Buying Bitcoins the Easy Way
At this time, the easiest way to buy bitcoins is through an established Bitcoin middleman, more accurately called a Bitcoin exchange intermediary. Exchange intermediaries consist of companies that have already registered their own accounts on one or more Bitcoin exchanges and will buy or sell bitcoins on your behalf. Typically, exchange intermediaries offer to sell bitcoins only at the market price; you can't set your own price. Additionally, these companies may only convert currency in one direction. For instance, during the 2013 Bitcoin price run-up, many folks new to the Bitcoin community wanted to purchase bitcoins quickly. Not surprisingly, many businesses that traded bitcoins for dollars, but not necessarily dollars for bitcoins, quickly appeared to fill this need.
There are also clear benefits to using a middleman, however. The paperwork involved is minimal, and many services offer to get you bitcoins in mere minutes (as opposed to days or weeks). The fees typically range from 1 to 10 percent, but the service and customer support are often better than with exchanges.
Bitcoin intermediaries are roughly analogous to PayPal, which acts as a middleman to help you make Internet purchases using your bank account. If you've used PayPal, you'll find that using an exchange intermediary is a very similar experience.
Table 4-1 lists some popular exchange intermediaries. You should try to choose a company that charges the lowest fees and offers the best user experience. Be sure to check online for reviews of these services and try to find out if they have a good reputation in the Bitcoin community before making your decision. Many of these services operate only in limited geographical regions, so some might not be available to you.
Table 4-1: Popular Bitcoin Exchange Intermediaries
* Only a partial description of services
Unfortunately, many times in the past fraudulent and poorly run companies have
been involved in the buying and selling of Bitcoin. Undeniably, in the future this may be true of any of the companies we mention in this chapter. It is your own responsibility to properly vet specific companies before trusting them with your money.
Before we walk you through the exact steps involved in buying bitcoins from one of these companies (see "Buying Bitcoins with Coinbase" on page 58), we first need to discuss a couple of technical concepts. One concept you absolutely need to understand is two-factor authentication, which is a way to do online transactions (as well as a framework for thinking about such transactions) that can greatly reduce your risk of getting hacked and/or robbed. Another concept we need to discuss is the difference between reversible and irreversible financial transactions. Understanding this difference helps explain why long waiting periods are often involved when acquiring bitcoins from service companies.
Since the dawn of digital technology, many methods have been conceived for computer users to prove their identities: passwords, iris scans, key fobs, face recognition, and several others. However, all of these security measures can be defeated. If you enjoy science fiction movies, you're familiar with the myriad ways this can be done.
However, you can overcome these weaknesses by organizing the many authentication methods into three main categories and then choosing two to use. This is known as two-factor authentication. The three categories are as follows:
• Something you know: Your password, your first pet's name, your signature, and so on
• Something you own: A key fob, your smartphone, and so on
• Something you are: Your fingerprint, your face, your eyes, your voice, and so on
It turns out most of the weaknesses in each of these categories are very different. That means that if you pick two authentication methods in two different categories, it will be far more difficult for a hacker to break into your account. This is what we mean when we say two-factor identification. We will discuss an example of this in practice shortly.