Recently Bitcoin celebrated its tenth anniversary, yet still many people don’t know how to buy it safely, and store. Most of the beginners are worried (for a good reason) that their Bitcoin can be stolen, or that they will be scammed and even will not receive a Bitcoin.
With many shady exchanges, services, individual traders and sellers around, users need to know that they are purchasing their Bitcoin from a trustworthy source, and that the first purchase will be a pleasant experience for them, rather than losing all money and forever abandoning the “Digital Gold”.
We have put together this guide to help all users around the world to avoid those scam exchanges, and ensure you do know where to buy BTC in the most reliable way.
Please be advised, this guide focuses entirely on spot Bitcoin purchase, therefore, it will not cover how to get BTC exposure via derivatives (such as futures, options, swaps, Tranched Value Securities (patent pending)) or other means.
The order of Bitcoin purchase options below represents the order of safety starting from the most unsafe options and ending with the safest ones.
If you have a friend who happens to own Bitcoin, you might easily purchase it from him. While such option will be the most flexible for you, as you can negotiate the terms and price easily, can pay in cash or any other suitable way, it might happen to be the most dangerous option. If this person is not someone you know very well, he or she can receive your payment and never send you the Bitcoin you bought.
Sometimes, even worse, your friend might happen to be a tech savvy guy, and might know how "double-spending" works, and while your pending transaction would appear on the blockchain, you would never actually receive the Bitcoin.
Furthermore, your friend knowing that it’s your first ever BTC-deal, will surely try to get the best possible price for himself (just a part of regular human nature), and therefore, you will not get the actual market price for it, meaning that Bitcoin will need to increase few precents extra in the market in order for you to earn anything.
Pros: most flexible option, unlimited trading amount
Cons: your friend might steal your money; potentially highest fees, spread and price
Example: any of your crypto savvy friends :)
This option is usually suitable for someone who already knows a good deal about crypto currencies. Otherwise, you wouldn’t know how to connect own wallet to the exchange and to execute a trade.
The above implies that most likely you need to already have some kind of crypto currency in order to exchange it into the Bitcoin, or any other type of digital asset, therefore, this option is usually not suitable for newbies in crypto area.
On top of the above, most of the DeFi (Decentralized Finance) exchanges are developed by inexperienced teams or individuals, which leads to significant number of code flaws and subsequent hacks, when you completely lose all your money and have no central party to be held responsible for that. Yet, such option has its own benefits, and some people like the DeFi exchange concept simply for anonymous exchange feature, and for the iddea of “no central party” (which is wrong actually).
Pros: lowest fees, anonymous, not controlled by anyone, unlimited trading amount
Cons: poorly coded exchange protocol, least flexible option, need to have crypto to buy crypto
OTC trades are among the most prominent, yet shady area. From one side you have a great deal of transaction flexibility where you are able to negotiate the specific trade terms with the potential seller, while from another side you always have a chance to encounter a scammer that knows how “triangular trade” works (where party A engages party B to buy Bitcoin, while trading with party C to actually sell the Bitcoin, which makes the central party receive the Bitcoins, and others lose money and their crypto currency).
Due to that, in OTC trades it is important to verify that you don’t trade with the first-time user (potentially a new account of experienced scammer), and that the counter-party has many positive reviews and trade history. On top of that, in certain countries, banks started implementing policies against OTC traders where they block bank accounts of the engaged parties for several years.
Pros: flexible option, yet not as much as buying directly from a friend, unlimited trading amount
Cons: experienced scammers, high spreads, banks’ anti-crypto policies
Centralized Bitcoin exchanges are currently the largest ones in the world with the deepest liquidity pools. Often times the reliable exchange will guarantee you that if someone hacks the exchange, they will compensate you in full. Therefore, such option usually provides to be the safest one and the most reliable one.
However, with such exchanges you need to go through comprehensive KYC (Know-Your-Customer) policies, and need to prove the legitimacy of you capital. Therefore, with the reliable exchanges you cannot expect anonymity, and can expect higher than regular trading fees, as a payment for your capital safety. Furthermore, usually only here you can safely use common payment methods, such as card payments (Visa, MasterCard, UnionPay), e-transfers (PayPal, MoneyGram, etc.) and other commonly known by the most people. Furthermore, such exchanges have strict regulations on what assets they list for trading, therefore, you are very unlikely to find some crypto currency or token available for trading that is lower than top50 by market capitalization. Last, but not the least, such option is mostly accessible by people from the developed world or from crypto-friendly states, but is out of reach for the rest of the world for now.
Pros: safest option if purchasing from reliable exchange, exchange will be responsible for your losses, sometimes limited trading amount
Cons: not flexible at all, might have high transaction fees, comprehensive KYC, mostly not available in developing world
This option is something new to most of the people even from crypto area, yet the first Bitcoin ATM was opened in Vancouver, Canada back in 2013. As of November 2020, there are over 12,100 Bitcoin ATMs across the globe. Such ATMs work in the similar manner with the regular ATMs which most of the people had ever used in their life, yet BTC ATMs will have several additional steps of verification, such as SMS verification, and the need to use BTC wallet pre-installed on the mobile phone.
With Bitcoin ATMs it’s virtually impossible to steal your potential crypto asset, yet this comes at a cost of highest fees, inconvenience, requirement of physical presence, and complete absence of anonymity.
Pros: safest option, limited trading amount
Cons: highest transaction fees, completely inflexible, hard to find BTC ATM in certain countries, user unfriendly
Example: Full list of BTC ATMs in the world here: https://coinatmradar.com/
We tried our best to present you with the major ways of buying Bitcoin. While some of you might want to buy other crypto currency, such as Ethereum (ETH), Litecoin (LTC), Ripple (XRP), or others, in most of the cases for now, the only single getaway to buy those is throw exchanging Bitcoin (BTC) to them. Therefore, it is essential for everyone to know their available options of purchasing the core asset to move on to the next step in crypto, in consideration of available risks, and benefits.