There are four ways to obtain Bitcoin: receiving them for free, selling your goods and services for them, buying them directly, or mining them.
Digital Faucet: Free Coins
Yes, you can get free Bitcoins. There are multiple websites that give free coins to get users started (called faucets). However, with the rise in Bitcoin’s value many faucets have shut down, and the remaining ones give out miniscule amounts of coins. While they were valuable when Bitcoin was in its infancy, I wouldn’t bother spending time with faucets today.
Sell Your Stuff
You can sell your goods or services to obtain Bitcoin. Some Ebay-like websites only deal in Bitcoin, such as Bitmit. A quick search on Craigslist for the term “Bitcoin” will show many dealers offering the products for coin. Internet forums exist for Bitcoin users to buy and sell their own merchandise, such as Reddit’s Bitmarket. This is a relatively simple way to obtain Bitcoin, if you have anything valuable you don’t mind parting with.
While most items offered for sale by Bitcoin users aren’t very expensive, there are some examples of very large transactions. A Texas family sold their Porsche for 300 BTC recently. A Canadian man put his house on the market for Bitcoin.
Purchasing Bitcoins
The most common way to obtain Bitcoin is by purchasing them. There are many different avenues to purchase Bitcoin, but two ways are the most common.
One is to purchase Bitcoins locally and in person. This frequently occurs if you know someone with Bitcoin. Avid Bitcoin users are often happy to sell a small amount to other users in order to get them started.
However, you certainly don’t need to know a guy in order to buy them locally. A popular website called LocalBitcoins allows you to search for sellers in your area, and then arrange a meeting to make the transaction. These personal transactions do carry some amount of risk, since you have no guarantee they will send you the coin once you hand over the money (or visa-versa!). However, the website uses a reputational system so that each seller has reviews from previous buyers. In this way, it is in a seller’s interest to ensure they don’t cheat their clients. The vast majority of users report positive interactions with LocalBitcoins.
The second way to obtain Bitcoin is probably the most common of all: purchase them from an exchange or affiliated payment processor. Exchanges are businesses that will buy and sell Bitcoin for various national currencies, such as dollars, pounds, euro, or yen.
Exchanges have been a critical part of Bitcoin’s expansion. Originally, miners were the primary users of Bitcoin, since there wasn’t really a marketplace to sell their coins. Once exchanges became popular, coins could be purchased by anyone, no need to have a computer set up to mine coins.
There are many exchanges available. Some of them are primarily useful because they serve a specific region or deal primarily in a certain currency. Here is a list of the most popular ones.
Mt. Gox. This is-by far-the largest exchange for Bitcoin. Mt. Gox was an early entry into the market, and for some time they had nearly 100% market share as a Bitcoin exchange. This has slowly declined over time and is now somewhere near 60%. Mt. Gox is based on Japan, but transacts in dollars, pounds, euros, and yen. They have drawn much criticism from the community for not acting in a professional or timely manner, and causing some turmoil in the Bitcoin markets, but they are still the industry leader by a long shot.
CampBX. This exchange is based in the US and deals in dollars. While Mt. Gox no longer accepts payments through online payment processor Dwolla, CampBX still does.
BitStamp. An exchange located in Europe, dealing with multiple currencies.
BTC-E. A Russian exchange, dealing in multiple currencies and also dealing in cryptocurrencies other than Bitcoin.
Coinbase. This service, established in 2012, operates out of California. It allows you to link your bank account directly to their service, enabling users to buy Bitcoin instantly from their bank account. There is a limit on how many Bitcoin you can buy or sell with their service.
BitInstant. A service similar to Coinbase, except you don’t need a bank account. For a fee, you can deposit cash at local stores in the US such as CVS or Wal-Mart, and using a payment processor, you’ll receive some Bitcoin minutes later.
This is only a handful of the services out there you can use to obtain Bitcoin.
Despite there being many ways to obtain Bitcoin, it often takes patience to finally have some coin in your wallet. Most of the exchanges require identification in order for them to comply with their nation’s laws. The process of verifying identification can take days or even weeks. Mt. Gox is famous for having a queue of people waiting for identification that has stretched into the thousands!
Once you’re verified, you then need to fund the exchange. For some time, one of the most popular ways to fund Mt. Gox accounts was Dwolla, an inexpensive online payment processor. However, in May 2013 the US government shut down Mt. Gox’s account that used Dwolla, citing incorrect permitting. Now getting funds to the largest exchange requires a wire transfer or using another payment processor.
Dwolla can still be used at CampBX, and a few other places, but it’s unclear for how long Dwolla will still be a viable exchange funding method. Given the uncertainty around Dwolla for now, what is the best way to obtain coins?
This depends on your level of patience, acceptance of fees, and desired anonymity. If you are patient, want low fees, and don’t mind your coins tied to your identity, I would suggest using Coinbase. It is simple to set up; you just register an account with an email address, and then link a bank account. You can choose to instantly link the account using your online banking login credentials. As trustworthy as Coinbase is, I would recommend their second option. They make two small deposits into your account, and you verify your account based on entering the correct amount deposited. This process does take several days from start to finish, but there are few fees.
If you are impatient and need Bitcoin today, and you can tolerate higher fees, I would suggest using BitInstant. It lives up to its name – once you fill out a form on their site, you go to a local store that offers money transfer services (there are many), deposit the exact amount requested, and only minutes later the coins are deposited in your wallet. Because you need to fill out your personal information, this method also isn’t anonymous.
If you want anonymity, use LocalBitcoin and transact for cash in person. Obviously, be careful doing this. As I mentioned earlier, most users report positive results, but there are some scammers in the Bitcoin community who may literally take your money and run. Look for sellers who have a good reputation online.
Be very wary of individuals selling Bitcoin outside of reputable communities. If anyone wants to use PayPal, especially to buy your Bitcoins, that is a warning sign. PayPal isn’t a good idea to buy or sell Bitcoin because transactions are reversible, meaning someone could receive the coins then take back their payment.
Do some quick Google searches of the exchanges and services I suggested, and find out which works best for you. But remember; don’t buy until you’ve read the section on securing your coins.
Mining for Bitcoin
There is one last way to obtain Bitcoin, and that is to mine them. For most readers, I doubt this is a viable option, so you can read this section if you have an interest in learning about mining, but feel free to skip ahead.
As I mentioned earlier, mining Bitcoin means that you are lending your computer power to verifying other user’s transactions, while searching for the
solution to the mathematical problem. The miner that finds this solution first will publish the next block, and receive a 25BTC reward.
25BTC created approximately every 10 minutes is a lot of money, so it’s easy to understand why many people want to be Bitcoin miners.
Here’s the bad news: The train has already left the station when it comes to Bitcoin mining. It’s very unlikely that anyone who would start today and invest the significant resources of time, computing power, electricity, and money into running a mining rig will recoup that cost for a very, very long time – if ever.
If that’s true, then why are there so many miners out there? Because mining used to be very profitable. Previously, miners used the CPUs to run the program that mined coins. After awhile, someone realized that using a GPU (the graphics card), would actually solve the mathematical solution much more quickly. More people began running GPU rigs with multiple video cards. As more people entered the mining market, the chances of anyone getting the block reward dwindled.
Miners worked around this problem by joining mining pools. They contributed their computer power to the pool of miners, and in return if the next block was found by the pool, they divided the block reward amongst everyone participating. This worked well for awhile, although mining pools dealt with new problems such as storage space, and cooling their rigs down.
Then a new development in mining came along: Application Specific Integrated Circuits, or ASICs. These rigs were specifically designed to mine Bitcoin – and that is all they can do! Because they do nothing but mine Bitcoin, they don’t require nearly as much energy as a standard mining rig. A rig that uses little power and is orders of magnitude better than the previous technology was a significant step forward for miners, but it came with a price. These new machines are in high demand, and so they are expensive – very expensive.
Finding a quality ASIC could easily cost thousands of dollars.
This creates a dilemma for anyone looking to enter into the mining market, because now there are so many other players and such advanced technology that the chances of you actually getting a block reward are very small unless you make a significant investment (both upfront and continuing). You would be far better off taking those thousands of dollars and simply buying the Bitcoin directly!
I don’t recommend readers attempt to mine Bitcoin. That is becoming a specialized service taken on by increasing larger players with access to infrastructure. Gone are the days where running the Bitcoin client on your laptop computer could easily bring in hundreds of Bitcoin.
