It is hard to find a person who has not heard of Bitcoin since it became world-famous virtually overnight for reaching a price of $20,000 per coin in 2017. While the cost has come down considerably since that high point, there are still cryptocurrency gurus hailing it as the currency of the future. For those looking to jump into the exciting and potentially profitable world of cryptocurrency, it can be challenging to find out where and how to buy Bitcoin.
Fortunately, it is now possible to buy Bitcoin with PayPal, which simplifies the choice of how to go about acquiring the coin. However, before delving into how to use PayPal to buy Bitcoin, it is essential to have some background on what Bitcoin is and how it works.
What is Bitcoin?
Bitcoin is a digital currency created by an anonymous person using the pseudonym Satoshi Nakamoto in 2009. Unlike government-issued currencies, Bitcoin is a decentralized currency, meaning no one institution controls it. Instead, it relies on a network of high-powered computers to distribute it, record transactions, and store a person's coins. This is done through a digital ledger system referred to as Blockchain technology.
Blockchain is a ledger system built on a peer-to-peer network that is openly shared among a myriad of users to create a permanent, unchangeable list of transactions. Each transaction is time stamped and linked to the preceding transaction, with each set of transactions becoming a "new block" in the chain of operations. Transactions can only be added when a consensus is reached among system participants, and once the information is added, it can never be changed or erased.
Because different computers verify each transaction, there is no need for a centralized administrator. Essentially, each machine is the administrator, and the authority lies in each computer, confirming that the information within the transaction is true and accurate. Blockchain can be used beyond Bitcoin to create an auditable ledger of exchanged data, such as the blockchain-based supply chain created by Walmart.
Bitcoin is one of the first types of cryptocurrency that facilitates instant payments using P2P technology. A person's bitcoin balance is stored using two sets of a long string of alphanumeric characters called a "key," which are linked to the blockchain's encryption algorithm that makes the transaction permanent and unchangeable. The first key, which is a public key, is public information that allows others to send Bitcoins to the key owner. The second key is private and is meant to be kept as secret as an ATM PIN, used only by the owner to authorize Bitcoin transactions.
Bitcoin itself, and any other cryptocurrency coins a person may own, are stored in what is commonly referred to as a "wallet." A Bitcoin wallet is a physical device or digital medium that stores the private keys used to access a specific Bitcoin address. There are several kinds of wallets with varying levels of security, but all of them can be categorized as either hardware or software wallets.
Hardware wallets are the safest option for storing Bitcoin. A hardware wallet is a physical device that secures a private key by encrypting all the information stored on it. These devices can be disconnected from a computer that has internet access, which prevents anyone from being able to hack into them.
Software wallets are any wallet that does not exist on a standalone physical device, most often a person's computer or mobile device. These wallets use encryption to protect private keys in addition to other security measures, such as two-factor authentication. While these can be considered secure if developed by a reputable programmer or are a peer-reviewed, open-source program, they will never be as secure as a hardware wallet.
How Bitcoin Works
Taking part in the Bitcoin network requires a large amount of computer processing power and increases as the chains become more complex. Independent entities, whether they be a singular person or a company, own the computing power responsible for facilitating Bitcoin transactions. These entities, or "miners," are paid in Bitcoin to participate in the network and are incentivized to mine by the potential to uncover another Bitcoin.
New Bitcoins are released periodically, though the rate at which they are released has been declining steadily for some time. The maximum number of Bitcoins to be mined is 21 million, with only about 3 million still left uncovered. Unlike a centralized banking system, Bitcoin (and most other cryptocurrencies) set the release rate ahead of time through an algorithm. Centralized banks release currency according to growth to facilitate market price stability, whereas the steady release of Bitcoin makes its price highly volatile. This volatility is responsible for the price hike to $20,000 it experienced in 2017, and the subsequent dip it took to less than $3,300 the following year.
Bitcoin mining is the process by which new Bitcoin transactions to the ledge of existing transactions. The process is done using high-powered computers that solve math problems so complex that they are incapable of being done by even a moderately powered computer, never mind by hand. Those who use their high-powered computers to solve these complex math problems care called "miners," and they are the critical component in securing the network and producing new bitcoins.
While Bitcoin transactions are not entirely anonymous, they are much more private than traditional financial transactions, such as with a credit or debit card. Neither public nor private keys have any personal information tied to them, adding an extra layer of anonymity to transactions. However, public keys can be traced back to an IP address through network analysis.
Buying Bitcoin on an Exchange
Unfortunately, the average person cannot mine Bitcoin for themselves. The process takes such incredible computing power that it has required the development of specialized equipment tailored for that purpose. The setups necessary to house this equipment are similar to a warehouse, with several rows of shelving units filled with machines, exhaust fans, and air conditioners to keep the room's ambient temperature from becoming too hot.
However, there are plenty of other ways that a person can purchase Bitcoin, and it has only been getting more manageable over the last several years. Many people use popular exchanges like Binance and Coinbase to buy bitcoin, and there are several benefits to doing so. They often allow users to purchase other coins besides bitcoin and can sometimes be easy for beginners to navigate.
Unfortunately, buying bitcoin through these exchanges can be somewhat complicated. The sign-up process for these exchanges is extensive, often requiring users to jump through hoops during the verification process, which can make a person wary or lose interest in buying bitcoin through that exchange. Users typically need to deposit fiat currency into their exchange account before making a purchase. Purchasing bitcoin with fiat currency can take several minutes to complete, during which time the price can fluctuate drastically, affecting the amount of bitcoin a person receives.
Using PayPal to Buy Bitcoin
The average investor does not want to go through the complicated process of purchasing cryptocurrency through one of these exchanges. The idea of putting so much personal information on the internet through an unfamiliar exchange can be unnerving. Instead, they would prefer to buy bitcoin through a more recognizable and trustworthy interface like PayPal.
Unfortunately, there is no direct way to buy bitcoin with PayPal. PayPal has taken a stance against Bitcoin and other cryptocurrencies, in part because they are in direct competition with PayPal. Bitcoin does not allow for chargebacks, which is a feature built into PayPal that enables a person to demand the return of the money they spent and receive it almost instantly.
Additionally, bitcoin wallets are hacked frequently, making PayPal wary of getting on board since it is not possible to recover stolen bitcoin.
However, there are a few ways to work around PayPal's reluctance to facilitate buying bitcoin. There are a few quality markets that allow a person to purchase it quickly and easily, which are explained and reviewed below.
xCoins.io has been around quite a while, especially compared to some other methods of buying bitcoin. It was founded in 2016 and is based out of Santa Monica, CA. It features a unique business model, allowing users to lend bitcoins with the option of buying them outright. xCoins.io is an incredibly secure platform, and users can even use their credit cards to pay through PayPal.
How to Get Bitcoin on xCoins.io using PayPal
To get bitcoin on xCoins.io using PayPal, users will need to sign up for an account. The process takes only a few minutes but is only available to select countries outside of the United States. After a comparatively short verification process, users can start trading bitcoin.
To begin, users will set an amount of bitcoin they want and make a payment. They can use PayPal for this part of the transaction, and PayPal even allows a person to use their credit or debit card in this process. Once the user has made a payment, they will receive their bitcoin instantly from an approved lender.
How Bitcoin Lending Works
xCoins.io, lenders can loan out a set amount of their personal bitcoin to users on the exchange. When borrowers set an amount of bitcoin that they want and make a payment, the funds are transferred to the lender in exchange for their bitcoin. Once the borrower receives their bitcoin, they can use it however they want. If at any point, the person decides they no longer need their bitcoin, they can return it, receiving back the fiat currency which they had deposited for their bitcoin.
Bitcoin exchange rates change rapidly, so users should familiarize themselves with the return policy on xCoins.io before buying bitcoin. All loan amounts are measured in US Dollars, and the equivalent dollar amount of bitcoin to what was lent is required when making a return.
For example, if a person bought $1,000 of bitcoin when one coin was worth $10,000, then they received .1 Bitcoin. If Bitcoin is now worth $20,000, then the person will need to return .05 Bitcoin, which is profitable for the borrower. Conversely, if a Bitcoin is now worth $5,000, then the borrower will need to return .2 Bitcoin. Of course, most borrowers wait until the exchange rate is favorable before returning any coins.
Many exchanges charge its users some hefty fees, but xCoins.io works towards limiting its fee schedule so users can trade freely without incurring a lot of extra costs. Users are charged interest on their loans. This interest charge is done as a one-time payment that is lumped together with the loan security deposit. Borrowers will pay a loan origination fee and any bank processing or transfer fees.
Another more established cryptocurrency market is Paxful. Paxful, founded in 2015 and based in Tallinn, Estonia, allows its users to purchase bitcoin and many other cryptocurrencies with PayPal via its P2P payment logistics platform. The company was founded in 2015 and is based in the United States. The site is relatively user-friendly and offers a wide range of ways to make payments. These include credit or debit card, PayPal, Skrill, Money Gram, or bank transfer.
Setting up an Account
To buy bitcoin with PayPal on Paxful, users can head to the Paxful site and state how much money they will spend or how much bitcoin they need. Then, they will be invited to make an account, which is a reasonably straightforward process. Once that is done, buyers can select their preferred payment method and browse a list of bitcoin sellers.
Choosing a Seller
The best way to select a seller is to look for those who list PayPal as a preferred payment method, check their minimum and maximum order amounts, and their prices. Users must also check a seller's feedback information, which will tell show their account history and the satisfaction of those who purchased coins from them.
Purchasing Bitcoin with PayPal
Once a seller has been selected, users can begin the trade by clicking the "Buy" button. Clicking this button will prompt them to input how much bitcoin they would like to buy. Once the purchasing process begins, a chat window will appear, inviting them to communicate with the seller directly about the sale.
Once the sale is finalized, users will click the "Mark as Paid" button and wait for the Bitcoin to appear in their Paxful wallet. Once the Bitcoin is transferred, users can do whatever they would like with their new coins.
While the Paxful site does not take any fees from the buyer while they are purchasing coins, buyers are subject to fees set by the seller. The fee a seller charges depends on the payment method and can vary greatly. Those selling cryptocurrency on Paxful are charged a 1% fee. They are also charged a fee for mining once bitcoin is transferred from the seller's wallet to the buyer's wallet.
Because Paxful doesn't charge buyers any fees, it is considered a low-cost option for purchasing bitcoin. However, because sellers can charge as much as they want for fees, how affordable it is compared to other sites is variable. Additionally, the large number of purchasing options that are supported is a breeding ground for scammers who are trying to defraud honest buyers.
VirWox is an Austrian-based company that is not technically a cryptocurrency exchange. It has existed since before Bitcoin as a way to trade Second Life Linden, which is a digital currency used in a virtual world called Second Life. Technically, it is only possible to buy bitcoin using Linden dollars, but users can buy Linden dollars using PayPal.
How to Buy Bitcoin Using PayPal
To buy bitcoin using VirWox, a person must first be sure there are funds available in their PayPal account, or that it is synced with a valid credit or debit card. After the PayPal account is funded, they must then register for an account on VirWox. After filling out personal details and receiving a temporary password, users must change their password under the "change settings" menu.
Once their account is set up correctly, users will navigate to the "Deposit" page and deposit fiat currency into the VirWox exchange using PayPal as the payment method. From here, users can purchase Second Life Lindens using their fiat currency. After SLL is received, users can then buy bitcoins with their Second Life Linden balance.
Buying bitcoin on VirWox comes with its own fee structure that is different for each method of payment. With PayPal, users can expect to pay a small fee of around fifty cents plus an additional 3.4% when making a deposit. For withdrawals, VirWox charges a handling fee of $1 plus a 2% when using PayPal.
LocalBitcoins has been referred to among cryptocurrency enthusiasts as the "eBay of Bitcoin." This nickname comes from its unique structure, as it is a marketplace that simply lists people who are willing to sell bitcoin and the payment methods that they accept. LocalBitcoins forces users to interact with other real live people to complete a sale, but they have built in several protective measures to help prevent scamming and fraud.
How to Buy Bitcoin Using PayPal
To buy bitcoin using PayPal through LocalBitcoins, individuals will need to visit their site, enter the amount of money (and of what currency) they would like to spend into the provided form, select their country, then choose "PayPal." Once the form is filled out, they can click the "search" button. They can also click "PayPal" to see all the sellers who accept PayPal as a method of payment.
The list provided will be of all the sellers selling bitcoin, each with its own set price. Buyers must verify the credibility of the seller by checking for the feedback they have received from previous sales and the following information:
- Trade volume, which is the number of bitcoins they have to trade.
- The number of confirmed trades, which is how many times they have traded on this exchange.
- Trust number, which shows the number of people who find the seller trustworthy.
- Blocks, which is the number of people who have blocked the seller after a trade.
- Verifications, which includes providing valid government-issued identification.
After choosing a trustworthy seller, buyers can specify the amount of bitcoin they're looking to buy. They will be taken to a payment page to make a payment, after which they must mark the payment complete. Once the seller verifies the payment, the bitcoin is transferred, and the transaction is complete.
While LocalBitcoins shows a buyer a list of sellers from which they can choose, sellers have the ability to decline selling to anyone they want. Many serious sellers have strict requirements, including a minimum account age, a minimum number of sales, or a minimum number of LocalBitcoins users who trust them.
LocalBitcoins users who buy, sell or trade bitcoin can do so without having to pay any fees. However, LocalBitcoins allows sellers to place advertisements to boost their chances of being seen in the results of a buyer's search. Those who place advertisements have to pay a 1% fee for every trade they complete.
Bitcoin's incredible spike in popularity has stirred up interest in purchasing it from even the most unlikely of individuals. The allure of making a massive profit off of a digital commodity in a volatile market attracts big investors and small-time hopefuls. Its promise of overcoming the corruption behind the modern centralized banking industry inspires digital revolutionaries looking to be on the ground floor of a significant societal shift.
No matter the reason for a person's interest in Bitcoin, the bottom line is that cryptocurrency exchanges need to adapt to the demands of the general public. Many exchanges have already begun to rise to the occasion, allowing users to purchase bitcoin through their PayPal accounts, simplifying the process and making cryptocurrency more accessible.