How and where to buy bitcoins in the UK

 

Buying bitcoin © Getty Images
There are all sorts of ways to buy bitcoins

How do you buy bitcoins?

Today, I will explain everything you need to know.

Let me get a disclaimer out of the way first. While I am wildly bullish about the potential of bitcoin and its related technologies – so much so that I wrote a book on the subject – when it comes to the price, I am no permabull.

When I wrote Bitcoin: the Future of Money? in the spring of 2014, for example, I was bearish – and I was right to be. The price was around $600, having recently been as high as $1,240. It would eventually sink below $200.

In the latter part of 2015 I turned bullish and have written many pieces since advocating it as buy. At the beginning of this year, with bitcoin around $1,000, one of my predictions was that a bitcoin would be worth more than an ounce of gold. Looks obvious now, of course, things always do in the rearview mirror, but it didn’t at the time.

But with the price now at around $2,500, I’m ambivalent. Put simply, I feel it might have got a bit ahead of itself – as is its wont. I can see plenty of reasons why it could easily go to $10,000 or even higher, but I can just as easily see it falling 50%. A lot of its potential is now priced in, when it wasn’t below $500.

In short, today’s missive is not a screaming buy recommendation. It’s a “how to”, nothing more.

The many ways of speculating on the bitcoin price

Some people buy gold to own gold. Others don’t actually want the gold, they just want exposure to the gold price. Rather than buy sovereigns or bars, they buy exchange-traded funds (ETFs), futures or spreadbets.

Bitcoin is the same. You can buy bitcoins, or you can buy some kind of derivative that gives you exposure to the bitcoin price. Derivatives have all sorts of flaws and open up all sorts of risks you may not wish to take, but they have a purpose.

And I should stress: one of the main points of bitcoin is to create a whole new financial system. By using derivatives you are kind of defeating the object. Nevertheless, we’ll start with the derivatives.

First, there are various spreadbetting companies by which you can place bets on bitcoin. IG is one example. IG is a company about which I have, let’s say, mixed feelings, but it does give you immediate, easy access to a range of markets. The costs can be high, the spreads can be wide, the risks of spreadbetting are manifold, but the access is instant. Note: do not even think about spreadbetting bitcoin if you are a novice. You can easily lose a lot of money.

You’d think it would be easy to create a bitcoin ETF, but it has proved, for a range of reasons, surprisingly difficult. They are slowly starting to emerge, however. Swedish company, XBT Provider now offers a note which tracks the bitcoin price which you can buy through broker Hargreaves Lansdown – XBT AB Bitcoin Tracker One (BIT-XBT). I expect it will soon be available via other brokers, if it isn’t already.

For those who have a broker which deals with over-the-counter markets in the US, there is also a more established bitcoin fund trading on the US OTC exchanges called the Bitcoin Investment Trust (US: GBTC). But it trades to a considerable premium to its net asset value.

Right that’s the derivatives out of the way. Now let’s tackle bitcoin itself.

Buying your first bitcoins

The first stage of owning bitcoins is to get a wallet. This is equivalent to your email address (many people have more than one). You have to decide where to keep that wallet. You can use a provider – simplest – that’s equivalent to using webmail, say, you can store the wallet on your own computer or, safest of all, on a hard drive which is not connected to the net.

If you’re a novice, it’s probably best, while you educate yourself, to use a provider. Once you get the hang of things you can look towards storing your bitcoins elsewhere.

There are hundreds of different places to register for a wallet. Perhaps the simplest place to start is with blockchain.info or coinbase.com. Once you have a wallet, make a note of the address.

Next, you’ve got to buy your bitcoins. There are all sorts of ways to do this. You could go to a formal exchange or you could go down the peer-to-peer route.

When you’re starting out, I’d recommend the peer-to-peer route. LocalBitcoins puts you touch with buyers and sellers in your area. Buy your first coins with cash, and you will have to meet with the seller. It’s likely you’ll get a free lesson out of it.

There’s also Bittylicious, where you can pay by bank transfer: you are given the bank details of the seller, you transfer the money to them, the bitcoins are transferred to you. It’s rough and ready but it works – though, again, small amounts only while you’re familiarising yourself with the tech. BitBargain and Coinfloor are other peer-to-peer dealers, though I stress I haven’t used them. Bitbargain has a nice tutorial video on their site, which is worth watching.

Another option is to use a bitcoin ATM. Just type bitcoin ATM into Google Maps to find the closest one to you, or visit Coin ATM Radar. There are now 72 in the UK. They’re all over the shop in London, particularly around Shoreditch (no surprise) and Dalston, but also as far afield as Croydon and Ilford. Birmingham, Bristol, Brighton, Cardiff, Edinburgh, Leeds, Glasgow and Manchester all have bitcoin ATMs now. Deposit cash, put in your wallet address, receive coins. Believe it or not, I’ve never actually used one.

There are also the exchanges. These are more formal operations, and more geared towards larger purchases (though you can make small purchases too). Some accept credit and debit cards; others only bank transfers. Opening an account tends to be rather onerous in terms of paperwork, such is the bureaucratic world in which we live, but that is a journey you must travel.

Exchanges serving the UK include Bitstamp, Coinfloor, CoinCorner, Coinbase, Kraken and Safello. A problem for UK exchanges has been trying to open a bank account and this regulatory hurdle has left the UK behind the curve as far as locals being able to buy bitcoins is concerned. You’d think we’d be ahead of it, given all the noise George Osborne made about it a few years back when he was chancellor, but there you go. Many exchanges have had to use Eastern Bloc banks instead which has slowed things down.

Derivative, exchange or peer-to-peer – now you know: how and where to buy bitcoins in the UK.

  • I’ve written about bitcoin too, mostly as a way of trying to understand the cryptocurrency ecosystem myself.

    At the moment, the price is following a self-fulfilling prophecy. As more people want to speculate, supply and demand laws raise the price. Even without speculators, the price would probably be rising. Not because bitcoin is seen as a store of wealth. Not for the faint hearted, anyway. But because more and more transactions are being completed using bitcoin. Even if you but bitcoin in the morning, spend it in the afternoon and the seller cashes it in in the evening, chances are that during that time some other participants will be starting that same cycle, pushing up the price a fraction. There will be a tiny amount of friction loss to the market, but for the purposes of completing a transaction, it really doesn’t matter what the price of bitcoin is.

    I’ve kept away from owning them. The peer-to-peer transactions require a degree of trust beyond what I’m prepared to give. Exchange transactions are expensive – several percent in fees. Online accounts get hacked and knowing my luck, I’ll lose my wallet through disk crash or cloud server problems. I know many of these problems can happen with cash, shares etc but for me it’s the devil I know. And I’m not a speculator, so have no “need” for bitcoin.

    But thanks Dominic for an informative article. It’s as well that bitcoin is demystified as much as possible, and the more that people use it, the more integrated it will become.

    PS Etherium has been in even more demand than bitcoin.

  • Ian Hutchinson

    Thanks Dominic.
    I’d be interested to hear your opinion around spreads in future articles. For a decentralised system, I have found these to be surprisingly wide. Interestingly, when experimenting, I have found the bitcoin ATM in Hackney to offer better rates than bittylicious, which was not what I expected.

  • George Lee

    I have a question about storing the wallet. You say on a PC, which sounds risky, or on a hard drive not attached to the internet, but my experience is that separate hard drives seen to fail every 2 years.

    Would a USB stick suffice? If so, one could keep 2 or 3 USBs, as they are not likely to fail at the same time. But can they be updated after each
    transaction? There is little point in turning to a reserve if the original USB fails, only to discover it only shows the original transaction, which would
    probably be quite small. Hopefully one could copy the main USB to the PC whilst
    off-line, then update the others from the PC.

    The thing that puts me off Bitcoin is the risk of being hacked or forgetting the password, in which case everything is gone.

    Do you know anything about Coin 518? My wife put about £20,000 in it some time ago, didn’t receive a wallet, just a letter of confirmation, and when she needed to withdraw part of it, the company (or gang of crooks) had disappeared.

    • Ron Bentham

      Blimey! That must have been a slick sales pitch. No wonder you are wary. With the caveat that I am not a professional adviser, just a retired bloke who spent his career in IT and computers, I can tell you that you don’t have to trust any hard drive or usb stick or any piece of technology. Your “claim” to your own personal chunk of the Bitcoin blockchain is just a long string of numbers and letters – similar to the serial number on a banknote. You can “store” BTC in just the same way as cash – on paper. Same as if someone steals your cash, if someone steals your piece of paper with your key on it, then they have your BTC – assuming they know what it is and how to use it! But while the paper wallet (Google it) method is as secure and low tech as it gets, it’s not exactly convenient, except for long term holding with only occasional transactions. So there are “online wallets” in which you can choose to hold some or all of your BTC, and some (but not all) of these online wallets have the facility for you to make a note of your keys, so that you will have access to your BTC if the online wallet goes bust or is hacked or whatever. If you choose the right wallet and go about it the right way, no hacker or wallet company can ever get at your BTC as long as your private key is safe with you.

      Nothing can save you from forgetting your passwords or keys, just the same as forgetting where you buried your gold! That’s life! If you keep your key on your PC, in a private file, or a notepad, or in an email to yourself, then you are vulnerable to a hack, but this is much rarer than people make out – hackers rarely go for individual smallholders, unless you foolishly brag online and invite attention.

      There are also physical keys – known as hardware wallets. The most famous of these is Trezor, again, Google it. It costs $100 and looks like a key ring. When set up and used correctly, it means that your private keys never see the light of day except when you want. You can even lose the device or it can break, and you can still get your BTC back, as long as you secrete a list of 12 random words – a passphrase.

      As for Coin 518, I haven’t a clue, but I will Google it. Tell your wife not to buy any bridges. 😉

  • mwewe

    Best bitcoin debit card for UK users https://goo.gl/QtLgdL

  • Colin Bond

    I still don’t get it, you are buying something that exists in cyber space, i.e. something you cant touch or physically own. You are buying or selling a number that is dictated by some exchange that is unregulated and controlled by who? Can I go to my local supermarket, or buy a TV with ‘Bitcoins’? Who is taking the Euros or Dollars or Yuan and turning them into Cyber money ? If you cant stick it under your bed, or buy your next breakfast in the coming collapse, then stick it up… you know what. And if you think that Governments all around the world havnt clocked it, then think again. I think I would rather buy 100,000 toilet rolls (just in case) which would be more beneficial than £3000 of Bitcoin.

  • ron rivers

    Everyone wants ”crypto” – Digital money described as the ”new asset class”. Bitcoin’s value climb, overtaking that of gold, was most impressive but wi need a ”sound money” protection to run alongside? Every currency needs backing to instil confidence in its purchasing power. At one time it was ”GOLD”, now it’s the US Dollar. If ‘fiat’ or paper money is replaced by digital credits, what will then be money’s guarantor? Whether it’s world government running its own ”digital circus” or ”crypto” currencies taking hold, where’s the control mechanism and where’s the ”real money” yardstick? This matter could be best adjudged by an expert such as James Rickards, but I happen to know he is a big supporter of Gold and a strong advocate for the re-introduction of the old ”Gold Standard”. However the new digital money comes into being, I am confident
    a need for essential backing will see the yellow metal regain its regal status.

  • Chris Winslet

    Interesting article and comments below so thanks. I am just getting started and interested in a few Altcoins. One of the issues seem to be actually transferring your bitcoins back into GBP sterling. Lots of negative feedback about Coinbase not verifying peoples accounts or only able to do it by transfering to Euros and then to GBP via Swift payments. It just seems for what is essentially a technology driven system it is very clunky to actually trade. I can see myself being frustrated at not being able to conduct a trade and then ‘cashing’ in on any gains (if I am lucky enough) quickly enough. I am in and out of the UK a lot with work and not sure I completely trust the Peer method of buying and selling. Theoretically if you are left with your Altcoin gains in Bitcoin (as you have transferred) them you could lose the gains as Bitcoin price seems to be quite volatile. A long way of asking if anyone uses a good exchange/provider for transferring Bitcoin to GBP fiat?

  • John Milner

    I think you are saying absolutly right. Thanks for sharing your thoughts. Last week I have buy bitcoin with credit card from Paybis, They will providing me easy and smooth transaction with secure payment.

  • Peter Cooper

    Buying at the top of a bubble that has clearly burst is monumentally stupid!