New to Cryptocurrency? 5 Things to Know Before You Buy Bitcoin Online
Bitcoin may have gone mainstream in 2017, but not everyone who is going to buy Bitcoin did so two years ago. If you look at the generally accepted five stages of technology adoption, that is Innovators, Early Adopters, Early Majority, Late Majority, and Laggards, cryptocurrency adoption entered the early majority phase in 2017 and is still there. The staying power of crypto has been proven in recent months, as Bitcoin dipped for most of 2018 and into early 2019, before starting an impressive rally at the beginning of April. For people who didn’t buy Bitcoin in the first spike, this rally may be all that’s needed to get a toe or a foot in the door of cryptocurrency.
But for cryptocurrency newbies, Blockchain is still a bit of a Wild Wild West. If you’re looking to join the early majority and buy Bitcoin online for the first time, here are five things you should know:
1. Any reputable online cryptocurrency vendor will verify your identity
Think back to when you opened your bank account. You most likely had to do so in person, provide a government-issued identity card such as a driver’s license or passport, enter your Social Security or national ID number, and fill out and sign a number of forms. In other words, you had to show your intent in opening the account, and prove you were who you said you were. Cryptocurrency vendors such as Coinmama, which allow you to buy Bitcoin with credit or debit cards, aren’t banks, but they’re still providing a financial service, and as such they need to verify your identity.
How come? It comes down to a mix of regulations in the jurisdictions served, a risk management approach, and a desire to keep the internet and the Blockchain safe. Requiring users to prove their identity helps cryptocurrency vendors, brokers, and exchanges to protect themselves and their users from fraud and fight money laundering. If you go back in time to Bitcoin’s beginnings, it was created as a decentralized peer-to-peer currency with a hefty degree of anonymity. As a result, in addition to being used by many, many regular people who are excited about the technological capabilities of Bitcoin and see it as an investment strategy, it unfortunately also became an avenue for money laundering and scammers. Identity verification seeks to mitigate the risk posed by bad actors, while also complying with many of the anti-money laundering regulations most countries have in place.
What does verification look like? Unlike banks, which almost always require you to open an account in person, if you buy cryptocurrency online, you’re, well, online. You can’t simply walk into the website and show your ID card. So how do you prove you’re really you, and that you want to buy Bitcoin online? In addition to requiring a government-issued ID card, many crypto vendors will also ask to see a photograph of you holding that ID card. That way the vendor knows that the person in the ID matches the person opening the account. Some vendors will also ask for a “declaration of intent” or a form that declares you really do mean to open the account.
Of course those same bad actors that commit fraud when buying Bitcoin, may also pose as cryptocurrency vendors. It’s always important to put your online safety first: Do your research when choosing where to buy cryptocurrency, and make sure the service you use is legitimate and trustworthy.
The bottom line?
Exercise caution when providing your documents; after all, it’s your identity we’re talking about. However, don’t be alarmed if you’re asked to provide a copy of your identity card or other personal details when creating an account to buy cryptocurrency online. While it may still be possible to buy small quantities of Bitcoin online without providing identification, for larger quantities bought with a credit card, debit card, or by bank transfer, any reputable service will ask for your ID.
2. You need a special wallet
Most people new to cryptocurrency don’t realize that they need a place to store it. Unlike fiat currency (that’s Dollars, Euros, Yens, and other government backed currency), which is stored in your bank account—or under your mattress—cryptocurrency is not only virtual, it’s also decentralized, meaning it lives outside of the bank system. So how do you keep your cryptocurrency? In a wallet that’s intended just for crypto. Cryptocurrency wallets come in different forms; they can live online, on your desktop, as a mobile app, on a thumb drive, or even on paper. Whichever wallet you choose for your crypto, you’ll be given both a wallet address, which is a string of letters and numbers that you can use to receive cryptocurrency, as well as a secret code, or private keys, which will allow you to access your cryptocurrency holdings and to sell or trade them (more on that in a second).
One important thing to keep in mind is that each cryptocurrency has its own Blockchain—that is, the technology that enables crypto to exist—and so each cryptocurrency has a different format for its wallet addresses. That means your Bitcoin wallet address and Cardano wallet address will be different, even if you have a multi-currency wallet that lets you view all of your holdings in one place.
How do you choose a wallet? Do your research. Hot wallets, or wallets that live online (on an app or in the cloud) give you easier access to your funds, but are more susceptible to hacking. Cold wallets, or wallets that live offline (such as paper wallets or external drives) are safer for storage, but harder to recover if they’re damaged or lost. Many people with diverse crypto portfolios choose to spread their assets out across more than one wallet.
The bottom line?
If you’re buying cryptocurrency for the first time, you’ll have to set up a wallet.
3. You’re nothing without your private keys
We mentioned private keys above, but what are they? Private keys are the password to your cryptocurrency wallet; a very long, intricate set of numbers and letters that are associated with your particular wallet address. You need them in order to send your cryptocurrency, or to cash out. Sounds simple enough, but unfortunately it’s more complicated.
Unlike your bank password, which you generate yourself (and which probably isn’t very safe), your private keys are generated automatically, they’re part of what makes the Blockchain so impenetrable, and they can’t be reset if you lose them. In some cases, where the wallet provider holds onto your private keys, they may be recoverable, but don’t count on it; the internet is full of stories of people who lost their private keys and with them, millions of dollars worth of Bitcoin.
How does that happen? Part of it is due to the way Blockchain technology functions, and what makes it so safe. Part of it is due to the decentralized nature of cryptocurrency—a double-edged sword that puts you fully in charge of your own economy, but also fully responsible for it. But the long and short of it, is that if you lose your private keys—including if you have a cold wallet that gets damaged—you lose all of your cryptocurrency holdings. It’s imperative that you store your private keys somewhere safe, and that you know where that place is.
One other thing to note? If someone has access to your private keys, they have access to all of your cryptocurrency. Not only should you keep it safe, you also should not give your private keys to anyone you wouldn’t also give your bank account password to. So if someone suggests managing your money, and asks for your wallet address and private keys, all of your alarm bells should go off.
The bottom line?
4. Cryptocurrency isn’t all Bitcoin
Most people who think cryptocurrency, automatically think Bitcoin. In reality, there are over 2000 cryptocurrencies currently in existence. Some of them are niche coins attached to particular projects which will never take off and probably aren’t worth a second look. However, at the top of the rankings are several altcoins that may sound familiar, including Ethereum, Litecoin, and Ripple. These coins are more affordable than Bitcoin, and while they don’t have the same market share, they can provide a legitimate alternative entry point into cryptocurrency. Cryptocurrency brokers such as Coinmama allow you to buy Ethereum with credit card or bank transfer, as well as seven additional altcoins.
The bottom line?
Don’t discredit buying Ethereum or other altcoins when building your cryptocurrency portfolio.
5. Buying Bitcoin isn’t hard
We’ve come a long way since the early days of Bitcoin, when getting your hands on Bitcoin could be a complicated challenge. These days, there are plenty of ways to buy Bitcoin, including through Bitcoin ATMs, or on peer-to-peer networks. Perhaps the easiest way to buy Bitcoin for the first time is with a credit card. Once you’ve set up your cryptocurrency wallet, it’s no different than any other online shopping you would do. Coinmama lets users buy Bitcoin with credit cards or debit cards for up to $5000 at a time. Simply sign up, verify your account, and start buying.