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How to buy bitcoin

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Once you have picked up an exchange, you will want to make a deposit.

To credit fiat, most of them ask for a KYCKnow Your Customer procedure, aka identity verification.
Each one has its own requirement, but they usually ask for:

It can take a few hours to a few days to get validated. If it get rejected, try again and remember to:

Credit cards are often declined by the emitting banks; they want to protect themselves against possible fraud (the same way buying plane tickets abroad is often declined). Take advantage of the other deposit methods.

What is a pair?

A ticker symbol is a 3-5 letters code attributed to a coin
For example, ADA is the symbol for Cardano, XRP for Ripple, DOGE for Dogecoin, etc ...

Now that your money is on the exchange, select the pair you want to use.
You could opt for BTC/EUR (you buy Bitcoins with euros) or even LTC/GPB (buying Litecoins with sterling pounds).

If you already have some bitcoin, you could even use XMR/BTC, this means buying Monero with Bitcoin
Your first pair will certainly be BTC/USD, you will sell USD to buy BTC.

The price, the order book, and market/limit orders

When you buy something, you check the price beforehand.
Easy, you say! "The Bitcoin price is printed right on the exchange, look!"

Bitcoin ticker showing last price

5263.9 USD. This is only indicative, it's called the "last price" or the "current price". It means that the last person who bought it, got it at this price.
But in trading, prices are not fixed.

There is sellers and buyers.
You are a buyer: you have to check the offers from sellers.

You can see them in the order book:

Bitcoin order book on Bitfinex

Each exchange has a slightly different way to present it. Here we use Bitfinex's one.

On the right column, you have the sell orders, the sellers show the amount of bitcoins they sell, and for what price.
The cheapest one sells 0.02BTC at $5260.6 each.
It's not mandatory to buy the full 0.02BTC, you buy the amount the want.
If you buy for $52.6 (0.01BTC), it will fill half of his offer.
If you buy for $1000 (0.19BTC), it will completely fulfill his offer, then partially fill the second one at a price of $5260.9.

On the left column, you have the buy orders, the buyers place their bids and will receive their bitcoin when a seller agree with their prices.
Imagine you want to sell your bitcoins to get your USD back: you could sell up to 1.82BTC at $5260.5. If you wish to sell more than that, you have to be conscious it will be at a lower rate. The next price is $5260.4, only 10 cents lower, you may not care, glad to the high liquidity of Bitfinex. But on smaller exchanges, variations can be greater.

The difference between the buy and sell prices is called the spread.
Here it's $0.1.

If you use a market order, it will automatically buy or sell at the best available price from the order book.
If you choose a limit order, it will adds your offer in the order book then you'll have to wait that your price match someone else's wishes (can happens pretty fast)

Setting market or limit order

Different exchanges, different prices

Since each exchange has its own order book, it is normal to see different prices across them.
Some traders use this at their advantages, by buying at a discounted rate from one exchange, transferring it, and selling at a premium rate on another one.
This is why prices are more or less always the same on each platform.

This strategy is called arbitrage. Those operations are done by bots, and profits are very small. Competition is big, entry barrier is high. It can also result in losses.
It is a whole world by itself, and I discourage you to try that. It is outside the scope of our course.

Sometimes, you will see a big price difference on a particular exchange. This can be due to a myriad of reasons, but mainly:

Now that you have your bitcoins

I want to point out that your coins are on the exchange's purse: not yours!
You don't have the private keys: you don't control their addresses, you have to trust the website you are using.

You can at any time go to the "withdrawals" section and retire your funds to your Electrum wallet, then you will be 100% sure nobody can touch them without your permission...
Except if you have big security flaws! Check the next class to secure your computer.


Should you have any question or remark, feel free to post it. I will answer you as soon as possible!

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  Where to buy and sell cryptocurrenciesSecurity