and let them purchase bitcoin with bank cards or cash. Some bitcoin ATMs allow users to sell bitcoin as well.
It is, of course, also possible to buy bitcoin from someone who already owns bitcoin, in person. Many cities have Bitcoin meetups, where people might be willing to sell bitcoin. There are also websites on which buyers and sellers can find each other to meet up in person for a trade.
For more information on buying and acquiring bitcoin, visit our “How to Get Bitcoin” guide.
HOW DO I STORE BITCOIN?
Slightly simplified, bitcoin are stored on Bitcoin addresses. They can be spent with “private keys”: unique strings of numbers and letters associated with these address. Therefore, the owner of the private key is essentially the owner of the coins. Storing bitcoin really means storing the private keys. This can technically be done in any way you like: on a USB drive, a piece of paper or you could even try to remember it (but this is not recommended).
Here are some of the more common solutions for storing your bitcoin, including products available in our store:
Many people use hardware wallets to store bitcoin. These are physical devices that encrypt the keys needed to spend bitcoin. Critically, these devices remain offline, so they cannot be hacked.
Software wallets are pieces of software that you download and run on your computer or mobile device. While software wallets are often fairly easy to use, they are also connected to the internet, which can make them somewhat vulnerable to advanced hackers. That said, many software wallets can be used in combination with a hardware wallet for increased security.
Paper wallets are physical pieces of paper that contain your Bitcoin address keys and therefore your bitcoin. Paper wallets typically have a private key, Bitcoin address and a QR code representing them both printed on them. The downside of a paper wallet is that they can be used only to store bitcoin; you cannot spend from them. (Instead, you’d have to insert the private key in a software wallet, at which point the paper wallet shouldn’t be used again.)
Because paper wallets are actually relatively difficult to set up securely, their use is not really recommended any longer.
CAN I KEEP MY BITCOIN ON AN EXCHANGE?
The majority of bitcoin exchanges have bitcoin wallets built in to enable the deposit and withdrawal of assets. When a user deposits bitcoin into an exchange’s wallet, that user is trusting the exchange with control of that bitcoin, and naturally, doing so brings a certain amount of risk.
Large exchanges may hold on to cryptocurrency for millions of unique accounts and take a variety of measures to ensure that these funds are safe so that they can retain their customers’ trust. But, over the years, many online exchanges have proven vulnerable to hacks, while other, less reputable ones have lost or even stolen user funds.
As a result, keeping your bitcoin on an exchange as a primary storage facility is generally not advised.
For more best practices on storing bitcoin, read our guide to bitcoin wallets.
HOW DO I KEEP MY BITCOIN SAFE?
The best way to keep bitcoin safe is to take precautions to protect the keys that grant access to your Bitcoin address.
But ultimately, the ideal process for keeping your coins safe depends largely on what works for you. If you are someone who keeps forgetting passwords, losing phones and displacing important documents, and you’re not dealing with life-changing amounts of bitcoin anyway, frankly, maybe a reliable third-party wallet would be best for you. (Even though this is certainly not ideal for overall security.) If you are tech-savvy and are dealing with large amounts of money, you could consider a multisignature setup with multiple wallets and encrypted backups dispersed over different locations. And there are also many solutions between these two extremes.
That said, in general, it’s advised to at least store your private keys yourself and keep a backup (typically a seed phrase) in a secure location.
To read more about bitcoin addresses, private and public keys and protecting your HODLings, check out our guide on keeping bitcoin safe.