How to Buy Bitcoin
Buying Bitcoin can be a fun way to invest. But it can also be risky, so you should do your research before putting money into it.
To buy bitcoin, you need to create an account with a cryptocurrency exchange. Depending on the exchange, you may need to provide information like your Social Security number and ID.
What is Bitcoin?
Bitcoin is a new type of virtual currency that was first created in 2009. It’s designed to work without intermediaries – like banks and credit card companies – so it’s easy to make and receive payments.
It’s based on economic principles and isn’t controlled by any central authority. Instead, it’s governed by a digital ledger called the “blockchain” which is distributed across the entire network.
In fact, no company or country is in control of this ledger – and it’s available to anyone who wants to download it. This means that no one can manipulate the value of the currency or create new ones at will.
To make a payment in bitcoin, you send a message to another person’s address using your computer. Then, a computer on the network that’s specially outfitted for “mining” (solving complex math puzzles) verifies your transaction and adds it to a list of recent transactions called a “block.” These blocks form an ever-growing chain.
How to Buy Bitcoin
Buying bitcoin is a relatively simple process. The first step is to create an account with a crypto exchange. This is done by setting up an email address and a password, and verifying your identity.
Depending on the exchange you choose, you may be able to use your bank or debit card to fund your account. This can be a convenient way to buy crypto for some people, but it is important to remember that funding your account isn’t the same as purchasing coins.
Most exchanges require you to verify your identity before using credit or debit cards. This is a necessary measure to prevent money laundering and ensure that you aren’t buying from a fraudulent source.
Cryptocurrency exchanges like Bybit https://www.bybit.com/en-US/ are a place where traders can find counterparties willing to trade with them. This is done by combining buy and sell orders into an “order book” that automatically matches buyers and sellers.
There are a few things to consider when choosing an exchange, including size, security measures and fees. Generally, larger, more popular exchanges are better suited to buying and selling crypto.
A high-volume exchange also means you’re more likely to receive the best price when purchasing cryptocurrencies, says Spencer Montgomery, founder of Uinta Crypto Consulting. However, it’s important to note that size alone isn’t a guarantee of safety or security.
To buy bitcoin, you’ll need to open an account with the exchange of your choice and deposit funds. Most exchanges accept bank transfers and credit cards, though some may charge a fee for using these methods. You’ll then need to verify your identity and link a debit or credit card before you can start making purchases.
Cryptocurrency transactions are taxable like property or investments, so gains and losses from buying and selling virtual coins can be taxed as ordinary income. Long-term capital gains are treated more favorably, with rates ranging from 0% to 20% depending on your income level.
Short-term gains are taxed as ordinary income, so you might owe more than you expect. However, if you hold crypto for more than a year before selling it, you can benefit from lower long-term capital gains taxes.
To report your taxable crypto transactions, you need to keep track of the costs and proceeds for every trade. You can do this manually or by using a software solution that automatically determines the cost basis, sales proceeds, and holding period for all your crypto trades.