Authors: Kimberly Burns, Tessa Rowland
Even if you do not fully understand how blockchain works, purchasing bitcoin (“BTC”) could not be easier. Whether you want to enter the cryptocurrency market, or you simply want to know the mechanics of it in order to confidently converse in crypto-speak, we will describe the steps you need to follow. Although we are specifically addressing BTC, these steps are broadly applicable to purchasing other cryptocurrencies or altcoins too.
Step 1 – Open a Wallet
The first step to purchasing BTC is opening a wallet. Here, the term “opening” a wallet really translates to “signing up” for a wallet, as this is typically done either through the internet or an app on your smartphone. These types of wallets are known as online wallets (internet based) or mobile wallets (smartphone based).
Other common types of wallets include software wallets and hardware wallets. A software wallet involves users downloading and installing a software program directly onto their computers. Hardware wallets, also called “cold storage,” are small external, offline devices (such as thumb drives) with USB connectivity. An absence of a direct “always on” connection to the internet or any third-party servers makes a hardware wallet the most secure form of wallet. Provided a hardware wallet is physically stored in a safe place, it is immune to hacking when not connected. The downside is that a loss of the physical media representing the hard wallet results in a permanent and irretrievable loss of any BTC or altcoins stored on it.
Opening a wallet does not mean that it will store any BTC in the conventional sense, but rather that it holds the alphanumeric, cryptographic location identifier of your BTC through public keys and private keys. In simple terms, a wallet uses the public key to create a BTC address which users can send to one another as a location where funds can be sent. The private key unlocks the funds in the wallet, which is why both the private and the public keys should always be kept safe and secure, and the private key should never be divulged to anyone. Sharing your private key puts your BTC at risk of being stolen by other people, and losing your keys puts you at risk of being unable to locate your wallet or access your BTC at all. Therefore, if your wallet is mobile or online, it is paramount that wallet details be written down on paper and stored in a secure location.
Step 2 – Purchase BTC
Now that you have somewhere to hold your BTC, the next step is to make use of the wallet by purchasing some BTC. At the time of writing, one BTC is equal to CAD $8,627.75. Due to its high value, most users can only afford to purchase a fraction of BTC, represented in decimal format. For example, if someone wants to purchase CAD $500 worth of BTC, they would own 0.058 BTC.
The most common way to purchase BTC is online through a cryptocurrency exchange, such as Bitstamp, or a retail broker, such as Coinbase. By linking a credit card, debit card or bank account to your newly opened wallet, you can pay online platforms to receive as much or as little BTC as you wish. Users can also purchase BTC through physical ATMs – there are currently 463 BTC ATMs across Canada – however, these often charge higher service fees.
In the past year, the value of BTC has risen exponentially but its value is extremely volatile, making it a very risky investment suitable only for those who can withstand a total loss of their investment. As noted above, if you are not careful, there is a significant risk that your BTC will be lost or stolen. It is not uncommon to hear people lament how they are unable to access the 12 BTC they purchased (or mined) in 2013 for $35 each (worth more than $100,000 at today’s prices) because they misplaced their wallet details. The future value of BTC is something that typical BTC owners cannot control, but it is imperative that they keep their wallet details as safe and secure as possible to mitigate highly avoidable risks such as theft or loss of access.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.