Bitcoin is the first and the most popular cryptocurrency that has gained mass acceptance. Although a lot of new technology goes into creating and maintaining it, common people can now use Bitcoins without understanding the math or technology. In this article, we explain what a Bitcoin is, Where to buy Bitcoins, Where to sell Bitcoins, and how to secure them for daily use.
What is Bitcoin?
In the simplest of terms, Bitcoin is a type of digital currency that is free from Government or a Central bank’s control. It has no physical or geographical boundaries and is a currency by consensus. While the regular currencies like USD are printed on paper and protected by watermarks, Bitcoins are created and protected by cryptography.
Where to buy Bitcoin?
There are several ways to buy Bitcoins.
- Cryptocurrency Exchange: These are websites where a person can buy, sell or exchange cryptocurrencies for the regular flat currency like US dollars or Euro.
- Bitcoin ATM: A Few Cryptocurrency Exchanges operate ATMs where you can drop your CAD or USD and get Bitcoins.
- Sell products: This is the easiest ways to get Bitcoins. If a person has a business or a hobby where they sell a product, offer Bitcoins as one of the payment methods.
Most Cryptocurrency Exchanges are based online and offer a convenient way to convert your paper money into Bitcoins or other Cryptocurrencies like Litecoin, Etherium, etc.
There are three primary types of Exchanges
- Trading Platforms that connect buyers with sellers and charge a fee per transaction. The Exchange typically sets the conversion price.
- Brokers who work like foreign exchange dealers who buy currency in bulk and make a profit by selling the lot in smaller pieces.
- Direct Trading where buyers and sellers interact directly with each other. The Exchange does not fix a specific price for conversion and each seller sets up his own price.
Many shady Bitcoin Exchanges have duped thousands of people. So it is important to deal only with reputable Exchanges. Consider the following before buying Bitcoins from anyone.
Payment methods: A Bitcoin Exchange that has multiple payment options would always be easier to use.
Fees: An Exchange may have a fee based on transaction size or the volume. Some may even charge for deposits.
Reputation: This is the most important factor when choosing a Cryptocurrency Exchange. Thousands of customers have been cheated by scammers disguised as Exchanges. Research the company by reading reviews from previous buyers, checking on well-known industry websites like Investopedia or Bitcoin.com and also by visiting forums like BitcoinTalk or Reddit. Avoid websites which only review CryptoExchanges as these may be scammers hiding as reviewers.
Here are the top Cryptocurrency Exchanges based on user reviews, reputation and security.
- CoinBase: This is the most popular Cryptocurrency Exchange in the world, offering well-known brokers and a strong trading platform. Bitcoin, Ethereum and Litecoin can be traded here. The site is beginner friendly, has a good reputation and competitive Cryptocurrency market prices. But they have only a few payment methods and support transactions only from a select list of countries.
- LocalBitcoins: This is a People to People (P2P) Bitcoin Exchange. It provides a platform for people to connect with the local sellers and buyers to enable easy transactions. It is beginner friendly, mostly free and available worldwide. But it is not the best place for large volume transactions.
- CoinSquare: CoinSquare is Canada’s leading Cryptocurrency Exchange. Based out of Toronto, the company provides good exchange value against CAD, making it a favourable deal for the local population. The Exchange deals with Bitcoin, Bitcoin Cash, Ethereum, Dash, Dogecoin, and Litecoin. It has an easy-to-use platform, with competitive fees and has a 95% cold storage policy. But the trading platform is basic and is primarily focused towards Canadians.
People can buy Bitcoins even through their local Bitcoin ATMs. CoinradarATM lists 295 locations in Canada where people can exchange their hard currency for Bitcoins.
What is a Bitcoin Wallet?
A Bitcoin Wallet is a software program that acts like a digital wallet to store the private and public keys needed to transact in Bitcoins. The wallet interacts with Blockchain to send and receive currency and to check the account balance.
Unlike hard currency, Bitcoin is not stored in a single location. They are just entries or transactions stored in a giant public ledger called the Blockchain. When a buyer sends money to a seller, he is approving a transfer of ownership of the coins from his wallet to that of the seller. To use those coins, the wallet’s owner will have to use his private key. When the public key matches the private key, the owner can send the coins out of his wallet.
This is very similar to a bank locker. The owner of a deposit box has one key (private key) while the bank manager has another (public key). When both the keys are used together, the locker can be unlocked.
Bitcoin wallets come in many forms.
- Mobile Bitcoin Wallet: A Mobile wallet is a simple but secure app that can be used for offline purchases like a retail store, etc.
- Desktop Wallet: A wallet program can be installed on your Desktop to store the private keys. Once installed, such a wallet can be accessed only from that specific computer. Desktop Wallets offer a higher level of security compared to a Mobile Wallet. But if the Desktop gets hacked or infected by a virus, there is no way to retrieve the keys stored in the wallet.
- Online Bitcoin Wallet: Many companies and even a few Cryptocurrency Exchanges offer cloud-based wallets which can be accessed from anywhere. While it is convenient, the downside is that they are vulnerable to attacks and thefts as seen in the case of Mt Gox.
- Paper: Paper wallets offer a high level of security since they are not stored online and therefore cannot be hacked.
- Hardware Wallets: These are physical devices like a USB drive. Since the device can be kept offline, they give a better form of security than a cloud-based
There are many wallets in the marketplace. Just like Cryptocurrency Exchanges, it is important to research different wallets before using them. As a rule of thumb, keep small change in a Mobile Wallet. Store a majority of Bitcoins either in paper or in an offline hardware device like a USB. If a desktop wallet is being used, keep backup copies of the hard drive.
Bitcoin is here to stay. Use these simple ways to buy, sell, store and transact them in a secure way.