Your bitcoin journey
At the beginning of any journey into the world of bitcoin, one is faced with a daunting amount of information about this new technology and the economy forming around it. The team at Abra is in the unique position of being one of the first points of human contact on this journey, and so we are able to help many of our customers answer their beginner questions about bitcoin.
One question that often comes up is the question about what options are available for buying bitcoin. Abra is one of many options that are out there, so when should someone use Abra instead of the others? To answer this question, it is worth reviewing the options and seeing where Abra fits in.
Where to buy bitcoin
Bitcoin exchanges are companies that create a live market for buying and selling bitcoin. Customers will deposit bitcoin or fiat currency into their accounts and then place different order types that are recorded on an order book managed by the exchange. Some exchange offer simple limit orders, while others offer advanced order types such as stop loss orders and margin trading.
Having an account with a bitcoin exchange is like having a seat on the NYSE. Bitcoin exchanges are great for day traders and institutional traders who trade bitcoin full time. They often require an advanced knowledge of financial markets to use correctly.
Bitcoin brokers are individuals and companies that take buy and sell orders and execute those orders on an exchange on behalf of their customers. The broker will often receive a fee for their service and the customer will receive the bitcoin they placed an order for in exchange.
If having an account at a bitcoin exchange is like having a seat at the NYSE, then doing business with a bitcoin broker is like having an e*Trade or Charles Schwab account. The advantage of using a broker is simplicity. The customer asks for a quote, places an order, and receives what they asked for, and the broker removes the complexity of dealing with an exchange.
Bitcoin OTC markets are “off-the-books” decentralized exchanges that occur through face-to-face meetings and remote trades. In a face-to-face exchange, the buyer and seller will meet at a designated time and place and exchange cash for bitcoin at an agreed-upon rate. In remote exchanges, the trade is coordinated by telephone, email, or another remote communication method. After a price is agreed upon between buyer and seller, the buyer will send an electronic funds transfer to the seller and the seller will send the bitcoin to the buyer’s bitcoin address.
OTC markets are most useful for either buying bitcoin with cash or purchasing large blocks of bitcoin at a guaranteed price. These trades protect against “slippage” that can occur when purchasing large amounts of bitcoin on an exchange.
Abra is a bitcoin-based digital wallet app that lives on your smartphone. It is the easiest way to buy, sell, store, send and receive bitcoin from anywhere in the world. It’s similar to a brokerage, but it’s also a wallet. Abra supports bitcoin as well as over 50 global currencies which means you can convert in and out of bitcoin or any available currency, easily. You can also send bitcoin to anyone who has a bitcoin or an Abra wallet and receive bitcoin or money.
Aside from being easy to use, fast, and flexible, one of the advantages of Abra is that the company uses peer-to-peer technology, so your money goes directly from you to your recipient with no middleman, allowing for your transactions to be very quick and inexpensive.
How to pay for bitcoin
Every bitcoin buying service supports at least one method of payment for purchasing bitcoin, and each payment method comes with advantages and disadvantages. These payment methods are often chosen with these trade-offs in mind so that the experience for both buyer and seller is optimized for the smoothest possible trade.
Most commonly used by OTC traders, but some exchanges and brokerages also offer cash deposit funding methods.
Advantages: no chargeback risk; potentially faster and more private transactions.
Disadvantages: depends on local liquidity i.e. cash-in locations where the buyer is located; transaction size can be limited due to security, liquidity, or regulatory issues; fees charged can be higher to offset the operational costs of dealing in cash.
Widely used by OTC traders, exchanges, and brokerages.
Advantages: faster settlement time than ACH for domestic transfers; better for large transactions.
Disadvantages: unfamiliar or poor user experience; can be expensive in some cases; international settlement can take a long time and involve additional foreign exchange costs and counterparty risk.
Widely used by exchanges and brokerages.
Advantages: fast and cheap; better for smaller transactions.
Disadvantages: unfamiliar user experience; long settlement period; chargeback risk leads to low transaction limits and more stringent KYC requirements.
Accepted by very few exchanges and some brokerages.
Advantages: familiar user experience; ubiquitous adoption by consumers; fast transactions.
Disadvantages: due to the insecurity of credit cards, chargeback risk is a big problem; due to chargeback risk, fees for using credit cards to buy bitcoin can be high.
How to store
When you think about buying bitcoin, you will also need to think about a place to store them. Bitcoin is usually stored in “wallets”. Bitcoin wallets use special codes called private keys to authorize transactions. Anyone who has the private key to a bitcoin wallet can authorize transfers to other wallets. Hence, it is very important to keep the private keys to your wallet safe and secure.
Bitcoin wallets can be offline (also known as cold storage) or digital wallets. Additionally, they can be custodial or non-custodial. When using a custodial wallet, you are entrusting a third party to hold your private key. When using a non-custodial wallet, you are the only one to have the key to your wallet.
Here are some examples of the most common types of bitcoin wallets:
|Offline||Cold storage||Hardware wallets
Bitcoin buying services can support one or more wallets. When you buy bitcoin with the Abra app, you will automatically create a non-custodial mobile bitcoin wallet, which means that only you have the key to your wallet, so you are in control of your funds at all times.