After looking at the history of money in part 1 and how Bitcoin works in part 2 $BTC (+0.62%) in Part 2, today we'll be looking at a more practical topic, in which we look at the best way to buy Bitcoin, how to store it, how to sell it smoothly later and what you should generally pay attention to.
But first - why should you buy Bitcoin?
The Bitcoin price in euros, dollars and other currencies is still very volatile. In the long term, however, one thing can be said about Bitcoin:
The price, measured in fiat, is rising - and continuously.
There is not a single 4-year period in which the Bitcoin price was not significantly higher than before:
https://studio.glassnode.com/charts/btc-4yr-cagr
The Bitcoin price has therefore been very volatile in the past, but volatile upwards.
Although one should not draw conclusions about the future based on past values, unless the characteristics of Bitcoin change - and the probability of this is very low - this will continue.
After all, Bitcoin is absolutely limited. And this while fiat currencies continue to expand further and further. We humans are facing an incredible number of very big challenges.
Whether war, climate change, migration, demographic change, etc. - Every single problem either directly causes an expansion of the money supply, or the problem is attempted to be solved by increasing the money supply (debt).
From crisis to crisis, more and more debt is created (except here in Germany, where we create special assets😅).
And that affects us all. This is at the expense of our purchasing power, as fiat currencies continue to lose value.
We in our investment bubble are aware of this, which is why we are trying to transport our purchasing power into the future with shares, ETFs and the like. However, many people are not aware of this. They try to save in the national currency and can buy less and less of it every year.
No matter how much debt is incurred, no matter how much fiat currencies depreciate, Bitcoin is and remains absolutely limited. Bitcoin cannot be diluted.
Shares dilute by issuing more shares. With shares, you are completely dependent on management decisions. You are dependent on the figures they report being correct (Wirecard sends its regards). Companies also have location risks, regulatory risks, political risks, etc.
Real estate "dilutes" when new buildings are erected. Due to demographic change and the shift from office jobs to mobile working, more and more buildings are becoming vacant, which could further increase supply on the market in the long term. There are also location and political risks associated with real estate. And real estate constantly generates costs.
When the price of gold rises, it suddenly becomes profitable to dig deeper and develop new deposits, which also increases supply.
The supply side of every asset is variable - except for Bitcoin.
This, and many other characteristics, make Bitcoin a kind of perfect store of value https://getqu.in/G8t0Nm/
How to buy Bitcoin?
Getting started with Bitcoin usually begins with the question: "How do I actually buy Bitcoin?" Basically, you have two approaches:
- One-off purchase: You invest a larger amount all at once.
- Savings plan: You automatically buy Bitcoin regularly for a fixed amount, e.g. €100 per month.
With a one-off purchase, you decide on a point in time - e.g. right now - and buy, for example, € 1,000 worth of Bitcoin. If the price is currently favorable, you will be happy to receive many sats. But if you're unlucky and buy at the local high, you could regret your decision shortly afterwards because your investment is in the red. Bitcoin can quickly correct by 20-30%.
Many beginners then tend to panic and, in the worst case, sell right away - at a loss.
With a savings plan/DCA, on the other hand, you take part of your money and regularly buy small amounts of Bitcoin, e.g. a fixed amount of euros every week or month. This allows you to "average" your entry price over time. Sometimes you buy at higher prices, sometimes at lower prices - the bottom line is that you simply pay the average price over period x.
This has two major advantages:
- You don't have to worry about when the "right" time to buy is. You eliminate the timing problem
- You protect yourself from your own emotions. You run less risk of putting all your eggs in one basket out of greed at the all-time high or throwing everything away out of fear at the next dip.
With a savings plan, you can be happy when the price rises (because your assets grow), but also when the price falls (because you then get more Bitcoin for your money).
However, you can also combine both approaches very well. Personally, for example, I have a weekly savings plan and always buy in stages when there are major corrections.
Where to buy Bitcoin?
Before we clarify this, we should first answer the question of where you can buy Bitcoin not should buy. And that's my current answer: Neobroker
At Trade Republic, Scalable and Co. you buy Bitcoin, which you can never withdraw to your own wallet. You are therefore completely dependent on this provider and might as well buy a Bitcoin ETP instead. It comes out the same :)
Even though I am absolutely not a fan of all the regulations and would like to see a freer market, it is advisable - especially for beginners - to buy from regulated providers. Decentralized exchanges, P2P trading venues and the like should be avoided for beginners. The reasons for this are explained in more detail in the section on selling.
If you want to buy altcoins as well as Bitcoin, you can simply choose one of the larger providers. Whether you use Coinbase, Bitpanda, Bitvavo, etc. is almost irrelevant in my opinion. I would simply recommend that you compare the fee models.
However, if you just want to buy Bitcoin (my recommendation), I would recommend that you choose a Bitcoin-only provider. These companies are run by Bitcoiners who really understand what they are doing and protect your privacy as much as possible despite the regulations. In addition, these providers all have customer service worthy of the name.
Personally, I can recommend 21Bitcoin and Coinfinity from Austria, Relai from Switzerland and Strike from El Salvador (originally from the USA). These are certainly not all of them, but at least the ones I have personally used and tested :)
Here I have briefly summarized the differences/special features of the providers:
(1) 21Bitcoin
- Provider from Austria
- Custodial (21Bitcoin can store your Bitcoin for you, but you can also withdraw it)
- One-time purchase costs 1.49% in fees; with referral 1.29%; limit orders always cost 1.49%
- Savings plan purchases cost 0.99% in fees; with referral 0.79%
- Sales generally cost 1.49% in fees
- Euro deposits are free; Euro withdrawals cost €1 in fees
- Bitcoin withdrawals are subsidized and always cost only 1,000 Satoshis - no matter how busy the blockchain is at the moment
- Important: Currently, 21Bitcoin only allows you to withdraw Bitcoin to a hardware wallet; deposits from a hardware wallet are not yet possible - but this has long been announced and promised
- My ref code: 47FHR
(2) Coinfinity
- Provider from Austria; already on the market since 2014
- There is a fee of 1.5% for buying and selling; with referral there is a 21% discount for the first 6 months
- Non-custodial (you either create an in-app software wallet or have all purchases paid out directly to your own wallet; Coinfinity does not hold your Bitcoin at any time)
- Special features:
- No spread; everything is included in the 1.5% fee. You always get the current exchange rate without a surcharge
- "Smash buy" function - you can buy Bitcoin at any time at the current price without having already transferred money. Coinfinity pays in advance and holds your Bitcoin at the current price - even if the price has already risen again by the time you have transferred the money.
- Lightning integration: You can also buy Bitcoin directly via the Lightning network
- My ref code: BRIKEY1K
(3) Relai
- Provider from Switzerland
- Non-custodial (same principle as Coinfinity; software wallet or direct payout to your own wallet)
- Fee for buying & selling 1% each; with referral 0.9%; however, there is a "small standard market spread" on top, as Relai states in its terms of use
- Special feature:
- The savings plan is free of charge up to 100 Euro/CHF per month. A great way to get started with a savings plan
- My ref code: REL75589
(4) Strike
- Provider based in El Salvador (formerly USA)
- Custodial (Strike can hold your Bitcoin for you, but you can also cash it out)
- One-time buy/sell depends on the monthly trading volume and ranges between 1.29 and 0.49% in fees
- The savings plan is free of charge from the 2nd purchase (with weekly/monthly execution), or after 1 week (with hourly/daily execution)
- With referral you also receive 500€ in free trading
- Special feature
- Fee-free savings plan
- Free payout to your own wallet if you can wait up to 24 hours; faster with fees
- Full Lightning integration for buying, selling, sending and receiving
- My ref code/link: https://strike.me/TMEG72
I have added my ref code/link for each provider and would of course be happy if one or the other of you uses one of them - but you can also support the major content creators and use the codes BLOCKTRAINER, SUNNYDECREE or WASBITCOINBRINGT, for example.
Self-custody
If you really want to own Bitcoin, there is no getting around this motto: "Not your keys, not your coins." Only if you have control over the private keys to your Bitcoin do they really belong to you. If you leave the Bitcoin on the exchange, the exchange ultimately holds the keys - you then only have a promise from the platform that it will pay you the Bitcoin when you withdraw it. In the worst case scenario (hacker attack, fraud, insolvency of the exchange), this can go wrong.
Therefore, my clear recommendation for amounts of more than a few hundred euros:
After the purchase, transfer the coins to your own wallet and store them yourself!
What does a wallet do?
A wallet in this sense is first and foremost there to secure access to your BTC assets. A wallet does not store Bitcoin in the physical sense. However, a wallet stores the required key pairs - consisting of private keys and public keys - of your Bitcoin addresses. This allows you to spend your Bitcoin later after you have received it on one of your addresses.
Hardware and software wallets (explanation follows below) first create a so-called seed phrase - consisting of 12 or 24 words that result in a key from which all private and public keys of your wallet are derived. This means that whoever gets hold of the seed phrase gains access to your entire BTC assets.
In addition, hardware and software wallets create transactions, sign them with your private key and then forward them to the BTC network via a node.
What types of wallet are there and what are the differences?
(1) Hardware wallet
Hardware wallets are probably the first thing that comes to mind when you hear the term "Bitcoin wallet". These are physical devices (they usually look like USB sticks) that store your private keys offline. This means that the wallet is not connected to the internet and therefore cannot be accessed from outside, which makes an online hack impossible.
In addition, these wallets usually have special "secure chip elements" that ensure that your private keys can never leave the wallet.
You assign a password to the hardware wallet and you usually have 10 attempts to enter the password before the contents of the wallet are completely deleted.
As a result, hardware wallets are very secure and have become the standard for storing large amounts of Bitcoin.
(2) Software wallet
A software wallet is, as the name suggests, "software". It is an application for desktop PCs or smartphones that stores the private keys (usually encrypted) on the device. This provides easy access to the Bitcoin network, as anyone can set up such a wallet (e.g. Blue Wallet for smartphones, Sparrow for desktop PCs) within a few minutes and receive and send Bitcoin.
However, as these wallets have internet access and the keys are stored on the device itself, software wallets are naturally less secure than hardware wallets. For smaller amounts, however, software wallets can be used without hesitation.
(3) Paper wallet
A paper wallet is a printout or handwritten note of the private and public keys. You write down access to your Bitcoin addresses on paper and keep it safe. This is, of course, relatively secure because the piece of paper is not connected to the internet - but to send Bitcoin you then need a hardware or software wallet into which you can read your keys.
(4) Multisig wallet
Multisig wallets require several private keys in order to move Bitcoin. Contracts are set up, so to speak, whereby, for example, 2 of 3 or 3 of 4 keys are required to send Bitcoin. This type of wallet can further increase the security of hardware wallets, which can be particularly useful for very large holdings.
Even if one of three wallets were to be compromised, the Bitcoin could not be stolen. Of course, it also increases the complexity and the risk of losing the Bitcoin due to an error.
(5) Brain Wallet
Bitcoin is pure information. And information can also be memorized - which is what a "brain wallet" refers to. By memorizing the seed phrase (usually 12 or 24 words), you can take your Bitcoin with you wherever you go. This means you can easily cross any border in the world and take all your Bitcoin assets with you.
However, as it can of course also happen that you forget the words and lose access to your assets, there are now also so-called border wallets. border wallets - with which you only have to memorize a pattern that you have chosen yourself and a single word. If you would like to know more about border wallets, please write it in the comments and I will write a short article about it.
Self-custody = personal responsibility
With self-custody comes responsibility. Bitcoin offers you the unique opportunity to really own your assets. And really really own it.
But what do I mean by that? You can own Bitcoin without having to ask anyone's permission. I could send you some Satoshis right now and nobody could take them away from you. Nobody has to give you permission.
For your bank account, you need the bank's permission. You need the bank's permission to trade shares. You own real estate - and yet you are constantly paying property tax and have to comply with all the regulatory requirements of the legislator. You can't just quickly save the property in your head, emigrate and take it with you across a border :D
However, this ability also means that there is no one who can help you if you lose access to your Bitcoin. So you have to take responsibility for your actions, inform yourself and know what you are doing. This is absolutely essential with Bitcoin.
Typical beginner mistakes that could cost you your Bitcoin
(1) Fake wallets & apps
Unfortunately, very well-made fake apps often make it into app stores - with a stolen brand/logo and fake reviews. These include, for example, supposed apps from popular wallet manufacturers such as Ledger - watch out!
Victims enter their seed there or pay in money and lose their Bitcoin and/or their money as a result.
Protection:
- Do not click on any "advertised" apps; check the developer name in the store.
- It is best to download only via the original website of the wallet/hardware.
- Always check URLs carefully!
- Prefer open source and look for established hardware devices (e.g. BitBox, Coldcard, Trezor, Jade).
(2) Ponzi schemes and high-yield investment programs
These scams promise guaranteed, inflated profits (e.g. 5% daily, doubling of Bitcoin in a week). Early investors may receive payouts, but these only come from the deposits of new investors - and eventually the scheme collapses and everyone else loses everything. You can invest in many such scams with Bitcoin. However, the subsequent payout of the Bitcoin will of course no longer work.
Protection:
- If you don't understand how a company generates returns, you yourself are probably the return. So stay away from such things!
- Above all, always be extremely wary of anything that pushes you to recruit others.
(3) Phishing attacks
Scammers pose as trustworthy companies, services or even people to trick you into revealing sensitive information such as passwords, private keys or seed phrases. Common tactics include fake security alerts, fake support staff asking for your seed phrase, fake giveaways and fake websites.
Protection:
- Never enter your seed phrase anywhere online. Not under any circumstances. Not even if the wallet manufacturer contacts you and asks you to enter the seed phrase so that you don't lose access to your Bitcoin (yes, I've actually received an email like that😂) They deliberately play on the emotions of the victims and want to scare/panic you into revealing your seed phrase.
- Only ever contact the wallet manufacturer's support team via the official channels, for example. Always check the URLs twice.
(4) Affinity scams:
These scams do not attack Bitcoin directly, but praise it first. Then they convince people who are already open to Bitcoin that there is something better - a new altcoin or a "next Bitcoin" that they want your Bitcoin or money for. "Yes you have the unique chance to be part of our new project. With 1 million Satoshis you can buy 10 million GetQuin tokens for the ICO" - or something similar🤨😂
Arguments such as "Bitcoin is an outdated technology" or "this project is what Satoshi really intended" are used to play on people's greed and thereby take away their Bitcoin.
Protection:
- Ask yourself if the project is solving a problem that Bitcoin can't solve at a higher level, or if it's a solution in search of a problem.
- If the marketing is based on influencers and celebrity endorsements, it's probably a good idea to walk away.
- Stick with Bitcoin, as any altcoin requires trust in a team or making massive compromises for minor functional improvements.
(5) Ransomware and extortion
Here, scammers are not trying to convince you of anything, but to scare you or force you to hand over Bitcoin. Malicious software can, for example, lock or encrypt files and demand Bitcoin as a ransom. Extortion scams threaten to release sensitive or fake information unless you pay. Often there isn't even a real hack, just scare tactics and threats.
Protection:
- Make backups of important files and always keep your software as up-to-date as possible to fix vulnerabilities
- Be extremely careful with email attachments and unknown links. Don't panic if you receive an extortion email, as it's often just a bluff.
- Use strong, unique passwords and a password manager.
Now you know how to keep your Bitcoin safe on your own. I would also recommend the following article in which I take a closer look at the risks of a hardware wallet: https://getqu.in/P8dM2O/
Next, let's look at the other side of the coin:
How do you actually sell Bitcoin again if you ever have to or want to?
And what do you need to bear in mind?
There may come a time when you want to sell Bitcoin and get Euro/CHF/USD back in return - whether to take profits, finance a larger purchase or simply reduce your position. The selling process is basically the reverse of buying, but there are a few additional stumbling blocks to be aware of to ensure everything goes smoothly.
Example
You have bought from several providers over the years. All purchases are on one wallet. You have managed to save up a total of 0.5 BTC. Now it's time to renovate your home and you want to sell half of the BTC.
You send half of the BTC, which is made up of countless small individual purchases from various providers, from your wallet to a crypto exchange to sell it.
Scenario 1
You send half of the Bitcoin to a fully regulated exchange. You think to yourself, I'd better use a regulated exchange to sell it so that I don't get into trouble with my bank afterwards.
But then comes the surprise:
Unfortunately, you can't go through with the sale, your half Bitcoin is frozen by the exchange and you are asked to prove the origin of the half Bitcoin.
Scenario 2
You send the half Bitcoin to an unregulated exchange. The unregulated exchange lets you sell the half Bitcoin without any problems - yay🥳
You then send your money to your bank account, but then comes the surprise:
You receive the larger payment in your bank account, your bank immediately reports a suspected case of money laundering, blocks your account. In addition, you have forgotten that in Germany, transfers from abroad > €50,000 must be reported to the German Bundesbank (AWV reporting obligation).
In other words: you're totally screwed.
You then have a lot of fun and enjoy proving all your Bitcoin purchases, wallet transactions, etc. in order to get your money back.
Unfortunately, these are now two very realistic scenarios. So the question is:
What can you do to prevent this from happening?
Tips for buying
- Create different wallets or sub-accounts in your wallet for the different providers from whom you buy Bitcoin. So one sub-account for Strike, one for Coinfinity, one for 21Bitcoin, etc. This way you know immediately where you bought what and can easily prove the origin
- name the incoming and outgoing transactions. You can add a comment to an incoming or outgoing transaction in your wallet (e.g. payment from 21Bitcoin or sent to @Ash for the statue of Satoshi Nakamoto). This will give you an easy overview of what came from where and what you sent where after a while
- regularly pull the transaction histories and save them well. Ideally, you should also use services such as CoinTracking for your tax return and to have an overview of when which portion of your Bitcoin becomes tax-free
Tips for selling
- In the best case scenario, you simply buy the 0.5 BTC from a provider and then sell it there. Then, of course, they will immediately know where the Bitcoin comes from and you will be rid of a few problems
- If this is not the case, it is best to contact the crypto exchange in advance. Write an email announcing that you would like to sell 0.5 BTC, for example, and ask what information they need from you. They will most likely want to know where you bought the Bitcoin. You can then prove this with the transaction histories that you saved regularly when you made the purchase
- If the exchange gives the green light, I wouldn't send them all at first. First send a small amount of Bitcoin to the exchange and sell it. Then pay the money out to your bank account and monitor whether there are any problems on the part of the exchange or bank.
- Also contact your bank in advance for larger transfers. Talk to the bank. Tell them that you are selling Bitcoin and are expecting a larger amount of money. The bank can then tell you what information they need from you. If you sell with a regulated provider, there will be fewer problems in this regard.
- And as mentioned earlier - observe the AWV reporting obligation for transfers from abroad > €50,000
If you follow these tips - and above all are aware of the problems that can arise - nothing stands in the way of a relaxed Bitcoin buy & sell.
I thought it was important to illustrate these scenarios for you, because the problems with Bitcoin and co. are very different from buying shares or ETFs and I hope I was able to give you some helpful advice along the way :)
Conclusion/TL;DR
When starting out, a savings plan (DCA) is usually superior both psychologically and practically.
You should buy from reputable, ideally Bitcoin-only providers and not from neobrokers where you cannot withdraw your Bitcoin.
"Not your keys, not your coins" applies from a few hundred euros or an amount above which the loss would hurt you. Then you should keep your Bitcoin in safekeeping. However, it is important that you are aware of the responsibility this entails. A single mistake can lead to the loss of your assets.
Documentation is extremely important for the subsequent sale. Collect the transaction histories, label the deposits/withdrawals in your wallet to keep an overview and talk to the crypto exchanges and your bank in advance - especially for larger amounts.
I hope you enjoyed this article and were able to take something away from it. As always, feel free to post any questions in the comments. Otherwise, I would be interested to know whether you would like to see another part of the series and, if so, which topic you would like to see. I'm currently unsure whether and what else belongs in a "Bitcoin for beginners" series :)
Happy ATH and have a nice Grüße✌️
