In this article, I will explain how to buy bitcoin AND take custody of them so you are not trusting anyone else to hold them on your behalf.
I have had people tell me they didn’t know how to buy bitcoin, so they bought shares in a company that dealt with bitcoin. Or, if they did buy some, they just left it on an exchange. Buying shares in a company that deals with bitcoin is hoping they know what they are doing. And, leaving the bitcoin you just bought on an exchange is the equivalent of leaving money in a bank. You don’t actually own it, you only have an IOU on their balance sheet. You also don’t have to buy a whole bitcoin. Bitcoin is divisible up to 8 decimal places so if you want to buy $1 worth then you can. And actually, the bitcoin code never mentions a bitcoin unit. Units in the code are whole numbers, called satoshis. People arbitrarily decided a long time ago that 100,000,000 satoshis would be called a bitcoin. At the time of writing, you can buy 1,000 satoshis for 28 cents.
The following are steps you can take to buy bitcoin and take custody and have total control of them. Keep in mind, this process will be broken up into several days because it will take time to receive your hardware wallet, and possible time for an exchange to verify your identity and link your bank account.
- Buy a hardware wallet
- Create an account on an exchange (in this article, we will use coinbase)
- Link a bank account with the exchange
- Buy bitcoin on the exchange
- Setup the hardware wallet to prepare for receiving bitcoin
- Send bitcoin from the exchange to your hardware wallet
Buy a hardware wallet
There are many hardware wallets, but in this article, we will use a Ledger Nano X or Ledger Nano S. Go to https://shop.ledger.com. You can currently purchase a Ledger Nano X for $149, or a Ledger Nano S Plus for $79. The Nano X has bluetooth capabilities to connect to your phone. But unless you know you want or need this, the Nano S Plus with a USB cable will work just find.
Create an account on an exchange
There are many exchanges, but in this article, we will you Coinbase. Go to https://www.coinbase.com and click ‘Sign up’ near the top right. It has been a long time since I created an account, but the following video shows how you can create a Coinbase account. It may not be step by step, but it gives you a general idea where to start and the Coinbase website should guide you through the process.
Link a bank account with the exchange
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Buy bitcoin on the exchange
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Setup the hardware wallet
Once you have received your hardware wallet, you will want to go to https://www.ledger.com/start and install the Ledger Live software. When you run it the first time, it will guide you into setting up the device. Once your hardware wallet is setup, you can receive bitcoin. The following video does a good job of explaining this step.
I want to explain a little about mnemonic seed phrases. The ledger will randomly create 24 words, called the mnemonic seed phrase. Make sure it does not already come with 24 words written down for you to use. A red flag is if you start your hardware wallet for the first time and it asks for a PIN because this is something you create during the setup (very unlikely, but if so, someone already set it up and hoping you use the 24 words they used). Do not share the 24 words with anyone, and make sure you keep in a safe place. If anyone ever finds these 24 words then they can control and spend your bitcoin. If you ever lose the words, then you will no longer have access to your bitcoin if you also lose you Ledger and/or forget the PIN you create when setting it up.
Another thing I would like to note is that your bitcoin does not rely on the Ledger hardware wallet, Ledger Live software, or the existence of the Ledger company in the future. If the company goes out of business and you lose/break your Ledger hardware wallet, then your bitcoin is still safe and can be loaded on any (compatible) wallet as long as you have the 24 words. (If you want to learn more, see https://www.blockplate.com/blogs/blockplate/list-of-bip39-wallets-mnemonic-seed)
Send bitcoin to your hardware wallet
The video below shows how to send bitcoin from your coinbase account to your Ledger hardware wallet. Once you know how to do that, sending bitcoin from your hardware wallet to your coinbase account should be quite intuitive, but the video will also show you that. You only will need to watch half this video, but watching it all will not hurt, but don’t worry if its over your head.