"How can I start buying Bitcoin?"

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In this post, we are going to discuss the practical fundamentals of getting started with Bitcoin, including an essential glossary and a step-by-step process to acquire a first portion of this precious asset. If you are interested in learning how to safely buy Bitcoin, or you are simply interested in how the process works from a pragmatic standpoint, you are in the right place!

An actionable Bitcoin glossary

In the previous instalment of this blog series, we briefly mentioned concepts such as public keys, private keys, and Bitcoin wallets. Let's take up the subject from there and build a small glossary.

• Wallets

Bitcoin wallets are software applications or hardware devices that play an essential role within the Bitcoin ecosystem, allowing users to store and send their Bitcoin securely. There are mainly two types of wallets, custodial and noncustodial. A custodial wallet is one where a trusted entity, such as an exchange, holds the user's credentials (i.e., the private keys) for them, while a noncustodial wallet is one where the user takes responsibility for securing their own private keys.

• Private keys

Bitcoin's private keys are the most important part of the Bitcoin network, and understanding how they work is essential for anyone looking to use Bitcoin securely. A private key is a secret number that is used to access and transfer Bitcoin, and is generated when a user creates a wallet. It is important to keep this key secure, as anyone who has access to it can use the Bitcoin in the wallet without the user's permission, just like somebody might use your car if they manage to access your car's keys.

• Public keys

A public key is cryptographically derived from a private key and is used to receive Bitcoin. Public keys are a string of numbers and letters that represent the user's Bitcoin address. They are used to send Bitcoin to the user, and are publicly visible on the blockchain. It is important to note that public keys are not the same as wallets, and they do not "contain" or control any Bitcoin. Public keys are somewhat analogous to a bank IBAN code, with the exception that a single set of private keys is in principle able to generate an infinite amount of public keys.

• Exchanges

Crypto exchanges are online platforms that allow users to buy and sell digital assets. These exchanges typically involve users exchanging Bitcoin or other cryptocurrencies for fiat currencies (such as the Euro, the American Dollar, etc.), or vice versa. They typically operate using a system of order books, which are like databases that list the bids and asks of buyers and sellers. When a user places an order, the exchange searches the order book for a matching bid or ask. If a match is found, the order is executed charging a fee, typically between 1% and 3% of the total transaction volume.

The process

Buying Bitcoin on an exchange is a relatively straightforward process.

• First, the user must create an account on an exchange, using an e-mail address and a strong password. Also, make sure to set up a 2 Factor Authentication (2FA) routine on your account at your earliest convenience for security purposes. There are several reputable exchanges one can sign-up with, such as Coinbase, Binance, or Kraken. Although we do not recommend any one specific exchange, those listed above have stood the test of time and have been around for more than a decade. Most exchanges will need to verify your identity before allowing you to buy and/or sell digital assets. Follow the exchange instructions on the website, as distinct countries and jurisdictions may have different requirements, but normally, a proof of identity (passport, ID card) and a proof of residence (an internet bill, or a bank statement) are needed.

• Second, the user has to deposit some funds onto the exchange. That can be accomplished via a debit or credit card, or a bank transfer. We do recommend the latter, as the fees are usually north of 3% when using a card. Make sure to follow the instructions you'll find on the exchange website when making the bank transfer, as it may require to enter some specific information, such as a reference code, or to verify your account with a minimal fee (usually 1 Euro/Dollar).

• Third, once your funds have reached the exchange and are credited to your account, proceed to the trading section of the exchange and select your Bitcoin/Fiat currency pair of choice (Bitcoin/Euro, if you reside within Europe, for instance). Then, execute a market or limit order (i.e., a buy/sell order which triggers whenever a certain price is reached), and voilà! You bought your first (or fraction of) Bitcoin!

Most financial assets cannot be self-custodied, which means that, in most cases, you can't literally "own" a security which sits on your trading account. In other terms, you cannot send a stock to your own wallet. Those are assets of your broker, which in turns credits you an "IOU", which is nothing more than written acknowledgement of debt that one party owes another. Holding Bitcoin through an IOU may be convenient, but is it really worth the risk?

In our next blog post, we will examine how to take custody of your own Bitcoin, now sitting on the exchange, and we will make explain the reasons why it is important to withdraw the funds to your own wallet. Stay tuned!