How to buy Bitcoin and other cryptocurrencies

Well, this post is for those who like strong emotions. It is very important that you know before you put money in them that cryptocurrencies are highly volatile and carry risks, do not put money in them that you can not afford to lose.

They have become very popular lately due to their upward trend in recent months, the topic is truly broad and it would not fit to explain everything in one post. A few years ago I would not have imagined that their price would be mentioned in the news.

What is Bitcoin (very simplified)?

Bitcoin was created in 2008 with the idea of being a digital currency to transfer value, decentralized, i.e. not controlled or backed by any central bank or state. Transactions are controlled through a database called blockchain. This database is distributed in a network of computers around the world (nodes), each computer has a copy of the blockchain with all transactions that have been made since the beginning and is updated every time someone makes a transaction, a computer with enough space to store the bitcoin blockchain and an internet connection can be a node. As the nodes are distributed all over the world it would be impossible to launch an attack against all of them at the same time, this is what makes the network secure. Transactions between participants are validated by computers, known as miners, to validate a transaction they must solve mathematical problems and use their computing power to do this. In exchange for providing this computing power to validate transactions they are given bitcoins as a reward. The amount of bitcoins given to the miners as a reward is halved every 4 years.

Validating transactions with computing power is known as Proof of Work, the equipment needed to validate transactions (mining) is expensive and unfortunately consumes a lot of electricity.

The value of Bitcoin is determined by supply and demand. There are only going to be a limited amount of Bitcoins, 21 million, so there is no central entity that will make more bitcoins to devalue them. This is why (among other things) it is believed that the price of bitcoin will continue to rise and that it is like “digital gold” because of that scarcity.

What are Altcoins and Stablecoins?

Cryptocurrencies other than Bitcoin are known as altcoins, there are many in existence and each one has a different application, for example Ethereum is a platform on which smart contracts can be built, this platform has its own cryptocurrency which is Ether. There are other cryptocurrencies whose purpose is to transfer money in seconds between different countries and so there are many cryptocurrencies with different objectives.

There are also what are called stablecoins, which are currencies referenced to a stable currency, mostly the US dollar, in this case the currency will always be worth 1 dollar. Thether, TUSD, Dai, BUSD are some of them.

Yes and all but… How do you make money in this?

There are several ways to make money with cryptocurrencies, here are some that I have tried:

  • Applying the classic buy low and sell high. In 2011 you could have bought a bitcoin for one dollar, now the price is around 50 thousand dollars. This applies to all cryptocurrencies.
  • Mining cryptocurrencies, if you have a computer with a good video card you can connect it to validate transactions of some cryptocurrency, not Bitcoin precisely because to mine Bitcoin you need special equipment, but there are others like for example, Ether that can be mined with a good graphics card. If you want to know more about this take a look at nicehash, a platform to which you can connect your computer and mine cryptocurrencies.
  • Some cryptocurrencies have something called Proof of Stake, where the validation of transactions is done with coins that are reserved for this purpose. ADA (Cardano) is one of the cryptocurrencies that has this mechanism.

Where and how do I buy?

To buy you need an exchange (which is the equivalent of a broker on the stock exchange), there are many exchanges, it is important to pay attention that it is not too small because as they are not regulated there is no one to support what you put there. Here are two Dutch exchanges that I have tried, easy to use where you can buy the most popular cryptocurrencies. Both of them will ask for identity verification as they comply with the AFM money laundering law.

To store the cryptocurrencies you need a wallet, this is an address where to deposit the cryptocurrencies, don’t worry the exchanges give you a wallet automatically.

You have to know that there is a risk of having your cryptocurrencies in the exchange because it can be hacked or disappear as happened recently in Turkey, if you are going to have large amounts of money in cryptocurrencies then it is better to pass them to a physical wallet as the Ledger nano.

Bitvavo

This has become the largest Dutch exchange, established in Amsterdam in 2018. You can buy 52 of the most famous cryptocurrencies. You can deposit money with IDEAL or bank transfer for free. It has an app for Android and IOS.

What I like about them is their low commissions of 0.25% per transaction and that they pay you interest for having your cryptocurrencies there, for example they give you 1.2% interest for the Bitcoin you have stored there, in fact they give interest on several cryptocurrencies. The interest is on an annual basis and they pay it every week. Doing research for this post I found out that they are even giving 6% interest on stablecoins like Dai.

If you register using my link you will not be charged commission during the first week for the first 1000 euros.

Litebit

Established in 2017, this is a user-friendly exchange where you can buy 42 of the most famous cryptocurrencies. Its interface is simple and easy to understand. You can deposit money with IDEAL, bank transfer and by credit card (Visa/Mastercard). Buying with ideal costs 0.42 eur per transaction, and with credit card 1.8Eur. Instead of commission they earn with the buying/selling price of the cryptocurrencies, just as if it were a money exchange at the airport. Link to Litebit

Other exchanges

There are many other exchanges, of those I have tried two: Coinbase and Binance. Coinbase is the largest exchange in the United States and in my opinion one of the safest. It charges higher commissions for buying and selling than Bitvavo and Litebit. If you use my link they give us both 10 USD of Bitcoin when you buy or sell 100 USD of cryptocurrencies.

Binance is the world’s largest exchange by transaction volume, it originated in China but moved its headquarters there due to the Chinese government’s cryptocurrency restrictions. In Binance you can find a lot of currencies and even products such as loans, futures and others as if it were the stock market but for cryptocurrencies. Check it out at this link.

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