At this point you have read the ‘NEVER’ section first!Buying your first bitcoin can be a scary experience for the first time buyer. Confronted with the number of exchanges, and the different kind of exchanges, and the different forms of payment combined with the many different escrow services available, a newbie might just give up at this step already!
There are basically three ways to buy Bitcoins:
- From a friend, in person, with cash.
- On a peer to peer exchange.
- On a 'traditional' or generic exchange.
There are of course advantages and disadvantages to each method.
I will cover option 2 and 3 above, if you have a friend who you trust and can sell you bitcoins - you don't need this blog.
Buying through a peer to peer exchange - my recommended method:
- Create an account at LocalBitcoins.com.
- Buy with ‘SEPA’ or from bank account to bank account method.
- Once you input the number of BTC you want to buy the ESCROW service is automatically started.
- You will receive information from the seller to complete the bank to bank transfer.
- Mark payment as PAID
- Once the user receives the payment he releases the bitcoins from the Escrow.
- Transfer you bitcoins to your wallet on your computer immediately!
There are several advantages to this method:
- There are no fees with this method.
- LocalBitcoins NEVER know your bank account numbers. Only the person you do the trade with knows.
- If anything does happen, you have a real name and a real bank to give to your lawyer or local police for a criminal investigation.
The second easiest and most trustworthy method is to buy Bitcoins with Paypal in LocalBitcoins.com.
The process is exactly the same as above except you choose the ‘buy with PayPal’ option. Escrow is also exactly the same.
So why don’t I like this method?
Because PayPal takes a cut every time you use this method, and that’s not the point in trading with digital currencies!
REMEMBER - NEVER SELL BITCOINS WITH PAYPAL!
See ‘NEVER’ section and ‘My Close Shave’ below.
Advantages of LocalBitcoins.com:
- Your bank account is never known to their server/website
- You do not have to fund your account with dollars
- only the chosen seller/buyer knows your bank account
- buy/sell per bank transfer
- buy with PayPal (never SELL with PayPal)
- Price flexibility - The prices of Bitcoins on peer to peer platforms are quite fequently better than on exchanges.
- slow turnaround times - it may take a while to sell or post a trade as seller.
- You have to build up positive reviews - just like in Ebay - and earn peoples trust.
The third easiest way to buy Bitcoins is through an exchange:
- Create user account
- Fund account with $ from your bank account
- Buy Bitcoins
- Transfer BTC to your wallet on your computer immediately.
- Once the trade is done IMMEDIATELY send the bitcoins from your wallet on the exchange to your wallet on your computer. This minimizes the time that your coins are ‘on the net’ and subject to attacks on the exchange’s website.
Actually most people would say it is the easiest method since you don't use an escrow service in most exchanges. However, most exchanges require you to have a bank account and add it for exchange purposes and cashing out.
If you don't mind giving an exchange your bank account numbers then I agree; this method is easier than 1 and 2 above.
Coinbase.com is a good example of a trustworthy exchange.
HOWEVER — at Coinbase you must register with a real United States bank account only.
Imagine if the FBI decides for whatever reason that Coinbase is laundering money and decides to shut them down. Then not only do they have your name, but they have your bank account numbers too. Not only that but they can confiscate your bitcoins and dollars if they want to.
My experience with exchanges has been very good. I just don't like them because they take so many fees and I don't want to couple my account to their website. This is your decision, everyone must choose the method he is comfortable with and the security levels that meet his requirements.
There are many accredited exchanges that I can recommend like:
The disadvantage to all of these being that you have to give them your bank account number.
Advantages of Exchanges:
- Very quick sell and buy times
- You don’t have to deal with the sellers/buyers
- In some ways they are lower risk because you are not dealing directly with another person
- You are more flexible to buy and sell and do ‘quick turnarounds’
- You can pay-out with dollars to your bank account.
- All require a bank account, Coinbase even requires a U.S. bank account.
- Security - your money and Bitcoins are on their server - maximizing exposure to hackers.
- The exchange takes a fee for every trade.
- If you want to pay-out with dollars the exchange takes a fee also.
- If there is ever a hack (á la Mt.Gox) you are highly vulnerable.
One of my beginners mistakes was selling Bitcoins with the PayPal method.
I sold my Bitcoins to one user “X”.
The user paid per PayPal very quickly — within hours.
I released the bitcoins in Localbitcoins.com for the trade.
One day later I got the message from PayPal, ‘payment cancelled’ the user’s account has been hacked.
I opened a dispute.
Paypal never answered my email, they just marked the dispute ‘settled’ and gave the justification ‘investigation complete’.
PAYPAL SUCKS!
As a seller you have no rights with PayPal.
Therefore, NEVER EVER SELL BITCOINS WITH PAYPAL.
Happy Ending:
Because LocalBitcoins.com is an accredited organization with a great track record, they kept my coins in Escrow. The user had already been identified as untrustworthy. So when I reported the incident to LocalBitcoins.com they kicked the user and gave me my bitcoins back! That is how the Escrow process works, perfect example of why to use Escrow and how third party 'trust' services can ensure your safety online.
Summary:
- Localbitcoins.com is the best peer to peer exchange.
- Use bank transfer to pay for bitcoins.
- Use PayPal to buy bitcoins but NEVER to SELL bitcoins.
- Buying BTC in an exchange is technically easier but you must link your bank account.
- Always transfer your bitcoins from the exchange to your wallet immediately.
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