What is Bitcoin?-TradingBrokersView
How should you store your Bitcoins?
How to manage your Bitcoin investment?
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What Is Bitcoin?
Bitcoin was the very first cryptocurrency, introduced in 2009 by an anonymous individual or group known as Satoshi Nakamoto. It is a digital asset built on a decentralized system called the Blockchain, which removes the need for intermediaries such as banks or governments.
Unlike traditional currencies, Bitcoin is not issued or backed by any central bank. Instead, it relies on peer-to-peer blockchain technology to validate and record transactions. Each transaction is stored inside a “block,” and these blocks are linked together chronologically, forming a chain. This structure ensures that the same Bitcoin cannot be spent twice and that transaction data cannot easily be altered.
Participants known as miners maintain the network. They verify transactions and update the public ledger, and in return, they are rewarded with newly created Bitcoin. Today, blockchain technology is not limited to Bitcoin — it underpins thousands of other cryptocurrencies across the market.
Risks and Considerations
Although Bitcoin’s rapid price increases have often created a sense of urgency among investors, it is far from a stable asset. Its value can fluctuate sharply due to market speculation, macroeconomic factors, and shifts in investor sentiment. Because of this volatility, newcomers should approach it carefully and fully understand the risks before investing.
If you choose to purchase Bitcoin, you can do so through cryptocurrency exchanges or certain online brokers. Regardless of the platform you select, it’s essential to remain aware of the potential downsides associated with digital assets and make informed decisions based on your own research and risk tolerance.
What is Bitcoin?
Where can you buy Bitcoin?
Different Ways to Buy Bitcoin and Other Cryptocurrencies
There are multiple routes to gaining exposure to Bitcoin and other digital assets. The most common options include cryptocurrency exchanges and a limited number of traditional brokerage platforms.
Cryptocurrency Exchanges
You can buy Bitcoin directly through specialized crypto exchanges. Most platforms charge a fee based on a percentage of your transaction, so it’s wise to compare costs before choosing one.
Some well-known exchanges include:
Coinbase
A widely used platform in the United States. While its fees tend to be relatively high and the selection of cryptocurrencies is somewhat limited, the interface is user-friendly. Coinbase is publicly listed on the NASDAQ, which adds a level of transparency.
Binance.US
The US-based branch of the global Binance platform. It offers a broad range of cryptocurrencies and competitive fees. However, the interface may feel complex for beginners.
Gemini
A US exchange supporting Bitcoin, Ether, Bitcoin Cash, Litecoin and Zcash. Fees typically range from $0.99 to 1.49% of the transaction amount, depending on order size, plus an additional convenience fee of roughly 0.5%.
Coinmama
Allows purchases of several cryptocurrencies, including Bitcoin. It requires a minimum purchase and charges relatively high transaction fees, especially for credit card payments.
Traditional Stockbrokers
Only a handful of mainstream brokers allow direct (spot) crypto trading.
Robinhood
One of the first major brokers to introduce Bitcoin trading in the US (availability varies by state). Like its stock trading service, it offers commission-free crypto trades.
TradeStation
Provides access to cryptocurrency trading, including Bitcoin.
eToro
Offers crypto trading and includes a social trading feature, enabling users to replicate strategies of other traders.
Other Ways to Invest in Bitcoin
Bitcoin ATMs
Physical machines that allow you to buy or sell Bitcoin similarly to a regular ATM. Platforms like Coin ATM Radar track thousands of Bitcoin ATMs across the US.
Peer-to-Peer Transactions
You can purchase Bitcoin directly from other individuals using platforms such as Bisq, BitQuick, or LocalBitcoins. Extra caution is essential when dealing directly with private sellers.
Bitcoin Futures
Available through brokers like TradeStation. Futures trading is complex and generally more suitable for experienced traders.
Grayscale Investment Trusts
Grayscale Investments offers publicly traded crypto trusts such as the Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Classic Trust (ETCG). These trade over the counter and allow investors to gain exposure without managing wallets. However, they charge fees and sometimes trade at a premium to the underlying asset value.
Bitcoin CFDs
Some online brokers provide exposure through Contracts for Difference (CFDs). This lets you speculate on Bitcoin’s price movements without owning the asset itself. While brokers are typically regulated, you won’t have direct ownership of the cryptocurrency.
Bitcoin ETFs and ETNs
Exchange-traded products tracking Bitcoin or baskets of cryptocurrencies are also available in certain markets. These instruments offer exposure without requiring investors to handle digital wallets, making them more accessible to traditional investors.
Before choosing any method, carefully assess fees, regulatory oversight, custody arrangements, and your own risk tolerance. Each approach carries its own benefits and trade-offs, so selecting the right one depends on your experience level and investment objectives.
What do you need to know before you buy?
Setting up a cryptocurrency exchange account takes minutes, but you’ll need to provide some information, such as your bank account or debit/credit card number that will be used to fund your Bitcoin account, and perhaps a picture ID. Make sure to record and safeguard any new passwords for your crypto account or digital wallet.
Think twice before using a credit card! Although some providers allow you to purchase Bitcoin by credit card, you should consider whether you want to make such an investment by borrowing from a high-interest product like a credit card. This and various transaction or convenience fees mean that the total costs of paying with a debit or credit card can be several times more than that of using a bank transfer.
Spot investments in Bitcoin and other cryptocurrencies are not insured by the US Securities Investor Protection Corporation in the case of exchange failures or theft, a protection that traditional brokerage accounts enjoy up to $500,000. However, if you trade crypto CFDs or ETNs, you will be covered by the same investor protection as applies to other assets.
Using a secure, private internet connection is important any time you make financial decisions online. You should not buy Bitcoin while at the coffee shop, in your hotel room or using other public internet connections.
What is Bitcoin?
How should you store your Bitcoins?
Bitcoins can be stored in two types of digital wallets: a hot wallet or a cold wallet. With a hot wallet, transactions are generally faster. By contrast, a cold wallet often incorporates extra security steps that help to keep your assets safe but also take longer.
Hot wallets
With a hot wallet, Bitcoin is stored by a trusted exchange or a service provider in the cloud and accessed through an app or internet browser. Any trading exchange you join will offer a free Bitcoin hot wallet where your purchases will automatically be stored. But many users prefer to transfer and store their Bitcoin with a third-party hot wallet provider, which acts as their personal wallet and is also typically free to download and use.
Why choose a wallet from a specialized provider instead of a crypto exchange? While advocates of crypto say that the blockchain technology is more secure than traditional electronic money transfers, Bitcoin exchanges and hot wallets are an attractive target for hackers.
There are many hot wallet providers, offering a range of wallet types. Here are a few:
- Coinbase: Also a popular bitcoin currency exchange, Coinbase offers free online hot wallets, and insures losses due to security breaches or hacks, employee theft or fraudulent transfers.
- Electrum: Software that allows your Bitcoin to be stored on your laptop or desktop computer.
- Blockchain: Like Coinbase, Blockchain is an online hot wallet. But unlike Coinbase, Blockchain isn’t a currency exchange and is considered a less attractive target for hackers.
- Mycelium: A mobile-only bitcoin wallet, with versions available for Android or iOS.
Although some hot wallet providers offer insurance for losses arising from large-scale hack attacks affecting the platform, this insurance may not cover individual cases of unauthorized access to your account.
Cold wallets
A cold wallet is a small, encrypted portable device that allows you to download and carry your Bitcoin. Cold wallets can cost as much as $100 but are considered much more secure than hot wallets because they are not online all the time.
Cold wallet providers include:
- Trezor: This company offers small, key-size cold wallets ranging from about $80 to $170.
- Ledger Nano: Designed like a thumb drive, Ledger Nano has cold wallets ranging from about $60 to $120.
When creating accounts for your digital wallets or at a cryptocurrency exchange, use a strong password and two-factor authentication, and make sure you do not lose your passwords. Most exchanges require strong passwords and authentication to be able to create an account. Also, hold on tight to your private keys, which give access to your Bitcoins!
How to make your Bitcoin purchase?
After linking your Bitcoin wallet to the Bitcoin exchange of your choice, the last step is the easiest — deciding how much Bitcoin you want to buy. While Bitcoin made news in January 2021 by moving past $40,000 for the first time, Bitcoin (trading symbol BTC or XBT) can be bought and sold for a fraction of this amount, so your initial investment could be as low as, say, $25.
What is Bitcoin?
How to manage your Bitcoin investment?
If you like the idea of day trading, one option is to buy Bitcoin now and then sell it if and when its value moves higher. But if you see a future for Bitcoin as a digital currency, perhaps you should consider buying and holding for the long haul. Whatever your plan, know that owning Bitcoin can create a complex tax situation, as Bitcoin and other cryptocurrencies are considered property rather than currencies in some countries. Check the legal status of Bitcoin in your country! You also need to keep a careful track of your cryptocurrency activity, as the tax authority might ask for it.
What online brokers offer Bitcoin?
Based on our own review, here are our top 5 picks for the best online brokers for crypto trading for 2021. Check out our detailed review of the best online brokers for crypto trading for 2021!