How To Get Started With Bitcoin: A Step-By-Step Guide On Getting Started With Bitcoin

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So, you are looking at how to get started with Bitcoin?

Getting started with Bitcoin is a lot simpler than what the media likes to make you think, really.

Throughout this guide, we will show you what Bitcoin is, why it is valuable and how you can buy and store Bitcoin safely.

How to get started with Bitcoin

You will also learn some crucial tips to stay safe in the Bitcoin world and we will clear up some common misconceptions.

With that said, let’s dive right in!

Top Bitcoin Exchanges Compared 

 ExchangeFeatureFeesBuy Bitcoin
etoro revieweToroSimple to use0.75%
coinbase logoCoinbaseGreat mobile app1.49%
cex.io logoCEXLeverage trading supported2.90%
coinmama logoCoinmamaGood trading interface5.90%

What is Bitcoin?

bitcoin logoBitcoin is a digital currency and store of value that was launched by anonymous programmer Satoshi Nakamoto back in January 2009. Satoshi created Bitcoin in response to the 2008 financial crisis, which was caused by the reckless business practices of major Banks.

On the contrary to fiat currencies like the US Dollar or Euro, nobody controls Bitcoin or can create more Bitcoin at their will.

This takes away power from banks and governments and aims to make money a public good again which is purely controlled by the market itself.

When the first trading venues opened for Bitcoin in 2011, the price per coin was well below $0.001 per coin. Less than 10 years later, Bitcoin reached a current all-time high of $20,000 per coin.

Blockchain explained (Bitcoin’s technology)

In essence, a Blockchain is a type of database capable of creating unique data records in a secure and transparent way. 

These data records are referred to as “blocks” and are connected to each other in chronological order.

You can think of a Blockchain as a giant spreadsheet that everyone can see. 

Anyone can also add a new entry to this spreadsheet, however, the entry will only be stored if the majority of the people with access to the spreadsheet agree.

Centralized vs Decentralized Cryptocurrency

In Bitcoin, the entries to the “spreadsheet” are transactions performed on the network. 

And the people in charge of approving or rejecting the entries are called “Bitcoin Miners”, which are individuals with powerful computers that earn a reward paid in Bitcoins for securing the Bitcoin network.

Bitcoin’s value proposition

Bitcoin’s value proposition is twofold. 

First of all, Bitcoin transactions cannot be stopped or censored by anyone. This is especially valuable in a world where cash is becoming increasingly digital and a small number of companies can decide what people can or cannot do with their money.

Censorship-resistant money is also very valuable for individuals living in oppressive regimes like Venezuela, which make it almost impossible to send money in or out of the country.

Secondly, Bitcoin’s hardcoded deflationary monetary policy makes it one of the strongest stores of value that humanity has ever seen. Many refer to Bitcoin as “Digital Gold” because of its limited supply and scarcity.

Bitcoin vs Gold

Many claim in fact that Bitcoin is even superior to Gold, because, unlike Gold, Bitcoin can be easily sent internationally at a very low cost and can actually be used as a day-to-day currency.

Why Bitcoin is valuable

One of the most common criticisms of Bitcoin is that it’s not “backed by anything” and is hence worthless. 

This argument is completely flawed for the reason that Bitcoin is an asset and its value is dictated by the market.

Bitcoin doesn’t need to be backed by anything to be valuable, it is valuable because people think it is valuable and because it has a limited supply.

Gold and major currencies like the US Dollar or Euro are also not backed by anything. Does that also make them “worthless”?

Money is worth exactly what people think it is worth. If, suddenly, people lose trust in the US Dollar and chose to only use Bitcoin instead, then the US Dollar would be stripped of all its value almost instantly.

Why buy Bitcoin?

Before looking how to get started with Bitcoin, many people that hear about Bitcoin for the first time often ask themselves “Why should I buy Bitcoin? After all, my USD/EUR/GBP works just fine”. 

In this section we’ll outline some of the reasons why people choose to buy Bitcoin.

For short-term speculation

Amazed by the brutal price swings of Bitcoin, some people decide to buy Bitcoin aiming to lock in a short-term profit. 

This strategy can be performed successfully if the speculator makes use of the correct indicators and trading system. We wrote an in-depth article on how to trade cryptocurrency, so make sure to check it out before moving forward.

bitcoin price cycle

That said, this is a very risky strategy and should only be pursued by individuals with extensive trading experience or the willingness to lose a substantial amount of capital.

As a long-term investment

Bitcoin has proven to be a long-term investor’s paradise. So far, Bitcoin has risen from under $0.001 per coin to an all time high of $20,000 per coin less than 10 years later.

Further, so far there has never been a time where Bitcoin has had a negative return for more than 2 consecutive years.

It can be hard to create a valuation model for Bitcoin since it’s not a cash flow producing asset, but rather a store of value like Gold.

However, there are approaches like the “Stock-to-flow” model by @100TrillionUSD on Twitter that aim to decode Bitcoin’s valuation.

bitcoin stock to flow chart

The stock-to-flow valuation model divides the total amount of Bitcoin in existence, by the amount of new Bitcoins generated every year. 

The lower the amount of new Bitcoins generated per year is (it decreases after every Bitcoin Halving), the higher the stock-to-flow of Bitcoin is.

And the higher the stock-to-flow ratio is, the more valuable Bitcoin becomes.

As can be observed in the chart above, this model has so far predicted the Bitcoin price with a scary accuracy… And the model predicts a Bitcoin price of $1,000,000 per coin by 2028.

As a hedge against fiat currencies

The average life expectancy of a fiat currency is 27 years. Will the Euro, British Pound, US Dollar and Yen all be around two decades from now? History says it’s unlikely.

Fiat currencies fail when the people in charge misuse their power (often to settle unpaid debt) and overinflate the supply of the currency. 

usa debt

That is not possible with Bitcoin, where its 21 Million coin supply is capped by the protocol itself and enforced by Math.

Hence, in the eyes of many investors, Bitcoin’s deflationary nature and store of value properties make it a strong hedge against fiat currencies failing.

This makes getting started with Bitcoin not only interesting for retail investors, but also for institutions and high net-worth individuals.

To store wealth outside of government reach

Before Bitcoin, the only way to store wealth out of Government reach in a moderately effective way is to send the cash to offshore bank accounts in Panama or the Cayman Islands.

However, these possibilities are starting to vanish as international cooperation between developed countries and popular offshore bank locations is strengthening. One example that made this very clear was the leak of the Panama papers back in 2015.

This increased financial surveillance can make Bitcoin interesting to individuals looking to store some wealth outside of the reach of any particular jurisdiction. 

Why use Bitcoin?

So you now understand why it can be interesting to buy Bitcoin as an investment, but why does it actually make sense to use it as a currency? 

Bitcoin offers 4 main advantages over traditional currencies like the USD or EUR, let’s explore each one in detail.

Cheaper fees than payment processors

Credit card transactions usually come with a transaction fee of up to 2%, withdrawing cash from an ATM can cost up to 5% in commissions, and bank transfers can also cost close to $100 in some situations.

That is not the case with Bitcoin. 

bitcoin transaction cost

Although it’s true that Bitcoin transactions on the main blockchain can be costly at times, these costs can be easily avoided by using second-layer payment solutions like the Bitcoin Lightning Network.

On the Bitcoin Lightning Network, transactions cost less than a fraction of a cent. This is magnitudes cheaper than traditional payment infrastructure.

Fast international transactions

In an age of instant information, everyone that has ever send an international bank transfer knows the frustration of waiting up to 5 days for the transaction to arrive. 

In today’s digital era, it is unacceptable that money could be carried to a different country faster with an airplane than through the actual banking system.

Bitcoin solves this problem as well, enabling transactions to settle on the main chain in just 30 minutes. Further, if a user decides to use Bitcoin’s Lightning Network instead, the transaction time is reduced to under 2 seconds.

No bank account required

It is estimated that there are 1.7 billion unbanked adults worldwide. 

These individuals not only don’t have the possibility to effectively store and invest their wealth, but they are also largely disconnected from the global online workforce.

In the Bitcoin economy, anyone can create a Bitcoin wallet in just seconds and at zero costs. 

Unbanked people can easily set-up a Bitcoin wallet to start accepting Bitcoin payments for their work and storing their wealth in BTC.

Financial privacy

Currently, banks and payment processors have full access to every single digital payment that its users make. 

With the exception of physical cash, financial privacy is largely nonexistent in today’s society.

This can have dangerous repercussions from many different angles, namely that financial institutions now have the power to determine what you can or can’t spend your money on.

While it’s true that Bitcoin is not fully private by design, users that wish privacy can easily anonymize their transactions by using technologies like the Wasabi Wallet CoinJoin, or dedicated privacy coins like Zcash or Monero.

How to get started with Bitcoin?

Now that you know what exactly Bitcoin is and why it makes sense to use it, it’s time to actually get into how to get started with Bitcoin.

In the below guide we will walk you step-by-step through the entire process of getting started with Bitcoin. 

Getting started with Bitcoin is simple.

First, you will learn what a Bitcoin wallet is and which one you should use. Secondly, we will show you where to buy Bitcoin and the exact process of how do so. And finally, you will also learn how to send and receive Bitcoin transactions.

Here’s a quick outline of how to get started with Bitcoin.

  1. Create a Bitcoin Wallet
  2. Buy your first Bitcoins
  3. Send and Receive Bitcoins

Looks simple, right? It really is. 

Let’s dive right in.

1) Get a Bitcoin Wallet

A Bitcoin wallet is a piece of software that, with the help of your private keys (think of it as a password to access your Bitcoin), enables you to send, receive, and store Bitcoins.

Unlike a bank account, creating a Bitcoin wallet is simple, completely free, requires no personal information, and takes just seconds.

When looking for a Bitcoin wallet, there are 3 key points that you need to watch out for:

  1. The Bitcoin wallet needs to be reputable and secure.
  2. The Bitcoin wallet should be free and charge zero or very low transaction fees.
  3. The Bitcoin wallet should be easy to set-up and use.

To save your time, we have outlined what we found to be the best Bitcoin wallets out there.

Let’s now explore their pros and cons, and how exactly you can use them. 

Store your Bitcoins on Coinbase

coinbase reviewIn addition to being seen as many as the simplest way to buy cryptocurrency, Coinbase also offers one of the most intuitive Bitcoin wallets out there.

PROS

  • Enables you to buy Bitcoin in addition to storing it
  • Very simple to use and also available as an app
  • Supports more cryptocurrencies than just Bitcoin
CONS

  • It requires basic identity verification
  • Coinbase charges a small withdrawal fee

To store your Bitcoins on Coinbase you have two options:

  1. If you don’t have any Bitcoin, you can buy Bitcoin on Coinbase and directly store it on the platform.
  2. If you already have some Bitcoins, you can easily deposit them onto Coinbase.

Unfortunately, Coinbase does require you to perform a basic identity verification before using its wallet. 

coinbase bitcoin wallet

However, if you are just getting started with Bitcoin, that trade-off is certainly worth it.

Store your Bitcoins on Blockchain.com

blockchain.com logoBlockchain.com is a Bitcoin wallet that can be accessed both from its homepage as well as its mobile app. The wallet enables to easily store Bitcoin and 3 additional cryptocurrencies (ETH, BCH, and XLM).

PROS

  • No identity verification required to create a wallet
  • No withdrawal fees
  • Great mobile app
CONS

  • Not as simple to set-up as a Coinbase wallet

The difference between Bitcoin wallets like Blockchain.com and Coinbase is that in the latter, a company has access to your coins, while in the former you are in full control of your own coins.

This makes Blockchain.com a great option for individuals that want to store their Bitcoins in a fully non-custodial manner.

Store your Bitcoins on a Ledger Nano S

ledgerThe Ledger Nano S is one of the most secure Bitcoin hardware wallets out there. For a price of little under $80, it is also among the most affordable hardware wallets.

PROS

  • Extremely secure
  • Supports dozens of coins in addition to Bitcoin
  • Fully self custodial (no company controls your coins)
CONS

  • Costs $80
  • Not ideal for beginners

A Bitcoin hardware wallet is a physical device that stores the “private keys” to your Bitcoins in a secure offline environment.

trezor vs ledger

Hence, if you send your Bitcoins to a hardware wallet, a hacker would not only have to guess your password but also get access to the actual device in order to steal your coins.

This makes hardware wallets the most secure way of storing Bitcoins.

2) Get your first Bitcoin

The most popular options to get Bitcoins are buying Bitcoin, earning Bitcoin and mining Bitcoin. 

However, the latter two options require technical knowledge from your side and can be very time-consuming. 

Hence, since you are just getting started with Bitcoin, the best way to get your first Bitcoins is to buy the Bitcoins on a Bitcoin exchange.

The best ways to buy Bitcoin as a beginner are the Bitcoin exchanges eToro and Coinbase. Let’s now compare the pros and cons of the two.

Buy Bitcoin on eToro

etoro revieweToro is a multi-asset brokerage founded back in 2007 that enables its users to buy and sell thousands of financial instruments, including cryptocurrencies like Bitcoin, Ethereum, Ripple, and Litecoin.

PROS

  • Very simple to use
  • Zero trading fees
  • Supports many payment options
CONS

  • CopyTrading functionality not available in the US

Although there are many factors that make eToro a great Bitcoin exchange, like its simple user interface and zero trading fees, the exchange uniquely differentiates itself by offering “CopyTrading”.

eToro’s “CopyTrading” feature enables anyone to automatically copy the trades of eToro’s top traders. 

etoro crypto copy trading

This can be especially valuable in a highly volatile market like Bitcoin, which has experienced numerous -70% price corrections throughout its history.

That said, it’s important to note that users do have to pay a small commission on their profits to the trader that they are copying. Further, at the time of writing, this feature is not available to US citizens.

eToro enables its users to buy Bitcoin with credit card, debit card, wire transfer, and more. Non-US citizens also have the ability to deposit funds by using PayPal.

Buy Bitcoin on Coinbase

coinbase reviewOften referred to as the “Simplest way to buy Bitcoin”, Coinbase is a very intuitive Bitcoin exchange that launched back in 2012. 

PROS

  • Very simple to use
  • Great mobile app
  • Enables automated Bitcoin purchases
CONS

  • 1.49% trading fee
  • Does not support PayPal payments

The simple user interface of Coinbase and great mobile app make the exchange an excellent option for a beginner to get started with Bitcoin.

While it’s true that the exchange’s trading fees are slightly higher than at other exchanges, Coinbase compensates that with great and secure user experience.

buy bitcoin on coinbase

A feature that distinguishes Coinbase from other exchanges is the ability to automatically purchase a fixed amount of Bitcoin every month.

This means that you could, for example, tell Coinbase that it should automatically buy $100 worth of Bitcoin every month right after your paycheck arrives.

3) Send and Receive Bitcoin

On the contrary to what mainstream media makes you believe, sending and receiving Bitcoin is very simple. 

To send Bitcoin, all you need is the receiver’s Bitcoin address. To proceed with the transaction, simply proceed to the “Send Bitcoin” section of your wallet, paste the wallet address in and type the amount of BTC you want to send.

send crypto on blockchain wallet

Some Bitcoin wallets give you the option to set a custom transaction fee. The higher the transaction fee, the faster the transaction will be processed by the Bitcoin network.

After double-checking the amount and making sure the Bitcoin address is correct, you can now hit “Send”. Remember that Bitcoin transactions are irreversible, so if you type in an incorrect address, the coins will be lost forever.

Depending on how “congested” the Bitcoin network currently is, the transaction may take between 30 minutes and 2 hours to go through.

To receive Bitcoin, head over to the “Receive Bitcoin” section of your Bitcoin wallet and copy your Bitcoin address and forward it to the person that wants to send you Bitcoin.

If you are planning to send and receive smaller amounts of Bitcoin on a regular basis, consider getting a Bitcoin wallet app like the one by Blockchain.com. 

blockchain app wallet

This way, you will be able to do everything right from the palm of your hands.

Alright, now that you know how to send and receive Bitcoin, just one final word of caution before ending this section. If Bitcoin truly ever becomes a world currency, then it is still incredibly undervalued and has a lot of room to the upside.

Many people got burned by spending their Bitcoin to soon, only to see how the amount they spent became worth multiples more just a few years later. 

One interesting example is the case where a man decided to purchase two Pizzas in 2010 with 10,000 Bitcoins

bitcoin pizza

Back then, those 10,000 Bitcoins were worth little under $20. However, at the time they would be worth over $100 Million.

So, think wisely before spending your Bitcoins now. You might be better off waiting a decade and spending them if Bitcoin were to become a major currency on a global level.

Risks of buying Bitcoin

In the eyes of many, buying Bitcoin presents a generational opportunity. However, before you get started with Bitcoin you also need to be aware of its risks.

No “How to get started with Bitcoin” guide is complete without also outlining the risks of getting started with Bitcoin, so let’s cover that now.

Fatal software bug

Bitcoin is just software. And like with all software, devastating bugs (software errors) could be found and exploited by hackers. 

Although Bitcoin hasn’t had any fatal bugs ever since its inceptions, other coins like Verge have had them and the result was devastating.

So, when investing in Bitcoin, keep in mind that it’s just software that could potentially be compromised.

Could be outlawed by major countries

Bitcoin is just code, so it can’t really be “banned” by any country. 

However, Governments could easily stop banks from supporting deposits to cryptocurrency exchanges, or they could stop cryptocurrency exchanges from operating altogether.

So far, it does not seem that major countries like the US are considering to fully ban Bitcoin. 

However, if it were to happen, it would likely have a very negative impact on the price. Hence, it’s a major risk to keep in mind.

51% attack by Bitcoin miners

The Bitcoin network is secured and mostly controlled, by so-called “Miners”. As you may know by now, Bitcoin miners run powerful computers to secure the Bitcoin network.

However, if a single miner were to control more than 50% of the computing power of the Bitcoin network, he could technically compromise it. 

Hence, the name “51% attack” of this attack vector.

There has never been a 51% attack on the Bitcoin network so far. However, multiple smaller cryptocurrencies, like ETC, have indeed been successfully compromised with this attack.

Different cryptocurrency could replace it

Bitcoin was the first cryptocurrency to ever be created and currently has by far the strongest network effects of any other coin. This makes the chances of a different coin overtaking it rather slim.

However, as we have seen with other technologies like Web browsers or smartphones, the first mover is not necessarily the one that will win in the long-term.

It’s hard to say if the same principle applies to cryptocurrencies as well, but it’s a strong reason to stay well-informed in order to spot a potential Bitcoin competitor before it is too late.

Important Bitcoin security tips

There is a saying in the Bitcoin community that goes “Don’t trust, verify”. That’s precisely the mentality that you need to have if you want to conserve your coins. The global and anonymous nature of Bitcoin makes it a playground for hackers and scammers.

Read the following Bitcoin security tips carefully. They might one day prevent you from getting your Bitcoins stolen.

Don’t tell anyone how much Bitcoin you hold

Rule number #1 in Bitcoin is to never tell anyone how much Bitcoin you hold. 

Even close friends that you trust should ideally not know about the size of your Bitcoin holdings. Although your friends likely won’t do any harm to you, they may accidentally share that information with someone that could

Money in a bank account cannot be easily stolen, and if stolen, it can usually be easily recovered. This is not the case with Bitcoin. 

A criminal could kidnap you and make you send your Bitcoins to an address he controls. Those Bitcoin would then be almost impossible to recover.

Never leave all your coins on exchanges

If history has proven one thing over and over again in the Bitcoin space, it’s that cryptocurrency exchanges are not a safe place to store your coins. 

Back in 2014, MtGox was hacked and 850,000 Bitcoins were stolen. Later in 2016, Bitfinex was hacked and 120,000 Bitcoins were stolen. More recently in 2018, Maple Exchange lost $5M worth of customer funds.

In all of the above cases, customer funds were partially or fully lost.

It’s fine to keep a small portion of your coins on a trustworthy exchange for convenience purposes, however, you should avoid leaving all your coins on one exchange.

Instead, store your coins on a hardware wallet or a software wallet.

Watch out for phishing attacks and other scams

In a phishing attack, a scammer pretends to be someone that he actually isn’t, in order to money or information from you.

In the Bitcoin space, the most common phishing attacks come in 2 main forms: fake websites and social media scam giveaways.

In a fake phishing website, the scammer creates a site that looks almost identical to the site he is imitating and registers a web domain that also looks similar to the original one (like, for example, c0inbase.com instead of coinbase.com). 

The scammer then promotes that fake URL in order to get people to log-in on his fake site so that he can steal their login information. 

Once the scammer has the login information, he can now sign into the real Coinbase account of the victim and steal his funds.

In social media giveaway scams, the scammer pretends to be a celebrity or well-known company holding a “giveaway” and that he will send you a multiple of the coins back that you send him.

Obviously, once you send the coins, you will never hear back from him again.

Consider buying a hardware wallet

Hardware wallets are physical devices that store your cryptocurrency. 

On the contrary to software wallets, in a hardware wallet a bad actor needs to steal your password AND also needs physical access to your hardware wallet.

This makes them one of the safest way of storing your Bitcoins.

The two most secure devices are Ledger and Trezor and they both cost little over $70, which is well worth the investment if you hold over a few hundred dollars in cryptocurrency.

Frequently asked questions about Bitcoin

Now, before concluding this guide on how to get started with Bitcoin, we’ll answer some of the most frequently asked questions about Bitcoin. 

If you have a question that has not been addressed by this section, leave a comment in the comment section below!

Is Bitcoin Legal?

Bitcoin per se is legal in most major countries worldwide. However, it is not legal in ALL countries. 

In countries like Venezuela, Colombia, Bolivia, Morocco, Saudi Arabia, and a handful of countries more, Bitcoin is illegal.

So, before buying Bitcoin, please do make sure that it is not unlawful to do so in your jurisdiction.

That said, just because Bitcoin is legal in many countries that does not mean that everything that can be done with Bitcoin is necessarily legal.

For example, Bitcoin enables anonymous gambling or betting and online purchase of narcotics or other illegal items. 

Obviously, just because the currency used for the above activities is Bitcoin, that does not make the activities legal.

How to buy Bitcoin stock?

Bitcoin is a commodity that is similar to Gold in many aspects. Hence, since Bitcoin isn’t a company, there isn’t something like a “Bitcoin stock”.

The closest instrument to a Bitcoin stock is the Grayscale Bitcoin Trust, which is a publicly-traded trust that is fully backed by Bitcoin. 

The Grayscale Bitcoin Trust enables you to hold Bitcoin in your brokerage account just like you would hold any other stock as well. 

However, strictly speaking, it is not exactly a Bitcoin stock.

Can I buy a fraction of a Bitcoin?

A single Bitcoin can be divided in up to 100 million fractions. This unit, a millionth of a Bitcoin, is called a “Satoshi” (in honor of Bitcoin’s creator Satoshi Nakamoto).

So, in short, yes it’s possible to buy a fraction of a Bitcoin since Bitcoin is highly divisible. 

That said, many exchanges won’t enable you to buy an amount smaller than 0.001 BTC since trading fees are often higher than that amount.

Who owns or controls Bitcoin?

Unlike a company, Bitcoin is not controlled by any central entity. There is no “Bitcoin CEO” or “Bitcoin management team”.

The Bitcoin network is controlled by so-called “Bitcoin miners”, which are thousands of individuals all across the world that are using powerful computers to secure the Bitcoin network.

Anyone can become a Bitcoin miner by simply running the Bitcoin mining software on a computer that’s powerful enough. 

The Bitcoin protocol will then automatically reward you a tiny amount of Bitcoin in exchange for securing the network.

Where can I check the Bitcoin price?

There are many places to check the Bitcoin price. You can either use a website like Messari, or you can download a crypto portfolio app so that you can easily check the price from your phone.

Do I have to pay taxes on my Bitcoins?

Whether you have to pay taxes on your Bitcoins depends on your jurisdiction and on how you interacted with your holdings. 

In many jurisdictions, like for example in the USA, you will have to pay taxes on your Bitcoins the same way you would pay taxes on profits from investments in the stock market.

Although we cannot give you tax advice at CoinDiligent and recommend you to get a tax advisor, we have put together a guide on Bitcoin tax software. So if you have to calculate your Bitcoin taxes, you might want to check it out.

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