A step-by-step guide on how to invest in Bitcoins

With the legitimacy that the Supreme Court has provided to cryptocurrencies in India, the sector has finally received a much-needed boost. This move has catalysed a surge of investor interest – a dominating trend that startups in the Indian crypto sector are witnessing at the moment. However, cryptocurrencies are still an alien concept for many in the country and are likely to remain so until India’s regulations and categorisations are set up.

Since decentralised digital currencies are not yet mainstream in India, their adoption depends on informing and educating potential users. In the meantime, those looking to secure an early piece of the share have the chance to explore this new technical investment space before entering it at their discretion.

In simple terms, Bitcoin is the first and foremost decentralised cryptocurrency which is not controlled or owned by any governmental or financial institution. It’s a digital payment system that is quite similar to normal currency but devoid of any physical form and is validated on a peer-to-peer architecture.

As this form of currency exists electronically, Bitcoins are used for instant and secure transfer of value to any part of the world. And since there is a finite number of coins available and as it is not tied to any physical asset, the scarcity causes a fluctuation of its value.  

Just like Wikipedia is sustained by a decentralized network of writers, Bitcoin is maintained by a decentralized network of computers, owned by people across the world. These computers verify all the transactions that occur in this payment system.

At the outset, the intent behind designing Bitcoin was to supplement government-issued currencies with an international currency for the internet. This was precipitated as the US investment bank Lehman Brothers Holdings Inc. filed for bankruptcy in 2008. The event had caused a major public disillusionment with the banking system and there emerged a need to challenge the status quo where much of the power was placed in the hands of a few entities.

Since its inception, Bitcoin has become a speculative investment asset for investors and has been a highly coveted instrument which can be extensively used for transactions wherever merchants accept it.

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Scenario in India

In India, the Supreme Court ruling in March 2020 lifted the 2018 RBI ban on cryptocurrency. This judgment has also enabled the conservative Indian banking system to break free from its shackles and make a nascent entry into the cryptocurrency space. As a result, many multi-state cooperative credit societies supporting the Bitcoin and crypto ecosystem are emerging today, thereby providing a stimulus to the industry. These societies are not directly regulated by RBI but by the registrar of cooperative societies.

The larger regulatory environment is still hostile to cryptocurrency, and continues to be the main source of uncertainty, but several players in the crypto ecosystem are determined to push for Bitcoin and for a good reason.

With blockchain patents skyrocketing globally, there is a realisation that regulatory ambiguity would mean missing out on a big trend and could be counterproductive to the nation’s growth goals if it won’t get the needed clarity to reach up to the common man.

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Types of investments

In the past decade, there have emerged multiple ways to invest in and buy Bitcoin, including the options of Bitcoin trusts and ETFs that comprise Bitcoin-related companies.

Buying standalone Bitcoin

One way to invest in Bitcoin is by purchasing either a coin or a fraction of a coin through available trading apps in the market. In the majority of cases, one needs to provide personal information to register an account first and then deposit the money that would be used to purchase bitcoin.

Some platforms require users to deposit a minimum amount in order to buy Bitcoin. Just like any stock or ETF, one can get access to Bitcoin’s price performance as well as the option to sell or buy. Upon buying, the platform generally provides a wallet in which the Bitcoin can be stored for future usage or to sell at a later date.

Direct purchase

Direct transaction with a seller is a method to buy Bitcoin in a rewarding, direct and private way. In this route, it is advisable to transact with a friend or family member instead of a stranger for safe trading.

There are also Bitcoin meetups where crypto enthusiasts connect, and members often trade with each other while in attendance.

Through brokerage or OTC

A Bitcoin broker is an intermediary or a middleman for buying and selling Bitcoin. Brokers allow you to buy Bitcoin at a set value, and usually provides a mechanism to store them. The brokers generally obtain the needed Bitcoin from Bitcoin manufacturers called miners.

Bitcoin brokers are one of the only options that allow you to buy a very large amount of Bitcoins at a time without entering into the market fluctuating the price.

Using a Bitcoin mining rig

Bitcoin mining is the process of creating new Bitcoin by solving a computational problem – these are usually performed by high-powered computers. Users who have their own bitcoin mining rigs basically can run it by connecting to the Bitcoin network to keep mining and thus create Bitcoin on its own.

Purchasing from a Bitcoin exchange 

Alternatively, a Bitcoin exchange can be used, which enables a trader to purchase Bitcoin at the price that they want to limit themselves to. The exchange runs the matching engine to match the bid and ask orders of the users and this is similar to stock market or commodity exchanges.

Various exchange places can be found listed on the website Bitcoin.org where a person can buy via the many apps and websites that provide these services. The list is quite comprehensive and contains detailed information according to countries and continents.

Using a Bitcoin ATM

Bitcoin ATMs tend to work like the common banking ATMs. However, they allow traders and buyers not just to withdraw money but also let them deposit money and buy Bitcoin and other cryptocurrencies in a hassle-free way.

Buyers can use the services dedicated to show the Bitcoin ATMs and then navigate to it with an interactive map to perform transactions.

This option does not exist in India yet.

Browsing a P2P directory

The P2P or peer-to-peer directory can be used for checking Bitcoin prices and buying them in accordance with the information available on prices. Buyers and online traders just need to link their bank accounts, or deposit bitcoin to begin trading effectively.

The platforms act like escrows of the Bitcoin while the fiat currency (USD, EUR, INR, etc.) would go from one user’s bank account to that of another after which the escrow would get released to the buyer. The platform will solve the disputes that arise, if any.

Buying the tickers linked to Bitcoin

There are registered funds/companies in developed countries like the United States where shares of a fund/company can be bought on the stock market and this equity is backed by the real Bitcoin in their custody. It is not possible to withdraw Bitcoin as there is no settlement but the equity held can be stored at the later date.

GBTC ticker by GrayScale Bitcoin Trust is one such example who currently hold more than 8 Billion USD worth of Bitcoins on behalf of their equity holders. This option does not exist in India yet.

Summing up

Generally Bitcoin has the potential to supplement RBI’s significance with a sustainable and consistent low-cost domestic payment system. Industry experts lay emphasis on the ability of Bitcoin to lend support to micropayments – for instance, few rupees per page view for a website, which the existing systems and payment gateways do not permit or are not feasible.

Simply put, Bitcoin is about fast and free transfer of value from anywhere to anywhere similar to how email is a fast and free method for transfer of information. There are also services where a freelancer can provide his services for the payment in Bitcoin.

All in all, there are people who want to transfer value that are buying Bitcoin and also there are investors who believe the fact that the fast and free value transfers on the internet is valuable are investing into it for speculation.