What Is Bitcoin?
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Bitcoin (BTC) has seen meteoric growth in recent years. In May 2016, you could buy 1 BTC for about $500. As of June 2023, a single Bitcoin was worth more than $27,000. That’s growth of approximately 5,300%.
Some analysts believe the price of Bitcoin could rise even further as cryptocurrency and blockchain technology become a bigger part of people’s daily lives. But buying Bitcoin comes with big risks. Along with impressive gains, BTC has also experienced devastating declines.
Today, BTC remains a highly volatile asset. Investors who purchased Bitcoin in the bull market of 2021 will have experienced a loss—but those who bought before late 2020 could be looking at decent gains.
What Is Bitcoin?
Bitcoin is a decentralized digital currency, which operates without the oversight of banks and governments. It holds the distinction of being the first-ever cryptocurrency, launched in 2009.
In the words of its creator, Satoshi Nakamoto, Bitcoin was created to allow “online payments to be sent directly from one party to another without going through a financial institution.”
Today, the entire cryptocurrency market is worth around $1 trillion, with Bitcoin representing around 45% of the market.
While it began life as a payments network, Bitcoin has evolved into an investment asset. Most holders consider BTC a store of value, and it’s often referred to as “digital gold.”
How Does Bitcoin Work?
Bitcoin transactions are verified by crypto miners via a proof-of-work consensus mechanism. Proof of work is a validation process that uses a group of miners to validate each block in the blockchain.
For Bitcoin, this process usually takes up to 10 minutes. That’s much slower than many competing cryptocurrencies, to say nothing of conventional payments networks.
Still, Bitcoin is accepted as a form of payment by some retailers and merchants, such as Microsoft and Overstock.
Where To Buy Bitcoin
To buy Bitcoin or any cryptocurrency, you’ll need a crypto exchange where buyers and sellers meet to exchange dollars for coins.
There are scores of exchanges out there, but as a beginner, you’ll want to opt for one that balances ease of use with low fees and high security. If you don’t already have an exchange in mind, check out our top picks for the best crypto exchanges.
How To Buy Bitcoin
After choosing an exchange, you have to fund your account before beginning to invest in Bitcoin. Check if your exchange has a Bitcoin wallet built into its platform. If not, you’ll need to find one of your own. Once your account is funded, you can place your first order to buy Bitcoin.
Depending on the platform you’re using, you may be able to purchase it by tapping a button, or you may have to enter Bitcoin’s ticker symbol (BTC). You’ll then have to input the amount you want to invest.
If Bitcoin’s current price was around $23,000, you’d need to invest that much to buy 1 BTC. If you invested less, say $1,000, you’d get a percentage of a Bitcoin equal to about 0.043 BTC.
How To Buy Bitcoin on a Crypto Exchange
You can buy BTC on several different crypto exchanges. Here are a few exchanges where you can exchange U.S. dollars for BTC:
Note the terminology of “trading pairs,” such as BTC to Tether (USDT) or USD Coin. In the case of BTC/USDC, bitcoins can be converted into Tether, a stablecoin whose value is pegged to the U.S. dollar. Here are a couple of exchanges that pair BTC to USDC:
How To Buy BTC With PayPal
You might be tempted to buy your Bitcoin on PayPal, but purchasing crypto this way means you cannot move your Bitcoin around easily.
According to PayPal’s website: “You can only hold the cryptocurrency that you buy on PayPal in your U.S. personal account. Additionally, the cryptocurrency in your account cannot be transferred to other accounts on or off PayPal. You will not be able to transfer crypto assets from your cryptocurrencies hub to another cryptocurrency wallet.”
For that reason, you might consider another way to buy and store your Bitcoin.
There’s also another way to use PayPal to buy Bitcoin. For example, crypto exchanges like Coinbase and eToro will allow you to link to your PayPal account (as a payment processor) to purchase crypto. In this instance, PayPal is being used as a deposit method to fund your account.
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How To Buy Bitcoin With a Credit Card
Investors should consider that platforms may charge higher transaction fees for certain funding options. While you may purchase BTC with a credit card, we strenuously advise against it. That’s because credit card transaction fees on crypto exchanges often run high.
In addition, if you use a credit card to buy cryptocurrency, it generally will count as a cash advance and be subject to a higher interest rate than you pay on regular charges. Moreover, taking on debt to buy volatile investments is extremely risky.
It’s generally advisable to pay for cryptocurrency purchases with cash, or with another crypto you own.
How Much Is Bitcoin Worth?
The most a single Bitcoin ever traded for is $64,400 in November 2021. The most recent Bitcoin bottom was in December 2022. At that time, Bitcoin traded for $16,400. That’s a nearly 75% decrease in price over the course of approximately one year.
As you can see, the price of Bitcoin is extremely volatile, and it can fluctuate widely:
How Much Bitcoin Should I Buy?
Experts generally agree that cryptocurrencies shouldn’t make up more than 5% of your portfolio. Given its position as the first and largest cryptocurrency, Bitcoin could easily be a sizable portion of those holdings.
There are many reasons why experts believe Bitcoin and other cryptos should only be a small percentage of any investor’s portfolio. One reason is that although cryptocurrencies have been lucrative for some long-term investors and still suffer from extreme volatility.
Store Your BTC
The crypto exchange you use probably has an integrated Bitcoin wallet or at least a preferred partner where you can safely hold your BTC. Some people, however, do not feel comfortable leaving their crypto connected to the internet—a “hot wallet”—where hackers may more easily steal it.
However, many major exchanges have private insurance to reimburse clients if this happens. BTC can be stored in several ways, whether with online or offline storage:
- Hardware Wallets. A hardware device stores the private keys to your assets and allows you to interact with the wallet without exposing your data. Trezor and Ledger are examples of hardware wallets that support BTC.
- Offline storage. Sometimes referred to as “cold storage” or a “cold wallet,” it is considered a safe way to store BTC because this type of storage isn’t accessible via an internet connection. You can keep your crypto on paper using a paper wallet—this will generate a public key and private key for your crypto.
- Software Wallets. Desktop wallets, considered “hot” wallets, are programs downloaded to store your crypto asset. There are also mobile wallets that interface with managing crypto assets. Trust Wallet is an example of a mobile wallet where you can store BTC.
- Crypto Exchanges. Many exchanges that trade BTC will let you store your crypto with their wallets. These crypto exchanges include Coinbase or eToro, to name a couple.
What Can You Buy With Bitcoin?
Once converted from Bitcoin to a fiat currency, Bitcoin users can use their cash to purchase anything they want.
As far as using BTC directly for payments, those options are much more limited. However, some major retailers—such as Microsoft in its Xbox store and Overstock—do accept Bitcoin.
Should I Invest in Bitcoin?
When Bitcoin’s price goes to the moon, investing in the popular cryptocurrency can be tempting. But while it has the potential to be a lucrative investment, you should be cautious: It’s an incredibly volatile purchase, and experts don’t recommend you allocate a large percentage to this risky asset class.
If you’re unsure whether investing in Bitcoin or other cryptocurrencies is a good idea for your needs, consider meeting with a financial planner who can help you figure out where cryptocurrencies fit into your investment strategy.