Buying Bitcoins with Coinbase
In the United States, the most popular Bitcoin exchange intermediary by far is Coinbase. Let's walk through the steps of buying bitcoins using Coinbase. As with all of the methods of buying bitcoins that we will discuss, it is prudent to start small; buy only modest amounts of bitcoins until you are comfortable with the process.
If you decide to use another middleman instead of Coinbase, the steps involved are roughly the same, even if some of the details are different.
Step 1: Registering at Coinbase
To register at Coinbase, go to coinbase.com/, and choose Sign Up. Then enter your email address and choose a password (Figure 4-1).
Figure 4-1: Sign Up screen for Coinbase
Click Create an Account. At this point, Coinbase will send an email to your account to have the address verified.
Step 2: Setting Up Two-Factor Identification
The easiest way to set up a second authentication method is to run an app on your iPhone or Android phone that proves you own a phone with a specific phone number. Coinbase lets you do this. Once set up, your two-factor authentication for your Coinbase account will be:
1. Something you know: Your Coinbase password
2. Something you own: Your smartphone
Currently, Coinbase uses an app called Authy that you can install on your phone from the iTunes App Store or Google Play Store. After installing this app on your phone, configure it by following the instructions, which require you to enter your phone number and verify your email address again.
Now you're ready to use Authy to link your phone to your Coinbase account. After logging into Coinbase, go to Account Settings and verify your phone (Figure 4-2).
Figure 4-2: Account Settings screen for Coinbase
Click Verify A Phone and enter your phone number. Authy will detect that you're trying to link to Coinbase and display a Coinbase option (Figure 4-3).
Choose Coinbase in Authy to display a code, which Coinbase will ask for as the next step. Enter the code to verify your phone.
Now, if others try to access your Coinbase account, they'll need to not only know the Coinbase password but also have access to your smartphone.
Step 3: Linking Your Bank Account to Coinbase
To purchase bitcoins in Coinbase, you need to link your Coinbase account to a bank account. Log into Coinbase, choose Buy/Sell, and then choose
Figure 4-3: The Authy app detects your use of Coinbase.
Payment Methods. Click Add Bank Account and provide your bank account information (Figure 4-4).
Most likely, you'll have to wait several days before your bank account is fully verified. Then you'll be ready to continue with step 4 of the instructions.
Figure 4-4: Screen for entering bank account information on Coinbase
Step 4: Buying Bitcoins on Coinbase
With your bank account confirmed, you can place your first Bitcoin order. Figure 4-5 shows the screen you'll see when you click Buy/Sell.
This screen is self-explanatory: You simply type in the number of bit-coins you want to buy and then click Buy Bitcoin. After confirming your purchase, Coinbase will transfer the dollar equivalent of these bitcoins from your bank account. After waiting a few more days, you should have your first bitcoins!
Figure 4-5: The Buy Bitcoin screen on Coinbase
Step 5: Protecting Your Shiny New Bitcoins
When your bitcoins are available, Coinbase will notify you via email that your bitcoins are in your Coinbase wallet. But because your Coinbase wallet is managed by Coinbase, if Coinbase ever crashes, gets hacked, or goes bankrupt, your funds could be at risk. Consequently, you should take some extra steps to protect the bitcoins you've bought.
Although Coinbase might be a trustworthy company and has a marginal chance of going bankrupt, why take even the slightest chance of losing your bitcoins? By simply transferring your coins from your Coinbase wallet into your own self-managed wallet, you can make sure the risk of loss from a third-party company are zero percent.
Be sure to read Chapter 3 to learn about personal wallets and safe Bitcoin storage.
In the past, bitcoins stored in wallets managed by Bitcoin middlemen and Bitcoin exchanges have been lost. Nowadays, the risk of this happening is much lower due to the maturation of the financial Bitcoin ecosystem. Nonetheless, it's always smart to store your bitcoins on these sites only for the absolute minimum amount of time possible. Bitcoin makes it extremely easy to manage your own money. Take advantage of this ability and don't trust the management of your money to an exchange intermediary.
BITCOIN ATMS: THE ULTIMATE BITCOIN MIDDLEMEN?
As previously stated, one of the annoyances of purchasing bitcoins at this time is that buying them can be a bit cumbersome due to traditional financial instruments, like credit cards and bank wires, being reversible. But the most obvious irreversible financial instrument is the almighty dollar bill. If a person hands you a dollar bill, that person can't reverse that transaction (short of being charged with physical assault).
Consequently, an ATM-like Bitcoin-buying device would make it extremely convenient to simply buy bitcoins using paper dollars. Such a machine could let you purchase bitcoins very quickly, because both currencies involved would be irreversible. The convenience of an ATM that charges comparable fees to Coinbase's could potentially make it the ultimate Bitcoin middleman. And, indeed, some Bitcoin ATMs have been built and have proven very popular. The first was set up in a coffee shop in Vancouver, Canada.
However, it is impossible to know whether such ATMs will ever be widespread or be completely legal in the United States. The reason is that dollar bills and bitcoins share more than just irreversibility. They also both allow for a certain amount of anonymity. For this reason, a Bitcoin ATM would indirectly be a fantastic tool for anonymizing money for money laundering and other nefarious purposes. And, unfortunately, many countries will not hesitate to ban anything that can aid a criminal, even if it would be tremendously beneficial to law-abiding citizens. Therefore, it's difficult to predict how commonplace
Bitcoin ATMs will be in the future.
The most efficient way to buy bitcoins is directly from a currency exchange. This requires a bit more time and has a steeper learning curve than using a middleman, but it is a somewhat safer and more cost-effective way to buy a large amount of bitcoins.