If you’re looking to buy bitcoin, there are many ways to do so. Some are more convenient than others, but all can save you money and help you avoid scams.
The first step is to open an account with a crypto exchange. You’ll need to provide your name and address, as well as information about your employment and source of funds.
Exchanges
When it comes to buying crypto, exchanges are an important way to get your hands on a digital asset. However, they can be a bit of a minefield for newbies, so you should do your research before signing up for one.
Centralized ‘custodial’ platforms like Bybit https://www.bybit.com/en-US/ and Kraken facilitate the trade of digital assets, matching buyers and sellers. Generally, these exchanges ask for identity verification before you can start trading.
Users must provide identification documents and fund their newly created account with bitcoin or another cryptocurrency. They’ll then be able to trade and take custody of their crypto.
Decentralized exchanges (DEXs) offer a different approach to trading, which is a peer-to-peer process. They match orders to buy or sell based on the best executable price, ensuring a level of security and trust.
Wallets
When you want to buy bitcoin, the first step is to find a wallet that supports the coin. These wallets can be either hardware or software, and they typically have a mobile app that allows you to purchase and sell bitcoin.
The most important factor to consider when selecting a crypto wallet is the level of security. There are two main types of crypto wallets: hot wallets and cold wallets.
Custodial wallets are those that are owned by a third party and cede control of your private keys to them. These wallets are convenient and allow you to store your crypto assets without worrying about them, but they also come with the risk of loss.
A non-custodial wallet, on the other hand, gives you complete control over your digital assets and the private keys that control them. This is a good choice if you’re planning on holding your crypto for long periods of time or want to store it in a safe place.
Payment methods
The most common way to buy bitcoin is through a cryptocurrency exchange. These websites allow you to deposit dollars into your account and exchange them for BTC. Some also offer other digital assets like Ethereum, Litecoin and Dash.
A good exchange should support various payment methods including bank transfers, PayPal and credit cards. Moreover, some offer a wide range of order types, including market orders, stop orders and limit orders.
To purchase bitcoin through a crypto exchange, you’ll first need to sign up for an account and verify your identity. This is done by providing a government-issued ID and photos of yourself.
Afterwards, you’ll be able to choose from a variety of sellers and purchase Bitcoin with a credit card or bank transfer. Some P2P platforms even integrate a reputation system that allows you to browse through listings by amount, location and seller’s reputation.
Buying bitcoin using a credit or debit card is one of the easiest ways to start investing. However, you’ll need to pay extra fees and make sure that the exchange you use supports your payment method.
Taxes
The IRS views bitcoin and other cryptocurrencies as property. That means if you buy, sell or trade them, you’ll need to report the transactions on your tax return.
Gains on crypto will be taxed at the same capital gains rates that apply to stocks and ETFs. These rates range from 0% to 37% depending on your income.
To figure out whether you have a capital gain or loss, subtract your cost basis from the value of your proceeds. This is usually the price you paid for the cryptocurrency when you first acquired it, and any transaction fees.
Similarly, if you receive new coins or tokens as a result of a hard fork, your underlying cost basis will also carry over into the new asset. Alternatively, it’s worth noting that if you donate the asset to a charity, this can be written off as a charitable deduction on your taxes.
It’s important to note that if you buy crypto from an exchange, you may receive a form 1099-B at the end of the year reporting certain activities as income. However, this form is not always accurate and doesn’t provide all the information you need to fill out your tax return.
