Heres one of the basic concepts to know before you can invest in cryptocurrency.


Bitcoin (CRYPTO:BTC) has surged in popularity, but it still seems like a mystery to many people. And one of the biggest questions beginners need to answer before investing in Bitcoin is How do you buy it? After all, its typically not as easy as opening your brokerage account and placing a stock trade. 

Weve got you covered. In this Fool Live video clip, recorded on March 18, senior analyst John Rotonti and Motley Fool Deutschland lead analyst Bernd Schmid discuss the basics of adding Bitcoin to your investment strategy. 

John Rotonti: So how do I buy Bitcoin? What do I need to do?

Bernd Schmid: Yeah, thats a great question and also, there are many different answers. I think the easiest way I would do it, I would really like to own the Bitcoin itself, you can go to a so-called exchange. Its not like a New York Stock Exchange but it functions a bit similarly. Essentially, you can create an account with them. Coinbase would be one of them, probably many people have heard it, or There are many exchanges. Some are more trustworthy, some are less. I would always go for the bigger ones. So you go to Coinbase or Kraken. You create an account there and then you can send your dollars there, your field currency. You can send it there via credit card or bank wire. Then essentially, like if you buy a stock, you say, I want to buy this many Bitcoin, and click Buy and then there we go. They will add it to your Coinbase wallet or account, so to say.

Rotonti: O.K., so that was my next question. What is a Bitcoin wallet? Its just your account at the exchange?

Schmid: In this case, yeah. So a Bitcoin wallet, lets start with the basic. Its essentially your access to your Bitcoin, your money. How it actually works is you can think of it as a bank account. Its never a perfect analogy if you try to compare it with a, lets call it legacy financial system, but for the sake of understanding, I think it works well. You think of it that you have a bank account and then you have a bank account number and you have a personal identification number with which you can verify that you can access this bank account. The wallet is essentially a device, it can be a software running on your computer, on your mobile phone, or theres also hardware wallets, its like USB sticks. These sticks, they contain your bank account number. Its called public address in the Bitcoin jargon, and your personal identification number, which only you should know. This is the private key essentially. The wallet has these, mostly two things. So if you have the wallet, you know your public number, your public key and your private key, your bank account number, and your personal identification number and via which you can access essentially the Bitcoin, which are stored under this address.

Rotonti: Yeah, and you dont want to forget your password. You dont want to forget your private ID, right?

Schmid: No. Thats exactly the thing. If you lose your private key, your Bitcoins are lost, thats what everybody says. There are some security mechanisms. Thats a whole topic we could discuss for 45 minutes and Im probably not the best person to do it. There are different ways to secure these things, but its not like with the bank. Theres a big difference. You cannot call a Bitcoin and say, Hey, I lost my key. Please help me to restore my Bitcoin.

Rotonti: Right.

Schmid: I want to add one thing. Many people consider this important is if you buy it via these exchanges, Kraken or Coinbase, its actually not your wallet. But how they generally work is they have one big wallet where all the Bitcoin are stored with the ones you buy, the ones I buy, everybody who buys them on Coinbase, and theyre stored in one wallet. Its essentially the Coinbase wallet. Coinbase makes internally sure via their own database that you have access to the amount of Bitcoins youve ever bought. You dont really own them if you leave them on Coinbase. Thats why many people argue and I think Id do the same. You can buy or download your own wallet and always transfer it from Kraken or Coinbase to your own wallet so you really own them yourself.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Bernd Schmid has no position in any of the stocks mentioned. John Rotonti has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.


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