This article will give an update on how to purchase bitcoin.
I have discussions on purchasing bitcoin here and here from years ago, and I even made this YouTube video demonstration on purchasing through Bitinstant and Mt. Gox. Watching that video is now hilarious because both of those companies have gone under. Time for an update.
We have basically four ways to exchange money for bitcoin these days:
- Bank transfer with a Money Services Business (MSB). I recommend Coinbase if you are in the United States. These businesses often require linking a bank account.
- In-person exchange. Go meet some person that has bitcoins and give them money to send the bitcoins to you. One of the best tools for this method is the time tested LocalBitcoins.com.
- Remote purchase from individuals and unique business models. Using wire transfers, credit cards, or other methods it is sometimes possible to purchase from individuals or even legal businesses without using bank information. Watch out, you may have very little reason to trust some of these businesses or individuals, and you may run into scams and so on. If that is a risk you are willing to take for the sake of anonymity, power to you.
- Purchasing hardware and mining your own bitcoin. I’m not going to recommend a particular manufacturer because I’ve been out of the game for too long and this method pretty much always ended up having me lose money, but if you have a large amount of money you may be able to turn a profit and not just break even here. Not a good method for small dollar folks, unless you are crowding together with others to make a larger fund.
- Check this listing of various particular businesses, but they all fall into one of these methods.
All in all I think the two best methods are Coinbase and LocalBitcoins, which is sort of like the Uber of Bitcoin.
After you get the bitcoins, securely storing them is a whole other issue.
Both of these options have pretty secure wallets that come with your account. Coinbase actually has very secure cold storage. If you are using a less known or trustworthy source for your exchange then you will need to take responsibility for securing that money yourself. There are three approaches I recommend here:
- Get an account with Coinbase or LocalBitcoins to safely store your coins in their wallets, even if you don’t conduct your purchases there.
- There are other trusted providers for storage which are not exchangers at all. For example, btcjam.com has a decent wallet for small amounts but you can’t actually buy or sell there.
- Utilize a number of wallets from multiple reputable third party providers and split your bitcoins around those. This mitigates the risk of failure or compromise of any particular wallet. Obviously, make sure those accounts are linked to at least a few separate email accounts and use different passwords.
- You may not want others holding your bitcoin for various reasons. For self-storage I recommend Bitcoin Armory with a paper wallet. There is the USB technique as well.
Make sure you know what you are doing before you engage in self-storage. Practice with small bitcoin amounts until you have the procedure down. Use more than one wallet to mitigate risk of loss, and don’t self-store all of your coins to mitigate the risk of your own error.
Basically with storage security, let trusted providers hold small amounts and for large amounts diversify your storage methods.