How to safely buy Bitcoin and not get scammed
Do you want to be a crypto-millionaire? Of course you do. Even after the massive market crash there are people who want to invest in crypto. The question is, how to buy Bitcoin and feel safe about it? Is there the safest way to buy Bitcoin at all?
There are many risks out there for the new Bitcoin customers — scammers, fleecers, hackers, sometimes even law enforcement. You have to be careful and understand many unspoken rules of online trading. Alternatively, you just have to read this article and learn the safest way to buy Bitcoin.
The definition of safety
Safety is relative. Something one person might consider safe will sound extremely dangerous for another. That’s why, before we go into the article itself, let’s lay down some ground rules.
These are the forms of safety we consider important when it comes to cryptocurrency:
- Identity security. Cryptocurrency users are obsessed with privacy for a reason, since in many regions of the world crypto is still persecuted — i.e. Algeria, Bolivia, Nepal, Bangladesh, and Nepal. And in others it is a symbol of wealth — and it’s never a good idea to showcase wealth. So protecting the identity of the user is pivotal — and we will treat it is as such.
- Financial security. Bitcoin is all about money, so it’s no wonder that we are going to care about it. If a method might cause you to lose money — be sure that we are going to mention it and warn you about all possible side effects.
- Physical security. Probably the most important one. There are some ways to buy Bitcoin that may lead to you being in actual physical danger and we will warn you not to use them.
How you should not buy Bitcoin
There are more than a dozen ways to buy Bitcoin with bank account, cash, video game money and even gift cards. Granted, most of them are shady unreliable ways that we can’t recommend. Let’s get them out of the system first, so that you know what not to do.
Do not buy Bitcoin for cash from another user
This is the most simple and conservative way of buying Bitcoin. You find a user near you, set up a meeting and exchange your cash for their hard-earned BTC — either as a paper wallet or with a direct transaction. The best way to find such users is LocalBitcoins. And yet, this is a very, very bad idea.
When you set up a personal meeting, you are needlessly compromising your privacy and safety. There are just too many things that can go wrong. There have been a case in Malaysia where sellers pulled out a gun on the buyer and made them give up their cash. Another buyer in Florida was robbed at a knifepoint. Another one was robbed in New York. A reverse situation happened in Taiwan, where four robbers stole the buyer’s Bitcoins and apparently left him for dead.
If you absolutely want to buy Bitcoin like this — set up a meeting in a crowded place and pray for the best. Alternatively, just don’t and use more reliable ways of getting Bitcoin.
Do not buy Bitcoin for cash from a dedicated supplier
This idea is similar to the previous one, but instead of meeting up with a user, you end up purchasing from a single corporate supplier. Some exchanges used to offer this feature for their local customers, i.e. Kuna. Thankfully, this method is becoming less popular each day.
Despite higher chance of success, this is not a safe solution. While you won’t be shot or robbed, you are still publicising your involvement with cryptocurrencies. Moreover, since the company offices are centralized, even an outside observer might easily associate you with crypto. And it’s never a good thing.
Do not buy video game currency with Paypal and exchange it for BTC
There is no way to buy cryptocurrency with PayPal, since it goes against the payment system’s stand on crypto. However, you can buy other currencies and then exchange them into Bitcoin. One of the most popular mediums for this are virtual currencies of online video games, particularly — Second Life.
At the moment, the only service that offers this option is VirWox — a virtual currency exchange.
The website has been around for a decade and is legit. However, due to exclusive payment method, the exchange offers pretty bad rates. On August 13, 2018, the market price of Bitcoin was 6474 USD — however VirWox offered the coins at 7860 USD.
You are losing almost $1400 USD when you buy on VirWox. Screenshot taken on August 13, 2018.
VirWox support it not the best either — even 99bitcoins reviewer had some tough time getting them to respond. Users on BitTrust are not particularly happy either, with VirWox having a rating of 1.81 with 160 voters. While the purchases do tend to go through eventually, the silence of the support services is unacceptable.
At the end of the day, VirWox is just not worth it. Yes, you can use PayPal to buy Bitcoin and that’s awesome — but it comes at a great expense to both your wallet and nerves. Unless this is the only way for you to buy Bitcoin — don’t use VirWox.
Do not buy Bitcoin with Gift Cards or Postal Money Orders
These are the obviously weird ways to go about things. A cryptocurrency trading service Paxful accepts payments in absolutely any shape and form, including store Gift Cards (for example, iTunes), Postal Money Orders, Western Union, Mobile Recharge and almost 300 other purchase methods. There is even a somewhat reliable PayPal support.
Paxful seems extremely convenient, but their reputation is not up to the par. Several threads on BitcoinTalk accuse them of being scammers, while the bulk of their TrustPilot 4.0 score seems to be made by the bot accounts stating the same things over and over.
At the end of the day, the risk is just too much. If Paxful sticks around and manages to grow decent reputation in the community — it will become one of the best ways of trading Bitcoin. But as of right now — do not recommend.
Keep in mind, that these are just recommendations based on personal experience and common sense. It is highly unlikely that a seller at LocalBitcoins will rob you, or that your trading service will sell your data to the government. However, such risk exists and if there are ways to avoid it — you absolutely should do so.
How you should buy Bitcoin
Now let’s talk about actually safe ways for buying Bitcoin. There are four of them:
- Buying BTC at the exchange;
- Buying BTC at the marketplace;
- Buying BTC at the crypto ATM;
- Buying BTC at your wallet provider.
All these methods are still risky — after all, it’s still about cryptocurrency. But they manage to minimize that risk and provide you with a better and more consistent experience.
Buy Bitcoin at exchanges
From the first look, cryptocurrency exchanges work the same way fiat exchanges do. And this might be a problem, since financial exchanges are regulated and protected by the governments, while cryptocurrency exchanges are in the grey area.
Essentially, a cryptocurrency exchange has a single wallet for each cryptocurrency it trades. Whenever you transfer your coins to the exchange, they are being pooled to this wallet. The only reason you cannot access someone else’s coins is because of the exchange interface that handles the separation.
This approach is extremely problematic from the financial security point of view.
- Single high-value wallets are priority targets. Hacking a cryptocurrency wallet takes time, precision, social engineering and many other resources. And since the reward should be worth the risk, hackers generally aim for the high-value targets — like exchanges.
- You do not own the coins on the exchange. You are only “given access” to them. If something goes wrong, you can just kiss them goodbye. Some exchanges, like Coincheck, provide compensation. But it takes time and you may not recover all of your assets.
- Your privacy depends on the exchange’s honesty. If you are using the exchange, it becomes your largest privacy vulnerability. It knows your BTC wallet, it knows your credit card number, it has your personal data. Basically, you are betting that the owner and employees of the exchange are decent people and won’t leak your data anywhere. For example, Coinbase actively cooperates with IRS and transfers customer data to the government agency at first notice.
At the end of the day, though, the exchanges are one of the best solutions when it comes to buying Bitcoin. Especially if you adhere to these rules:
- Use only trusted, verified exchanges. While the newer emerging exchange may offer better rates, reputation is key when it comes to security. There is a reason Coinbase Pro, Binance and Bitfinex are in the Top 10 exchanges — they’ve been around for awhile and they did not squander the trust of their customers.
- Get your money out of the exchange ASAP. Keeping money on the exchange is unnecessary risk. You should move your Bitcoin and remaining USD out of it the second you are done trading. Even keeping it on a dedicated online wallet is a better solution.
- Bounce your purchases through a few wallets. Do not withdraw your Bitcoin directly to your paper, hardware or software wallets — they can be used to identify you. Instead, send it through one or two online wallets registered at different companies in order to cover up your trail.
Why you have to bounce the purchases through different wallets
Bitcoin transactions are public — and while they are anonymous, they can be traced. So if you buy 1 Bitcoin and then use it to provide yourself with a lifetime Pornhub subscription, people will be able to find out. And some might even try to shame you. So if you want to keep your identity safe, you need to make the trail harder to follow. And the best way to do this is an online wallet.
In order to keep operational costs sane, online Bitcoin wallets slightly cheat the system. They do not give each user their own wallet, instead they use a single wallet to store the coins that belong to all customers. The actual separation happens inside the wallet’s interface.
And this makes online wallets perfect for covering up the trails.
- Get your bitcoins at the exchange.
- Get them into your online wallet.
- Move them to your hardware wallet.
And BOOM — you are all safe to go and enjoy your prize! The whole adage sounds like something straight out of the crime movie. But you should still adhere to those rules if you want to be safe. Besides, it gives you a chance to feel a bit like Jason Bourne or Christian Wolff, so try to savor the feeling!
Buy Bitcoin at marketplaces
Marketplaces do not trade in cryptocurrencies themselves. Instead, they serve as meeting places for buyers and sellers, keep track of the traders’ records and sometimes receive a cut from the sales.
This might sound like a direct purchase of Bitcoin from another user — something we said you should not do. However, with online marketplaces you do not have to meet the seller face-to-face. Instead, you will receive their card or wired account number, send the money and await for your Bitcoins to arrive.
Still, marketplaces are not a perfect solution and have possible risks.
- Your seller may scam you. Since you are no longer meeting face-to-face, you will have to trust your seller to fulfill their part of deal and not just disappear on you.
- You may get worse rates. Private users do not have the luxury of updating their rates every minute. So most of them trade at slightly higher rates, in order to compensate for the market volatility.
There is nothing you can do with the latter. But you can and should take some precautions against scammers.
- Trade only on reputable marketplaces. The quality of the marketplace is commonly determined by the people that run it and people that trade there. So when picking a marketplace to trade, make sure that it is run by honest (or at least professional) people. And when in doubt — default to BitCoinTalk marketplace, it is one of the best.
- Check out the trader’s rating. If they are new or have a lot of negative reviews — you should find someone else. Especially if they offer better rates than the market or any other unrealistic features. Most marketplaces provide this feature by default.
- When in doubt — use mediators. If you are having doubts when trading with someone — offer them to use the Escrow mediator services. If they refuse — don’t bother with them and find a different seller.
- Use a dummy wallet for the purchase. Just like in the previous case, do not use your actual Bitcoin wallet. Create a dummy online wallet and use it as an intermediary for your coins.
This probably sounds like too much work, but it is necessary to have a positive experience. All Bitcoin transactions are final and non-reversible, so double- and triple-check everything. Otherwise, you might get royally screwed.
Buy Bitcoin at the crypto ATM
Cryptocurrency ATMs are a reliable and secure way to purchase BTC. Basically, they represent corporate Bitcoin vendors that embrace anonymity and allow their customers a direct way of buying crypto without unnecessary human interaction.
However, crypto ATMs can still be risky.
- You have no idea whether or not the ATM is legit. Maybe it will just swallow your money and you will never see it again.
- They may be a privacy breach. If you are using banking cards, you are essentially providing all your personal and banking information to the company that runs the ATM.
That’s why it’s a good idea to follow some ground rules:
- Do your research. Check out if the ATM has been there for long, see if you can get some reviews about it.
- Always pay in cash. Simple as that.
- Make sure that you are not regularly buying Bitcoins at the ATM. It is an established facility and people will take interest in it.
Crypto ATMs have other, less global uses — for example, a bar in Singapore, that only accepts crypto, set one ATM up to serve the customers that only have fiat money. But if you don’t want to go there — you can find the nearest crypto ATMs with CoinATMRadar.
Buy Bitcoin at your online wallet provider
Most online wallet providers offer an additional service that allows you to buy or sell Bitcoin immediately.
This is arguably the safest way to buy Bitcoin. Your online wallet provider already has some of your personal and financial information, so you won’t be much more compromised — and all other risks are taken care of by the wallet provider.
For example, at Bonpay you can buy Bitcoin with bank account wire transfer. Here’s how it works:
- Click Buy Bitcoin in Your Account.
- Choose USD bank transfer in the Buy Bitcoin with field. Other payment methods will be available soon.
- Enter the transfer amount in USD and confirm that you comply with our ToS.
- Click Next. See the requisites for a wired transfer.
- Make a wired transfer to these requisites in your online banking. Alternatively, copy them down to make a payment later.
- Click Confirm.
When we receive your transfer (usually takes 1-3 business days), we will hold the money for 30 days so that you may instantly convert your fiat to BTC at the best possible rates.
What is the safest way to buy Bitcoin
There is no safest way of buying Bitcoin. Different methods offer different risks and most of the time you have to compromise.
- If you are looking to get into cryptocurrency trading — go the exchange route. You will learn the basic skills during the initial purchase and will be able to decide if it is for you.
- If you want to retain your privacy as much as possible and willing to sacrifice on the rates — use the marketplaces. It’s the safest way to buy Bitcoin if you are concerned about anonymity.
- If you just want to buy Bitcoin — go through your online wallet provider. It requires the least amount of clicks and technical knowledge.
Either way, we hope that now you won’t get involved with the outright dangerous schemes. As for the rest, just remain reasonable, do not rush into things and everything will be fine.