Bitcoin FundingUnion: BITCOINS

How to Buy Bitcoins

You can buy #bitcoins from: regulated #exchanges, or directly from other people selling them. You can pay for them in a variety of ways, ranging from hard cash to wire transfers, depending on who you are buying them from and where you live.

Surprisingly, it’s not so easy to buy #bitcoins with your credit card or PayPal (except ECGate). This is because such transactions can easily be reversed with a phone call to the card company (ie: ‘chargebacks’, one of the problems #bitcoin #exchangers have still to solve). Since it’s hard to prove any goods changed hands in a transfer of bits, exchanges avoid this payment method and so do most private sellers.

First: Get yourself a ‘wallet’

You will need a place to store your new bitcoins. In the #bitcoin world they’re called ‘wallets’ but you could also think of them as like a bank account. The two main options are: (1) A software wallet stored on the hard drive of your computer, or (2) an online, web-based service. Both have their vulnerabilities: if you store it all locally on your computer make sure you back up your hard drive regularly in case it crashes; and online web wallets employ varying degrees of security, from quite good to quite poor. It’s up to you which one you trust the most.

The popular CoinBase is a wallet service that will also trade your dollars for bitcoins, and has web and mobile (Android) apps. Blockchain.info is another popular online wallet option that does not exchange fiat, but has the only mobile solution available for both Android and iOS.

Exchanges/Online Wallets

The range of options here seems to grow by the week, with new businesses coming online to cater to new markets. Some are full-blown exchanges for trades between paper fiat currencies and multiple other digital currencies, while others are simpler wallet services with a more limited range of trading options. Many will store amounts of digital and/or fiat currency for you, much like a regular bank account.

Exchanges/wallets are the best option if you want to engage in regular trading and speculation, don’t need total anonymity, and don’t mind lengthy bureaucratic setup procedures that usually involve proof of identity and supplying detailed contact information. This is the law in most countries and no regulated exchange can get around it, as any company interfacing with the current financial system must meet ‘know your customer’ and ‘anti-money laundering’requirements.

The best exchange option also depends where you’re located. Check this list of major bitcoin exchanges/wallets around the world, and the payment options they allow.

At this time, the largest full trading exchanges accessible to everyone are Bitstamp (US), BTC-e (Bulgaria), and Kraken (US). The world’s largest bitcoin exchange, BTC China, exchanges bitcoin for Chinese yuan/renminbi only.

Once you’ve set up your account, you’ll probably need to link an existing bank account and arrange to move funds between it and your new exchange account via wire transfer. This usually entails a fee. Some exchanges allow you to make a deposit in person to their bank account.

While people in most countries can transfer money to overseas accounts, fees are much higher and you may face more long delays changing your bitcoins back into fiat currency (should you still wish to do that). If you are required to link a bank account to use the exchange, it may only admit banks from that country (eg: CoinBase allows only US bank accounts).

Warnings about exchanges, wallets and banks

Despite the proof of identity requirements, remember exchanges and wallets are not regulated as banks otherwise. There is no insurance for your account if the exchange goes out of business or is robbed by hackers. Bitcoin does not (as yet) have legal status as a currency in most of the world, and authorities usually do not know how to approach thefts. Some larger exchanges have replaced customer funds after a theft from the exchange itself, but at this stage they are not legally obligated to do so. And if a theft from your personal wallet occurs due to a security or password lapse on your part, you do not have any guaranteed way to recover your funds.

Some existing banks see digital currency as a threat to their business model and have been known to discriminate against anything related to bitcoin. Their responses have ranged from refusing transfers to specific exchanges, to unilaterally closing accounts of anyone mentioning bitcoin, without explanation. Check this list first to see if your bank is one of them and, for your protection, open an account with a bank known to be more bitcoin-friendly.

Face-to-face, or ‘over-the-counter’ (OTC) trades

If you live in a city, prefer anonymity or don’t want bank hassles, the easiest option to acquire bitcoin is to make a face-to-face trade with a local seller. LocalBitcoins is the main site where these transactions are arranged and prices negotiated. The site also provides an escrow service as an added layer of protection for both parties.

There are security considerations for both buyers and sellers, especially if the trade is a big one. Always meet in a busy public place, don’t meet in private homes, and take all the precautions you’d usually taken when walking around with large amounts of cash.

Remember, if you’re meeting face-to-face somewhere, you’ll need to have access to your bitcoin wallet. Whether it’s a smartphone, tablet or laptop you’ll also need live internet access to confirm the transaction.

If one-on-one trades aren’t your thing, check out meetup.com to see if your area has a bitcoin meetup group, where you can do it all in a group setting and learn a lot from the other members in the process. These meetups flourished in the latter half of 2013. Some big cities even have open-air events called ‘Satoshi Squares‘ where you can just walk up, buy some bitcoin, and walk away. Given their group settings these latter two options are usually more secure, though obviously less anonymous.

Depending on the seller, you may pay a premium of around 5-10% over the exchange price for a face-to-face trade, for convenience and privacy. A reputable trader will negotiate the price before a meeting, but many won’t want to wait too long in case bitcoin’s value has another dramatic shift.

Some sellers may let you use a PayPal account to pay, though most prefer non-reversible cash for the reasons described earlier.

It’s also wise to check first if such trades are legal in your local area. There is also a slight danger you’ll arouse police suspicion by exchanging cash in a public place, if they think you’re trading something more illicit.