How to Buy Bitcoin for Beginners (2020)
I’ve broken this blog post down into three sections for people with:
- No Technical Experience – I am afraid that if I held my own Bitcoin, that I would lose it and don’t bank on my phone
- Limited Technical Experience – I am comfortable using mobile devices and I bank on my phone
- Technically Proficient – I understand what a private key is
If you have No Technical Experience:
You can get exposure to Bitcoin through your brokerage account through the Grayscale Bitcoin Trust ($GBTC)
The upside of this is that you don’t have to worry about taking custody of your Bitcoin. You don’t need to know what a private key is. You don’t have to worry about misplacing or losing and of your Bitcoin.
The downside of this is that GBTC won’t get you the best price on Bitcoin exposure. You’re paying a premium (in peak times – a large premium) to get exposure to Bitcoin.
However, if you’re very comfortable operating in the traditional “stock” world, you have a brokerage account and you have no interest in doing something different and don’t mind that an outside institution is holding your Bitcoin – GBTC is a good bet.
If you have Limited Technical Experience:
You have a lot of options here.
Really any of the well known exchanges will do the trick in terms of allowing you to purchase Bitcoin. Some popular ones include:
These apps work just like your traditional bank account. You sign in, create an account, link a funding source (checking / savings account / credit card*)
*Buying Bitcoin with a credit card or on margin is baby brain, don’t do it you’re better than that
Most of these exchanges will allow you to keep your coins on the exchange, and if you don’t want to deal with private keys or taking custody of your own Bitcoin you can stop here.
The pros of this is that you won’t have to learn any more and if you are unsure about your ability to keep track of a private key you don’t have to worry about that.
Additionally with some of these services above (like BlockFi) you can earn interest on the Bitcoin that you allow them to custody (like you would with a bank). As of this writing BlockFi is giving 6% interest on Bitcoin and 8.6% interest on stablecoins like USDC and GUSD (crypto tokens that track the price of the US dollar).
I have used BlockFi for almost 6 months now and it has consistently returned 5x the interest of my traditional “high interest” savings account with half the amount of money invested in the BlockFi account (that’s a 10x difference in interest)
If you are interested in BlockFi we both earn crypto when you use this link to sign up: https://blockfi.com/?ref=e20a2aef
The cons are that some of these exchanges have higher fees to pay than others, and you are still not taking custody of your own Bitcoin.
There is a common phrase in the Bitcoin community: “Not your keys not your coins”. And there are historical examples of exchanges, like Mt.Gox, going kaput leaving people with all their Bitcoin on the exchange with their hands in their pockets.
The Crypto world was a lot less advanced back then but some are still wary of this risk, so they choose to custody their own Bitcoin (think hiding your gold in a safe at your house rather than having it with a bank somewhere you’ve never seen it).
Like it or not there will always be counterparty risk until you fully custody your own Bitcoin.
If you want to learn about private keys, this is the video that got me into Bitcoin:
Basically a private key is just a really big number that acts as an address for your Bitcoin. Some wallet apps (like Bread Wallet (BRD) on iOS) generate a private key and allow you to take custody of your Bitcoin on your iPhone.
***IF YOU LOSE YOUR PRIVATE KEY IT IS UNRECOVERABLE UNLESS YOU WRITE IT DOWN***
Basically the private key number is so big that even with every computer working together for the next 1000 years no one will ever recreate that number.
This is the double edged sword that comes with taking custody of your own Bitcoin. Literally no one can ever take it from you – unless you lose the key.
If you are Technically Proficient:
You should be looking to minimize your fees and storing your coins in a hardware wallet or cold storage depending on your risk preference.
I use Coinbase Pro (.5% fees) and their available API to automate trading and dollar cost average everyday. Then once a week I send the Bitcoin out of the exchange into a Ledger Hardware Wallet.
Hardware wallets are basically just small computers that securely generate a private key.
In this case, I am still trusting that Ledger doesn’t somehow know / keep a list of every private key they generate. The counterparty risk still exists it is just lower.
The full Winklevoss Security System™ – rolling dice in a blacked out house with no cameras/ technology inside and then scattering copies of private key fragments into safety deposit boxes across the world with your identical twin has just about 0 counterparty risk but there’s a lot of room for failure in the setup, so if you don’t know what you’re doing it’s better to just keep it simple.
It seems like there are some ways to get Bitcoin for 0 fees but I’m not totally up on that, if anyone wants to walk me through it I’d love to chat.
So hopefully now you know how to buy Bitcoin and have figured out what level of security you want for yourself.
If you have any questions feel free to email me rhett@rhett.blog or find me on twitter @Rhettre
Below are my results for buying Bitcoin everyday for a year (August 2019 – 2020)
In the video I discuss dollar cost averaging, why bitcoin, BlockFi, how I automated my purchases, and how much money I made.