How and where to buy bitcoin in the UK

Today, I will explain everything you need to know about where and how to buy bitcoin in the UK.

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 bitcoin 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.

How to buy bitcoin

The first stage of buying bitcoins is to get a bitcoin 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 bitcoin 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 bitcoin. 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 bitcoin buyers and sellers in your area. Buy your first bitcoins 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: where and how to buy bitcoins in the UK.