Things to look out for when buying/selling bitcoin
There are various ways in which a user can acquire Bitcoin. In the early days of Bitcoin, you could get Bitcoin from miners and from online forums. Now, most trading is done via exchanges. Though the method for acquiring Bitcoin has changed, the things you should watch out for haven’t. We’ve shared a few things that you should consider when buying/selling bitcoin on an exchange.
One of the most well known exchanges in North America is called Coinbase. For a limited time, if you sign up and purchase $100 USD worth of coins, they will give you an extra $10 in coins. Sign up here.
Consider the transaction fees and costs
One of the benefits Bitcoin provides is that it has a low transaction cost when transacting. However, due to current scaling issues with Bitcoin, the reward for processing a transaction has gone up dramatically, and as such, exchanges have been charging a transaction fee when moving Bitcoin. Although it might seem small (0.001 Bitcoin), if you translate that to USD, it’s actually close to $5 USD (based on $5,000 per Bitcoin at the time of writing). So be careful when moving money in to or out of exchanges! Even if you have a private wallet, be aware that you can set different miner rewards (the transaction fee associated with the transfer). Don’t set a fee too high since it is based on how much you’re sending!
The tax man is always watching
Another thing that most people aren’t aware of is that trading Bitcoin is considered an investment activity and any profits made from buying/selling Bitcoin needs to be taxed. When you register for an account at an exchange, you have to give out your personal information. The exchanges could provide information to the local government agencies as well as any gains you made from buying/selling Bitcoin. So factor this in as a “cost” to trading Bitcoin, in addition to the volatility. There are ways around this however. There are services that will provide a credit card that is connected to your Bitcoin wallet, so you can spend Bitcoin at retailers directly without selling your Bitcoin first. (Interested in seeing which online retailers you can shop at with your Bitcoin? Check out our article on Which Online Retailers Accept Bitcoin). Another option is to buy gift cards with your Bitcoin through sites such as eGifter and Gyft. For more information about different practical uses of Bitcoin, click here.
Know the security risks and protect yourself
When buying/selling bitcoin on an exchange, please use extreme caution in protecting your account information! There have been stories where hackers have hijacked a user’s phone number so they can bypass the 2 factor authentication (2FA) mechanism, thereby gaining access to the coins. To prevent damage to your crypto portfolio, there are a few things you can do.
- Don’t post your phone number that you signed up with the exchange publicly
- Set a maximum daily transfer limit so that in the event of a branch, the loss is limited and you can address the breach right away
If you are holding Bitcoin and have no plans to sell, I recommend moving the coins to a private wallet that you control with private keys. There are a few different software out there which are highly rated.
Have any other great tips you think we should share when buying/selling Bitcoin? Ever had a situation where you didn’t watch out for these things and wish you knew what you know now? As always, we love to hear from you.