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BUYING BITCOINS

Buying bitcoins is essentially just like buying any other kind of currency. Think about the various ways in which you typically exchange US dollars for Japanese yen or Mexican pesos. For small amounts of money, you could probably find a friend to exchange a few dollars for the currency you want. For moderate amounts, you can visit a currency exchange shop, like those at most international airports, which is convenient but charges high fees. If you want to exchange thousands of dollars or you are a currency day trader and don't want to pay high fees, you need to register an account at a major currency exchange. All of this is true for bitcoins as well, except that the infrastructure is not yet as well developed as it is for traditional currencies (right now, an airport currency exchange shop probably couldn't tell you the difference between a bitcoin and a banana).

The bottom line is that you have many different ways to buy bitcoins, even today: You can buy them locally, from your friends or those in your area; you can buy them from middlemen, both online and in brick-and-mortar stores; or you can buy them from major Bitcoin currency exchanges. It's important to remember that whenever you buy bitcoins, you are buying them from someone who has them already (exchange services merely facilitate this transfer); bitcoins are not sold directly from a Bitcoin company. Therefore, no individual sets the price of a bitcoin; the price is decided collectively by those who buy and sell them every day (i.e., by the free market).

Why Not Just Mine Bitcoins?

Although you can obtain bitcoins by mining them, it is not easy (or free) to do so. Unless you plan to quit your day job and become a full-time Bitcoin miner (see Chapter 8), it's not practical to obtain significant amounts of Bitcoin through mining. Bitcoin mining requires highly specialized computer hardware, cheap electricity, and a high degree of patience.

Ways to Buy Bitcoins

Broadly speaking, you can buy bitcoins in three main ways:

• The easy way: Through middleman companies

• The efficient way: Through currency exchanges

• The fun and futuristic way: Through person-to-person purchases

Middleman companies make money helping people buy bitcoins easily, with a minimum of fuss. These companies usually have decent customer service and shield you from needing to understand all the complexities of currency trading. However, like all middlemen, they charge a fee for this convenience.

A more efficient way is to buy bitcoins directly from a Bitcoin exchange. Exchanges directly connect people buying and selling bitcoins using a sophisticated currency exchange system. These exchanges are somewhat advanced and can be intimidating for a beginner. However, exchanges are where most large Bitcoin purchases and sales happen. For this reason, exchanges usually offer the best prices for purchasing bitcoins. Also, by purchasing directly from an exchange, you minimize the number of parties involved in a large purchase, which decreases the risk of a problematic transaction. For large Bitcoin purchases ($5,000 or more), always deal directly with an exchange. Using an exchange is also a good choice for smaller purchases, as long as you have the time and inclination to learn the ins and outs of how a currency exchange works.

Simply buying bitcoins directly from folks in your area, person-to-person, is the most fun because you get to meet others interested in this new currency. Of course, trading money directly with strangers might make some people uncomfortable. But most bitcoiners believe that person-to-person purchases are most likely the wave of the future. Some hope for a more decentralized world in which large corporations become obsolete as technology makes it more practical and convenient for people to interact directly. Perhaps someday face-to-face exchanges will become the most efficient, cheapest, and fastest way to buy bitcoins.

 
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