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Bitcoin Buying Guide 2021: Best Exchanges for Buying BTC
Our Favorite Cryptocurrency Exchange for Buying Bitcoin
Coinbase is our recommended exchange for buying Bitcoin. You can view our in-depth reviews of alternative cryptocurrency exchanges on our best cryptocurrency exchanges listings page.
- User-friendly
- Great customer service
- Low services fees
- Diverse and consistently updated choice of coins
BTC Pros & Cons
Pros
The first cryptocurrency
Thriving ecosystem and marketplace
Every other coin is measured against Bitcoin
Unmatched liquidity
Cons
Limited network capacity
Less features than newer coins
Moderate fees
What is Bitcoin?
Bitcoin, the world’s first and most popular cryptocurrency, was officially announced in a white paper by anonymous inventor(s) Satoshi Nakamoto in October 2008, titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. This whitepaper also alerted the world to the invention of blockchain technology, the network backbone of Bitcoin. Free of third-party oversight, Bitcoin offers a unique alternative to world government currencies.
In May 2010, the first real-world product was purchased with Bitcoin when one individual paid another individual 10,000 Bitcoins for delivery of two pizzas, priced ~$25 USD. Over the intervening decade, the price of Bitcoin has fluctuated significantly, peaking at around $20,000 USD in 2017. After that Bitcoin’s price corrected significantly for the next couple years before hitting new highs of $25,000+ in late 2020.
The current supply of Bitcoin is numbered at around 18 million, out of the total that will ever be available of 21 million. This scarcity, and the fact that all other cryptocurrencies are compared against Bitcoin, has led some to call Bitcoin “digital gold.” Many online sites are beginning to accept Bitcoins through their payment systems, increasing its liquidity and value.
Bitcoin Ratings
Supply
Total Supply: 21 Million
Network Speed
Rating: LOW
Average Transaction Per Second: 7
Disbursement
Rating : HIGH
Reason: 10 Million+ active addresses, fair distribution
Social
Rating: HIGH
Reason: First to market, most popular, most accepted
Liquidity
Rating: HIGH
Reason: Most liquid coin, many trading pairs, many exchanges
History of Bitcoin
Bitcoin was officially announced to the world in a whitepaper by anonymous inventor (or group of inventors) Satoshi Nakamoto in October, 2008, titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. This whitepaper also alerted the world to the invention of the blockchain, the network backbone of Bitcoin.
In May 2010, the first real-world product was purchased with Bitcoin when one individual paid another individual 10,000 Bitcoins for delivery of two pizzas, priced ~$25 USD. Over the intervening decade, the price of Bitcoin has fluctuated significantly, peaking at around $20,000 USD in 2017. As of December 2019, 10,000 Bitcoin were valued at over $100,000,000 USD.
The current supply of Bitcoin (as 2021) is numbered at around 18 million, out of the total that will ever be available of 21 million. This scarcity, and the fact that all other cryptocurrencies are compared against Bitcoin, has led some to call Bitcoin “digital gold.”
How to Buy Bitcoin
It is easy to buy and sell Bitcoin on numerous exchanges. You can use a variety of payment methods such as bank transfers of traditional currencies or credit cards. After purchase of Bitcoin, you will have bitcoin in your exchange wallet.
We strongly recommend moving your Bitcoin off the exchange wallet, if you are not planning to trade with it. Storing your digital currency in a non-custodial wallet or in a cold storage hardware wallet such as a Ledger Nano X is the best way to protect your cryptocurrency.
How Bitcoin Works
Bitcoin works by using blockchain technology, Bitcoin in fact being the first real application of blockchain technology. All other cryptocurrencies that have followed have been based on Bitcoin’s original software, protocols, and processes. The Bitcoin blockchain is series of individual blocks that contain transactions taking place on the network. Computers around the world, often called nodes, make up the Bitcoin Network, and maintain the security and authenticity of the blockchain. Bitcoin users receive a public address (used for receiving funds) and a private key (used for sending funds, think of it like an extremely complex PIN code).
The transactions that take place on the Bitcoin network are chunked together into blocks, hence the term blockchain. By combining cryptography, peer-to-peer networks and the proof of work consensus algorithm, Bitcoin is able to process and verify payments fairly quickly and prevents double spending. It uses a distributed ledger that keeps track of how much Bitcoin is owned by each address, how much was sent, when it was sent, the transaction cost, and the public address it was sent to and from.
Proof of work mining (or consensus algorithm) is what is used to secure the entire Bitcoin Network and verify the transactions on the ledger. Mining is the distributed consensus system that is used to confirm pending Bitcoin transactions by including them in the blockchain’s ledger. Miners enforce a chronological order in the blockchain, protect the neutrality of the network, and create the state of consensus in the system. In exchange for doing this, they receive a mining reward in the form of Bitcoin.
Advantages of Bitcoin
Bitcoin has quite a few advantages over altcoins, that distinction alone being the first. Name recognition. Bitcoin is the most recognizable cryptocurrency, so much so that every other digital asset is referred to as an ‘altcoin’. It takes up almost 60% of the crypto market, and every crypto asset has a price pegged to Bitcoin. The market dominance and inclusion in so many market pairs makes Bitcoin one of the most liquid assets in the world.
On top of the liquidity of Bitcoin, it is one of the most secure payment networks ever. This is because of the proof of work mining process. In order for someone to include a fraudulent transaction in Bitcoin’s blockchain, or any other negative action, they would need to control over 51% of the network, something that would likely cost billions of dollars in hardware alone and is simply not very feasible.
The final and perhaps most significant advantage of Bitcoin is its scarcity. There will only ever be 21 million BTC in circulation, and less is released over time until it is all mined, meaning it is deflationary in nature. There are also millions of BTC locked in wallets where users have lost their private keys (this speaks to the security of the private key), meaning less than 21 million will ever be floating around.
Disadvantages of Bitcoin
There are really only a couple disadvantages to Bitcoin, and both are related to costs. The first cost is transaction costs, both in terms of time and money. While Bitcoin’s speed is not actually that slow when compared to actually sending money through traditional financial institutions, it is quite slow compared to newer blockchain projects. In addition, the cost for the transaction is quite high now because of how many transactions are taking place on the Bitcoin ledger. The Lightning Network aims to change that.
The other cost is environmental, Bitcoin mining uses a ridiculous amount of electricity. As a result, many newer blockchain projects are trying to create ways to reduce their carbon footprints. It is not something that can be changed as it is built into Bitcoin’s code, though Bitcoin miners could help to lower their environmental impact by using renewable energy or using their profits to help combat climate change.
Where to Buy Bitcoin
Bitcoin is available on most major cryptocurrency marketplaces, including:
To see how each exchange stacks up, we’ve put together our Versus series:
Bitcoin FAQ
Bitcoin has several unique features that set it apart from other cryptocurrencies. It was the first to market, inspiring the invention of all subsequent cryptocurrencies. The network has a long history of not being hacked or compromised. Most importantly, its large and active community of advocates, developers, and users have continued to fuel its popularity.
Litecoin is the first spin-off of Bitcoin, as it just copied the codebase and made several notable improvements such as increasing the speed of the network. Other cryptocurrencies such as Bitcoin Cash or Bitcoin SV are direct “forks” of Bitcoin. However, not all coins are spin-offs of Bitcoin. ETH and EOS, for eg., were created from scratch using their own blockchains and codebases.
The most common way to convert Bitcoin to cash is to sell it on an exchange. There are number of major cryptocurrency exchanges that help facilitate such transactions. You’ll generally receive fiat (government-backed currency such as USD) directly to your bank account. In some countries there are also physical ATMs where it’s possible to convert Bitcoin to cash although there will generally be significant fees involved.
Yes. Holding Bitcoin and using it on a person-to-person basis is legal in nearly every country on earth.
It becomes more complicated when Bitcoin is designated as a currency or commodity. Bitcoin is still a relatively new phenomenon and governments are still deciding out how they want to regulate and potentially tax it. Bitcoin does have the potential to be used for money-laundering or criminal activity so it’s no wonder that governments are keenly interested in regulating it properly.
Many of the world’s biggest countries including the United States, Canada, Germany and the United Kingdom have taken a pro-Bitcoin approach while countries such as Russia and China are more restrictive.
You should check your local laws but for the most part Bitcoin is completely legal.
This is a hotly disputed topic. It’s easy to say that Bitcoin has no intrinsic value because it’s not tied to gold or another precious metal but neither is the US dollar.
Bitcoin is backed by math, which these days might actually be more solid than some government-backed currencies. There’s also a finite supply, which generally helps something become valuable.
In reality Bitcoin’s greatest value might just be its utility. It’s easy to send around the world. You don’t need a bank account to acquire it and the fees are still relatively low. All you need is a computer or a smartphone.
To a certain degree. It’s a common misconception that Bitcoin is completely anonymous. Each user actually has a public key that can be traced through the network back to an IP address or Bitcoin exchange account.
That means your actual identity won’t be revealed but everyone on the network can potentially see every transaction thanks to the transparent nature of the blockchain.
Bitcoin mining is essentially a reward for the people who maintain the network with powerful computers.
Mining Bitcoin serves two purposes: 1. It maintains the network by confirming transactions. 2. It creates new bitcoin, which serves as an incentive to the miners.
As the network has gotten more complex the difficulty in mining Bitcoin has gone up exponentially. That’s why mining Bitcoin is now pretty much limited to huge mining groups rather than individuals. It’s not recommended for individuals.
That’s a challenging question to answer because you CAN make money buying Bitcoin but you can also lose money.
It’s a little like asking, “Can I make money by investing in Tesla?”
There are no guarantees in the investment world and the same goes for cryptocurrency. In fact cryptocurrency is even more volatile with huge swings happening all the time.
Just remember that you should never invest more than you’re willing to lose.
