How to buy your first Bitcoin

500 Bitcoins
May 29, 2019 · 9 min read
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For people getting into cryptocurrency for the first time, one of the first questions most people have is “how exactly do I buy a Bitcoin?” (or any other altcoin for that matter). In this article, I will explain how I have bought Bitcoin and other coins time and again with FIAT, as well as suggesting a couple of alternative options.

This question is inherently different though from where do you trade Bitcoin and other altcoins; some of the exchanges I use on a day to day basis do not have a FIAT on/off ramp, so there is no way to buy Bitcoin and other altcoins with cold hard cash there. This will be a topic for a separate article.

In my view, one of the safest exchanges, which also happens to be one of the largest and easiest to use, is Coinbase (yes, that is my referral link. We will both get about $10 of BTC free if you use it to buy $100 of BTC — win/win. If you found this article helpful in your crypto journey, please consider using it, but don’t feel obliged).

For those that want some of the details on why I chose Coinbase as one of the leading fiat on/off ramps, I have set this out in various categories below.

Security

Coinbase stores around 98% of the coins held on Coinbase in cold wallets (those where the private keys are held offline) and has insurance covering the circa. 2 per cent. held in hot wallets (those where the keys are stored on devices connected to the internet) from a group of US and UK based insurance companies, arranged through Aon (a Lloyd’s registered broker). This means that, as compared to other exchanges such as the now insolvent (and infamous) Cryptopia, Coinbase can be considered relatively safe when it comes to hacks.

In addition, Coinbase is also relatively safe when it comes to FIAT held on the exchange. For U.S. customers, Coinbase combines your balance with the balances of other customers and holds those funds in custodial accounts at U.S. banks and/or invests those funds in liquid U.S. Treasuries in accordance with state money transmitter laws. These funds are also FDIC insured for U.S customers. For non-U.S. customers, funds are held as cash in dedicated custodial accounts.

In terms of securing your own Coinbase account, a variety of security features are available, including my personal favourite — Google Authenticator (as this avoids potential number porting attacks that can arise from using the less secure SMS two-factor authentication, which you should really remove from wherever you can and replace with Google Authenticator). I will also cover the storage of your coins in another article — as at the end of the day, having now lost coins to both MtGox and Cryptopia, I can confirm firsthand that “if you don’t own the keys, you don’t own the coins”.

Pro Tip: make sure you back up the Google Authenticator seed phrase somewhere secure (I will publish another article on security for private keys, passwords, etc.) as that way if you lose your phone, you won’t be locked out of your account.

Extra Pro Tip: If you use Authy’s nifty app instead of the default Google Authenticator app, you can actually restore your Authy account with all of your 2FA codes to a new phone without access to the seed words, just by using your Authy log-in. However, this means you need to keep that login extra secure, else an attacker could gain access to all of your 2FA codes without physical access to your phone.

Ease of Transacting

Coinbase offer a variety of payment methods with which you can purchase Bitcoin and the other altcoins that they offer. For US customers, this includes ASH, debit cards and wire transfers. For UK customers, this includes GBP faster payment bank transfers, EUR SEPA transfers and debit and credit card purchases.

Given the higher fees for dealing with a credit/debit card transaction, I personally prefer to go down the bank transfer route and whilst this used to be a very painful experience (converting my money into EUR via Transferwise which would take a couple of days, then sending a SEPA transfer and waiting another couple of days to get the money onto Coinbase) this is now a much smoother process for UK customers — when I make a faster payment transfer in GBP from my bank account it usually shows up on my Coinbase account within an hour. This greatly reduces the friction for getting FIAT onto the platform and requires less forward planning to buy crypto when you see a price you like.

Pro Tip: When completing your KYC on a platform, a like to think ahead of to when I might be withdrawing money from the platform as well; usually hoping that this will be a larger sum of money. I therefore usually make sure that I have completed at least the second stage of KYC in order to raise my withdrawal limit to a point where I could withdraw a large sum in a short space of time. Whilst depositing FIAT and/or coins may sometimes have a lower KYC barrier, the last thing you want to do is get your money/coins stuck on a platform where you then cannot complete the KYC.

Coin Selection

Many would argue that Coinbase does not provide a wide enough selection of coins, compared to other exchanges with FIAT on/off ramps such as Kraken (which we will discuss later) and Binance (which we will also discuss later). However, although Coinbase has a smaller selection of coins available, arguably for someone just starting out in crypto (which is usually the case when someone is trying to find their first fiat on/off ramp) there should be sufficient optionality available, as given the stringent requirements employed by Coinbase in selecting which coins can be listed, arguably you avoid a lot of the shitcoins you have to sift through on exchanges such as the aforementioned Cryptopia. Sometimes, less is more.

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Another option I have used in the past as a fiat on/off ramp was Kraken. Now, I understand the Kraken platform has undergone a major revamp since I last used it so things may be a little better now, but the old platform was buggy to say the least. Oftentimes the platform would be just down completely and I wouldn’t be able to trade for days.

Security

Whilst Kraken has similar options to Coionbase in terms of securing your account, and also keeps 95% of its coins in cold storage, Kraken does not offer the same insurance for its hot wallets and fiat balances, and therefore could be subject to a loss of users’ funds should an attack occur.

Ease of Transacting

Whilst Kraken’s platform at the time was quite frankly terrible, the reason I was using Kraken over Coinbase was due to the better options for depositing via wire transfer as a UK customer. At the time, Coinbase only offered deposits in EUR (which I had no exposure to and would require a rigmarole of transfers as described above), whereas Kraken would allow me to deposit in USD, which I did have a significant exposure to. This meant a lot less bank fees and messing around for me and cut down on the time it took for me to deposit.

Unfortunately, whilst Kraken may now have improved their platform, their banking arrangements have taken a turn for the worse, meaning that UK customers can now only deposit in EUR. There is now no reason why I would go through the process of depositing to Kraken (which also takes longer as I believe it is not processed as a SEPA transfer) and so unless there is an overarching reason why you cannot use Coinbase, I would stick with that.

Coin Selection

Kraken does offer more coins on its exchange than Coinbase but given that Coinbase will allow you to withdraw your coins for free (meaning you can move them to another exchange with a wider selection free of charge), this is essentially a non-issue. Its also more difficult to sift through the coins on Kraken and find those worth investing in; shitcoin scams like Craig Wright’s “Bitcoin Satoshi’s Vision” (Pro Tip: Has Craig moved any coins from Satoshi’s wallets? No. Therefore, until he does, he is not Satoshi) could be misleading to newcomers to the crypto world.

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Whilst Binance (yes, also my referral link for Binance — this one will get me a share of your trading fees but I believe also gives you a discount on your trading fees) is by far and away my favourite exchange for trading, it is not my favourite fiat on/off ramp.

Security

Binance founder Changpeng Zhao seems to love a good meme and has taken the opportunity to jump on the bandwagon with Binance’s security program: “ Binance Is SAFU”.

In terms of securing your own account, Binance offers the full set of features you would expect from any exchange; so make sure you activate that 2FA! Binance also employs the same division between hot and cold wallets, with only roughly 2% of coins being stored in the hot wallets.

Then, there is the Binance Secure Asset Fund for Users (SAFU), which takes 10% of all trading fees and puts them into a secure fund to insure against security breaches. This paid off for users recently when Binance was hacked and 7,000 Bitcoin were withdrawn from the exchange; CZ confirmed that this would be covered from the SAFU (despite the fact that in this case the hack may have originated from compromised user accounts as opposed to Binance itself being compromised).

Ease of Transacting

This is where Binance still falls down on the FIAT on/off ramp front. For a start, it is only an on ramp, not an off ramp — you won’t be able to withdraw FIAT back to your bank from Binance yet. Secondly, the only on ramp is via credit cards — the fees for card payments are higher, there may be additional charges from your issuer in terms of cash advances and your issuer may just outright block the transaction.

Whilst this is a step in the right direction by Binance, which already has an excellent trading platform, and I’m sure CZ is hard at work on integrating a full FIAT on/off ramp, I just don’t see this as a realistic alternative to Coinbase in the short term, unless you were actually planning to purchase on your credit card, in which case we may need to have a chat about risk management.

Coin Selection

The selection of coins available on Binance (and now Binance dex) is huge; you can buy shitcoins until your heart is content and lose all your hard earned money. Joking aside, getting listed on Binance is still seen as a crowning achievement for some blockchain projects and therefore this can still act as some sort of a filter when performing your due diligence.

Overall, until someone develops the libertarian dream of a decentralised FIAT on/off ramp with 0 KYC yet the efficiency of at least what we have today with Coinbase (unfortunately my bet on Oxycoin for this seems to have failed dramatically), Coinbase seems to be the best of the bunch. If anyone has any alternatives they prefer let me know in the comments, bonus points if you can provide reasoning in line with the above categories! i will definitely be keeping an eye on Binance’s developments on this front though as I’m hoping they will soon be at least on par with Coinbase and therefore providing a crypto one-stop-shop.

Next up in my series of posts to introduce people to the mystical world of magic internet money, we’ll take a look at exchanges; where you can trade your hard earned Bitcoins for a wide variety of shitcoins.

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