Getting Started with Bitcoin: Complete Guide for Beginners

Bitcoin (BTC), the world’s first digital currency, has revolutionized how people store, send, and invest money in the digital age. Since its creation, right after the Great Financial Crisis of 2008, Bitcoin has grown from a small, experimental idea into a world-famous asset with millions of users. If you’re new to the world of crypto and aren’t sure where or how to begin, you’re not alone. This guide to Bitcoin for beginners is designed to walk you through all of the basics, from what Bitcoin is and how it works to how to invest in it, store it securely, and much more. Whether you’re just interested in the technology or are considering investing in Bitcoin, this guide will help you learn everything you need to know.

What is bitcoin?

Bitcoin is the world’s first and largest cryptocurrency, a kind of digital money or currency that can operate without centralized intermediaries like governments or financial institutions. Bitcoin exists entirely online, powered by a blockchain, a type of decentralized, public ledger of transactions that is ruled and maintained by a decentralized network of computers (known as nodes). Bitcoin has no physical form like other currencies. Bitcoin was designed as a peer-to-peer electronic cash system, enabling users to send payments directly to each other without having to go through a financial institution. Every single transaction is reported on the blockchain, but Bitcoin users interact through wallet addresses and not real names, offering a level of anonymity or at least pseudonymity.

How did bitcoin start?

The idea for Bitcoin was first published in a whitepaper in 2008. The author (or authors) used the pseudonym Satoshi Nakamoto, but their true identity remains a mystery. Over the years, speculation about Nakamoto’s true identity has often centered around well-known cryptographers such as Hal Finney, Adam Back, and Nick Szabo. Nakamoto’s aim was to create a financial system separate from the centralized systems involved in the global financial crisis. Bitcoin launched the following year. When Bitcoin was first established, it attracted very little attention outside of a small group of cryptographers and tech enthusiasts, often known as the ‘Cypherpunks.’ After its launch, Bitcoin was trading for less than a dollar per coin. In fact, the very first documented Bitcoin transaction was a purchase of two pizzas for 10,000 BTC, which would be worth over $850 million today.

Bitcoin pizza forum post | Source: Bitcointalk.org

These days, a single bitcoin (BTC) is worth tens of thousands of dollars, and it has only become more and more popular over the years. One in four Americans now own Bitcoin, as do many Wall Street firms, other large corporations, and even the U.S. federal government.

How does bitcoin work?

Bitcoin operates on the blockchain: a decentralized digital ledger hosted by a global network of nodes (computers). Every time a transaction takes place, it must be verified by these nodes and grouped into a block. Each block is then added to the chain of previous blocks of transactions, ultimately creating a decentralized, secure, transparent, and tamper-resistant ledger. Fiat currencies operate much differently. With traditional currencies, transactions are processed and recorded by centralized financial institutions like banks, payment processors, or fintech firms. This means that users have to trust these intermediaries, putting them at risk of delays, high fees, censorship, or even systemic collapses such as the Great Financial Crisis. Bitcoin is also issued in a completely different way than fiat currencies. While fiat currencies can essentially be printed with ease (especially the USD), Bitcoin has a fixed supply of 21 million coins. Instead of simply printing new dollars, Bitcoin is generated through a process called mining. Bitcoin mining involves guessing at complex mathematical problems with powerful computers. If one of your computers guesses the answer first, you are allowed to validate a block of transactions, helping to secure the network, and are awarded a certain amount of Bitcoin for doing so.

How to buy bitcoin

There are a number of different ways to get started with Bitcoin, depending on your goals, risk tolerance, budget, and experience level. Here are the most popular ways you can buy Bitcoin with ease:

1. use a crypto exchange

The most popular way to buy Bitcoin is to sign up for a cryptocurrency exchange. First, you will need to work out which crypto exchange will be best for you. Read our full guide to crypto exchanges to learn everything you need to know to choose the best exchange for you. Here are some of the most popular exchanges today:

Once you have chosen which crypto exchange you want to use, simply download the app or login via the website. Make sure that you navigate to the correct domain and avoid clicking Google search ads as scammers can use them to gain access to your account details.

Malicious search ad example | Source: Malwarebytes

After you create your account, you will need to verify your identity by providing a valid ID such as a driver’s license or passport and an address. You can then use a bank transfer, debit/credit card, or PayPal to add fiat currency (USD, EUR, etc) to your exchange account. Finally, navigate to the BTC trading section, enter an amount, and make your purchase. Experts often suggest that it’s a good idea to start with a small amount to get familiar with Bitcoin and crypto trading in general.

2. banking and money transfer apps

Some digital banks like Revolut and Monzo allow you to buy BTC through your banking app. However, accessing Bitcoin via your bank may undermine the appeal of a decentralized digital currency. You can also buy Bitcoin through money transfer apps like PayPal, Venmo, and Cash App. Make sure to check the transaction fees on these apps, as they may be higher than on an exchange.

3. stockbrokers & brokerage apps

If you already use a broker, it may be possible and convenient to buy Bitcoin through it. However, not all brokers offer crypto trading, and the ones that do often have a small selection of coins and high fees. There are fraudulent brokers operating in this space, so be careful and do your due diligence before signing up.

4. bitcoin etfs

An ETF (exchange-traded fund) is a publicly listed fund that packages up assets like shares, bonds, or cryptocurrencies into a single investment. A Bitcoin ETF tracks the price of Bitcoin, meaning that your investment rises in price when Bitcoin rises in price, but you don’t directly own any BTC. This is a good option if you prefer to buy a regulated asset through a broker rather than use an exchange. You also won’t have to worry about storing your coins securely in a personal crypto wallet.

5. bitcoin atms

Bitcoin ATMs or BTMs are physical kiosks that look like normal ATMs and allow users to make Bitcoin transactions. You need to have a Bitcoin wallet in order to use one. Luckily, it’s extremely easy (and free) to create one. For example, Coinbase Wallet is a popular free wallet that you can download on your phone and set up in a matter of minutes. There are thought to be 30 thousand BTMs in the world, most of which are in the United States. However, BTMs tend to have higher transactions fees. CNBC dove deep into the wave of BTMs sweeping America if you want to learn more about them.

How to keep your bitcoin safe

A crypto wallet is a an app or device that stores your wallet’s private keys, which functions similarly to a password. Without your private key, you can’t access your wallet to manage your Bitcoin. There are several different kinds of crypto wallets and some are better for beginners than others. Here are the main kinds of Bitcoin wallets you need to know about:

1. custodial wallets

If you buy Bitcoin using a cryptocurrency exchange, your BTC will be stored in a crypto wallet associated with the exchange (i.e., a custodial wallet). For example, if you have a Coinbase account, your BTC will be stored in a wallet custodied by Coinbase. Note that this is not the same thing as Coinbase Wallet, a separate, non-custodial software wallet app created by Coinbase. Custodial wallets can be great for beginners, especially because they are about as easy and convenient as wallets can be. However, there are a few major downsides, including a lack of utility and significant counter-party risk. For example, if the exchange goes under and it can’t meet its obligations (which is rare but not unheard of), you may lose some or even all of your crypto. That’s why most crypto experts suggest using personal crypto wallets to secure your Bitcoin and other cryptos.

2. non-custodial software wallets (hot wallets)

A software wallet is digital storage solution that is almost always connected to the internet. They are also often called hot wallets, though these terms aren’t entirely interchangeable. Hot wallets are internet-connected and not all software wallets meet this criterion (though cold software wallets are rare). A non-custodial software wallet is a personal wallet that gives you full control over your crypto and is not tied to an exchange. These wallets are generally very convenient and easy to use, but their internet connectivity makes them more vulnerable to security threats like phishing, social engineering, malware, and hacking attempts. A few of the most popular hot wallets include MetaMask, Coinbase Wallet, Phantom, and Trust Wallet. Most of these popular options offer both browser or desktop versions as well as mobile apps.

3. hardware wallets (cold wallets)

Cold wallets are offline storage solutions for your crypto keys. The most common type of cold wallets are hardware wallets, small USB-like devices that securely stores your private keys offline. In some cases, even a piece of paper with your private and public keys written on it can serve roughly the same purpose, though this is less common and much more tedious to use. Naturally, cold wallets are significantly more secure than hot wallets because they offer much stronger protection against hacking, phishing, malware, and similar cyberattacks. However, they are less convenient than hot wallets, as you will need to connect your wallet every time you make a transaction. Cold wallets can also be lost or damaged. For example, a UK man lost £620m-worth of Bitcoin when his girlfriend thew out a hard drive that stored his Bitcoin cold wallet. If you plan to buy Bitcoin and hold it for a long time, a cold wallet may be a good solution, but it might not be convenient enough for investors who trade frequently. Many crypto investors use both, using their hardware wallet as a long-term vault and their hot software wallet as a daily trading tool.

How to invest bitcoin: popular strategies for beginners

There is no one-size-fits-all strategy when it comes to investing in Bitcoin or crypto in general. Your strategy will depend on your own personal goals, budget, risk tolerance, time commitment, and more. Here are some of the most popular strategies for Bitcoin beginners.

1. buy-and-hold or hodl

HODL stands for “hold on for dear life” and it’s a fun nickname for a passive investing strategy. Investors who follow this strategy generally do not react to short term fluctuations in the price of Bitcoin, but rather hold onto it in the hope that it will increase in value over the long term. This strategy is about as simple as it gets so it’s quite accessible for beginners. You can also pair HODL with dollar-cost averaging (DCA) – a process of investing a fixed amount at regular intervals regardless of price fluctuations. This strategy can help smoothen out the volatility common in cryptocurrencies.

2. swing trading

Swing trading involves holding Bitcoin for days or weeks before (hopefully) selling at a higher price. This strategy is much less beginner-friendly because it requires a strong understanding of the various factors that influence the price of Bitcoin, such as changing regulations, technical indicators, and the news. Swing trading can be very risky, so do not invest more money than you can lose.

3. day trading

Day trading involves buying and selling Bitcoin within the space of hours to capitalize on short-term fluctuations in the price. The vast majority of day traders lose money so it is not advisable for beginners. You can read an example of a day trading strategy here.

How to spend bitcoin

Don’t expect to pay with Bitcoin at your local farmer’s market or bodega anytime soon but there are some businesses that accept Bitcoin as payment. For example:

• Online shopping: Merchants on Shopify can choose to accept BTC.
• Holidays & travel: Book flights and hotels with BTC
• Gift cards: Buy gift cards for retailers like Amazon and Apple
• Local stores: Use the BTC map to see which businesses near you accept BTC.

Why is bitcoin valuable?

Crypto beginners often question why Bitcoin is valuable even though it isn’t based on any physical assets. Most of its value is derived from a few key factors: scarcity, utility, and trust in the decentralized system. First of all, Bitcoin has a limited supply. Only 21 million Bitcoin will ever exist, similar to valuable physical assets like silver or gold. Compared to fiat currencies, which can be printed endlessly, Bitcoin’s scarcity helps drive its value, especially as adoption rises. It is technically possible that the supply of Bitcoin could be increased, but it couldn’t happen unless the network is taken over by a large cartel of nodes with over 51% control of the network and the people running those nodes would likely be harmed significantly if they made such a change anyway. Bitcoin’s utility is another major driver of its value. It can be used by anyone with an internet connection and a crypto wallet (most of which are free) to send payments anywhere in the world without having to trust financial intermediaries like banks. Perhaps most importantly, Bitcoin was built to maintain trust through its decentralized, secure, and transparent blockchain. Without this trust, Bitcoin’s scarcity and utility would be irrelevant because no one would want to use it. While Bitcoin can be useful in many different ways, it’s important to note that it is a volatile, high-risk asset. It’s value often changes dramatically in just days or hours. It has made some investors into millionaires, but it has also bankrupted others.

Bitcoin for beginners: in short

Bitcoin continues to attract more and more investors for a variety of reasons, from its potential for massive long-term gains to its decentralization, security, anonymity, and more. Some investors simply use it as a hedge against inflation or for pure speculation, while others see it as a vital tool to reach financial freedom. Luckily, getting started with Bitcoin is incredibly easy nowadays. All you need to do is sign up for a crypto exchange (or use a brokerage or banking app that supports it), make your first purchase, and store it in a secure crypto wallet. Just remember: if you lose your private key, you’ll lose access to your Bitcoin.

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