Bitcoins can be bought through a variety of different ways, giving flexibility when it comes to getting involved with the bitcoin community. The methods are broken down to 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 the buyer and seller will meet up; one with access to bitcoins and the other with cash. The person with the cash will hand it over and the person with bitcoins will transfer the correct amount to the other person’s wallet (or vice versa).
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 there face-to-face and can easily see one another, which takes out a lot of the risk that would otherwise be present; 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. Unlike the bitcoins, which can be verified while hanging around, there is some risk that the cash itself you trade for will 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 that there won’t be any other complications. I’ve personally never encountered such an issue but there are numerous reports of counterfeit money scams that can be read on Google.
The second and extremely obvious one 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 depends on widespread use and popular uptake. Continued associations with illegal activities will only hamper this which is bad for all of us with an interest in crypto currencies.
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, at any time. For example, money can be traded through PayPal at any time. Bank transfers and wires, however, are more limited but still easy to do given that most 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 charge-backs. Some will claim they are giving a gift card with a balance and give one that’s empty already. 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.
Personally speaking I’ve done several p2p trades as a buyer 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 here are done by putting up a buy order or just straight up purchasing the bitcoin, 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. 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 sell out at the certain levels (assuming the prices reach the points desired).
- Cryptsy – Cryptsy is another different type of exchange, in that they allow the trading of a number of alternative cryptocurrencies as well. This allows for buying into bitcoin, then trading them 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 as 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 a large 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 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 that want the easiest method to buy, it is best done via exchanges such as Coinbase. The reason for this is that it is just as simple as using an online bank account. Coinbase will automatically transfer the money to and from the bank account that’s on file to cover the costs of 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 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 that is desired, the more it is pushed towards dealing face-to-face. This is because then the only information that has 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 give personal information in order to complete the transaction.