There are many different ways to purchase bitcoins. Each of them comes with certain advantages and disadvantages, and the availability of a solution to facilitate the purchase will ultimately heavily depend on your geographical location. While Part 1 of our guide (than you all for the great feedback, we DO appreciate it!) provided some background and contextual information on Bitcoin, the underlying technology powering it known as the Blockchain, and the truly disruptive power it can have on international cross-border payments, Part 2 below will describe the most popular methods for acquiring bitcoins and briefly introduce you to some of the emerging online bitcoin exchanges.
Method # 1: OTC Trades
Let us start with the most straightforward option: a so-called over the counter (OTC) trading. In the context of bitcoin, OTC trading refers to a bitcoin exchange that takes place outside centrally managed exchanges. In its most simple form, it can refer to an exchange of bitcoins between two friends who meet in a public place and use their smartphones with bitcoin wallets to trade bitcoins for cash.
However, an OTC trade does not necessitate meeting in person since the majority of the population do not live in an area where there is high adoption of bitcoin, it makes sense to use the ubiquity of the Internet to connect the global citizens of the world. Services like LocalBitcoins are designed to connect traders who are close in proximity, while adding an additional layer of security. The main benefits of this hands on approach are the ability to use local bank transfers to reduce potential fees and to speed up the entire process.
Method # 2: Bitcoin ATMs
Bitcoin ATMs have sprung up in many countries around the world. They allow end users to exchange cash, or in the case of two-way ATMs, cash and bitcoins without human contact or registration. The process involves the ATM scanning a QR code from a mobile wallet on the users mobile device, which is proceeding by the formal bitcoin transfer.
One of the primary drawbacks of using bitcoin ATMs is the high exchange rate that users have to pay, this is incremental to the standard foreign exchange rate. In some cases, it can be as high as 8%.
Additionally, the public presence of Bitcoin ATMs raises security concerns, because it can theoretically be relocated easily, and it is advisable to not use them for high value transactions.
Method # 3: Online Bitcoin Exchanges
A secondary method to acquire Bitcoins is via online bitcoin exchanges. A few examples of leading Bitcoin exchanges in the world are Coinbase based in the US, Kraken based in the US, Bitstamp based in Slovenia, Bitfinex also based in US, and the largest exchanges in the world BTCChina and OKCoin, both based in China. Modern bitcoin exchanges function a critical component of the entire bitcoin ecosystem and offer a secure and reliable way for users to purchase bitcoins in exchange for fiat or other cryptocurrencies.
Since exchanges have to obey strict Know your customer (KYC) and anti-money laundering (AML) regulations, the application process to begin trading in both fiat (i.e. US, Euro, CAD, CNY) and cryptocurrencies (i.e. Bitcoin, Ethereum, Litecoin) could take a few days. KYC policies require that exchanges complete due diligence on the customers by verifying their identity to prevent identity theft, fraud, laundering and funding of illegal or illicit activities. Typically, you will need to upload a proof-of-residence document and a scanned government licensed photo ID. The exchange will then have to check your identity before you can make a deposit. The entire process typically only takes 24 to 48-hours exchange offer different payment options, exchange rates, currencies, and additional perks.
The Most Popular Bitcoin Exchanges
To make your life easier, we have prepared a detailed breakdown of the most popular exchanges in the USA, China, United Kingdom, and Europe.
In the United States
San Francisco-based Coinbase is the first bitcoin exchange to have regulatory approval in half of the U.S. states. . Its goal is to create a trustworthy exchange that would meet the high demands of institutional and accredited clients and offer strong protection of clients’ financial assets globally. Coinbase is certainly not a new player in the bitcoin field. The exchange has been operating in the U.S. since 2012 and, since then, has become the largest bitcoin company in the world.
It offers the ability to bi-directionally trade BTC and USD, plugs directly into merchants point of sale system in 32 countries, and offers clients the ability to send, receive, and store bitcoins in 190 countries. With its excellent mobile wallets, comprehensive insurance policies, and bank-grade security, Coinbase is the exchange of choice for all US-based customers.
The biggest bitcoin exchange by traded volume in China is OKCoin, and it made headlines in 2015, because of its dispute over the bitcoin.com domain name. Despite not reaching a favorable result, its platform is trusted by millions of customers worldwide due to its effective approach to security, reliable matching algorithms, and its 24/7 customer support.
China is also home to the world’s second-largest bitcoin exchange called BTCC. Its origin dates back to 2011, when it was still called BTCChina. The company has decided to rebrand itself in an effort to globalize, establish global brand equity, simplify and standardize its advertising and marketing strategy, and to finally pursue growth opportunities outside of mainland China.
In the United Kingdom
Although the United Kingdom is the fifth largest economy in the world (by GDP, nominal), the legalization and institutional acceptance of cryptocurrencies is still in development. Unfortunately, British citizens cannot easily acquire Bitcoin, because the UK has classified cryptocurrencies as ‘unregulated’, therefore the British Government has not provided adequate legal and financial structure for bitcoin exchanges to flourish. There is no easy method in the UK to acquire Bitcoins. That being said, British citizens can purchase Bitcoins from Bitcoin exchanges which are headquartered outside of the UK, such as from Coinbase and Kraken; both of those platforms allow for GBP deposits and withdrawals. Lastly, one emerging exchange that is important to mention is Coinfloor, which is a London-based company with a goal to be the simplest and safest environment to buy and sell bitcoins. Their bitcoins are actually sent into multiple underground vaults, where they are stored using Multi-Signature Pay 2 Script Hash (P2SH) cold storage, a fancy feature to protect assets and curtail theft. Registering a new account is simple, first you need to create an account, select a broker, and then deposit some GBP using a UK domestic wire to purchase Bitcoins.
In Other Parts of Europe
If you are a citizen of the European Union, there are countless reputable exchanges to acquire Bitcoin (in addition to the aforementioned options) including Bitcoin.de, itBit, The Rock Trading Company, BTC-E, and BitCurrex.
The largest bitcoin exchange by traded euro volume is Kraken, and due to its comprehensive information security and assurance protocols, it is often considered to be one of the most secure exchanges. Its professional design and sophisticated features will invariably attract experienced traders who will certainly appreciate lower trading fees, cryptographically verifiable proof-of-reserves audits, and broad reaching APIs.
In August 2011, Bitstamp was created as a reliable alternative to exchanges that monopolized the market. It accepts US dollar deposits, Euro deposits via the payment integration initiative Single Euro Payments Area (SEPA), and international wire transfers. Its goal is to become the de-facto bitcoin exchange provider for the otherwise fragmented euro market. Bitstamp recently released a new feature that is quite exciting, customers in many European countries (list is growing), including United Kingdom, Slovenia, Germany, and Italy, will now be able to purchase bitcoins with Visa and MasterCard credit and debit cards.
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2 thoughts on “How do I buy Bitcoin?”
What would be the best way for a South African citizen to buy bitcoin?
Hi Eben, thanks for your question, there are a few options for South Africans to purchase Bitcoin including: https://www.bitx.co/, https://ice3x.com/, http://www.bitcoinzar.co.za/, and https://localbitcoins.com/country/ZA, we would suggest purchasing a small amount to first experiment with the bitcoin exchange and if successful, to proceed with larger amounts. Good luck! Let us know how it goes, and sign up for our newsletter ?