Bitcoins can be bought through a variety of ways, offering flexibility when it comes to getting involved with the Bitcoin community. The methods are broken down into local in-person swaps, P2P and online exchanges, all of which have their pros and cons.
In-person Bitcoin purchases can be made through services like Localbitcoins or Craigslist. In these transactions, both buyer and seller meet up; one will have access to bitcoins while the other carries cash. The latter hands the cash over to the person with bitcoins, who then transfers the correct amount to the other person’s wallet.
The good part about dealing with transactions in person is that there is no need to trust any third party with funds. Both people are present face-to-face and can easily see one another, which takes out a lot of the risk that could otherwise arise – at least when doing the trade in a public location like a Starbucks.
There aren’t many negatives to doing trades in person, but you should of course take a few precautions. Whereas bitcoins can be verified while you’re still hanging around, there may be some risk that the cash you’re trading for might end up being fake. It goes without saying that all cash should be checked for authenticity before completing a trade. For this reason, some people prefer to make the trade at a bank to ensure no further complications. We’ve never really encountered such issues, but there are numerous reports of counterfeit money scams you can look up on Google.
The second and extremely obvious precaution is to not engage in any trades where the person you are swapping with claims to want the coins for illegal purposes. Sting operations involving BTC have happened before, and no doubt will again. Bitcoin’s continued growth and long-term future depend on widespread use and popular uptake. Continued associations with illegal activities will only hamper this, which is bad for all of us who share an interest in cryptocurrencies.
Peer-to-peer is a lot like dealing with trades in person, but it happens online instead. Some examples of this are:
- Cash deposits to banks
- PayPal transfers
- ACH/Wire transfers
- Gift cards
All of the above are handled directly between two people with no third party interference. This has the major advantage that trades can be done from virtually anywhere and at any time. For example, money can be traded through PayPal anytime. However, bank transfers and wires are more limited, but they’re still easy to do given that most of the larger banks have a presence nationwide.
The downside to transacting peer-to-peer is that there are a lot of scams. Some people will offer PayPal and then do chargebacks. Some will claim they are giving a gift card with a balance and proceed to give one that’s already empty. The same goes for the reverse direction, where people will get a gift card, wipe out its balance, and then claim it was already empty when they got it. This area just becomes a very risky one when it comes to purchasing.
We’ve done several P2P trades as buyers and never once had an issue. There are trusted mods on the forums that offer cheap escrow services. Remember to exercise caution: use an escrow service and only deal with reputable members with positive feedback.
Exchanges are usually the most popular means of purchasing bitcoins. They are also the easiest method. Rather than dealing with individuals, purchases are made by putting up a buy order or by simply purchasing the Bitcoin straight up, depending on the exchange and how it works. Some of the most popular ones are as follows:
- Coinbase – This is a very popular choice, especially among those from the United States. At Coinbase they allow instant Bitcoin purchases and easy transfers, making them a great asset when it comes to buying. On top of this, they also allow selling, making it possible to handle both purchases and sales through the same interface.
- Bitstamp – Bitstamp is a well-known and trusted exchange. Unlike Coinbase, Bitstamp is a true exchange, allowing for buy and sell orders to be set. This allows for speculation on Bitcoin’s future price, offering the ability to buy in at specific levels and to sell out at the certain levels (assuming the prices reach the points desired).
- Cryptsy – Here is another different type of exchange that also allows the trading of a number of alternative cryptocurrencies. This allows for buying into Bitcoin, trading it for other currencies, trading back and withdrawing.
All of the above exchanges are very well trusted. It is worth noting that while Coinbase is considered to be an exchange in the sense that one can buy and sell Bitcoin there, it is more like an intermediary between the buyer (or seller) and other exchanges like Bitstamp.
While exchanges allow an easy way to get involved with Bitcoin – simply by making a deposit of cash or Bitcoin, converting and withdrawing, they also have one big downside. Exchanges are third-party entities that must be trusted to handle funds. The exchanges listed are trusted in the general sense, but there is still some risk involved. Government interference, rogue employees and hacks are all still possibilities, regardless of the legitimacy of any company.
Picking a Method
Choosing the best method for purchasing Bitcoin is tough. Different people have different situations, and it is largely a subjective decision. The general consensus, however, is that for those who want the easiest method to buy, this is best done via exchanges such as Coinbase. The reason for this is that it is as simple as using an online bank account. Coinbase will automatically transfer the money to and from the bank account on file to cover the costs of the purchase or sale. No intermediary step is needed to make it happen.
The main things to consider when choosing how to purchase Bitcoin are:
- Whether meeting face-to-face is important;
- If getting involved with a third party is okay (such as with exchanges), or if a more peer-to-peer method would be preferential;
- How much money is going to be transferred? The more money that is being sent, the more it limits options. For example, face-to-face transactions are much less likely to be able to handle a $25K buy than an exchange. Conversely, face-to-face transactions are less likely to be done for a few dollars, whereas exchanges can be used for pretty much any amount.
- How much anonymity is important – the more anonymity desired, the more it is pushed towards dealing face-to-face. This is because the only information that needs to be known about both parties is their physical appearance and a general location. Personal deposits into bank accounts (done through online transactions) offer a similar presence in some cases, but most banks require the depositor to provide personal information in order to complete the transaction.