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How to buy Bitcoin safely – everything you need to know

20–24 minutes to read

Buying Bitcoin isn’t like anything you’ve ‘invested’ in before. It’s a brave new world out there and in many ways, the old rule book has been torn up. For example, the way you buy Bitcoin is different. Now, you’ll need to sign up to an alternative platform and ensure your investment is protected from internet thieves. You’ll also need to consider your own security, because if you lose your details you may not get your investment back.

This post is for anyone thinking about or soon to buy Bitcoin and want to know where to start and how to do it safely. And as an added bonus, we even have a way to claim some free Bitcoin.

Buying Bitcoin in the UK

Bitcoin’s value has seen tremendous increases over the last year. But it was only a few years ago that the price crashed. How quickly we forget. In December 2017, Bitcoin was soaring to all-time highs.

Frenzied investors were piling in, encouraged by all the news coverage at the time. Bitcoin was going to the moon! Suddenly, a month later, Bitcoin’s high of $20,000 dropped dramatically. The fall continued until 2019 when Bitcoin hit rock bottom around $3,000.

As a result, investors who purchased £1,000 of Bitcoin at the high, would have seen the value of their coins reduced to a measly £150. That’s a hard loss to take for any investor.

It's been emotional

On the flip side, investors who held their nerve through the storm were rewarded in January 2021, when Bitcoin smashed through previous highs of $40,000. Again, this joy was short-lived as the price quickly plummeted back to around $30,000.

As you can see, the Bitcoin rollercoaster can be like Alton Towers on a bad day. If you do plan to invest, then prepare for volatility and of course, don’t risk what you can’t afford to lose.

If you want to learn more about long-term sustainable investing, then check out our Beginners Guide to Investing – How to bankroll your financial freedom.

Bitcoin price volatility

Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

What do I need to know when buying Bitcoin?

There are key, fundamental questions to ask when investing in Bitcoin:

  • What platform should I use?
  • Do I have to pay tax on Bitcoin profits?
  • What about security?
  • What happens to my Bitcoin if I die?

These are covered at the end of the article. In summary, any serious investor must know and plan for these questions, so make sure you take a few minutes to educate yourself. It could mean the difference between passing your legacy on or losing it forever to the taxman.

Five steps to buy Bitcoin in the UK

In this article, we are going to work through the five steps required to purchase your first Bitcoin. Each step is explained so that you can decide the way you wish to invest. It’s also worth pointing out that you can’t hold Bitcoin in an ISA. That means no tax-free advantages for this investment. This is covered further at the very end of the article. The steps are:

1. Choose a platform

2. Verify your identity

3. Do you need a hardware wallet?

4. Fund your account

5. Buy your cryptocurrency

Step one - choose a platform

Cryptocurrency, and in particular Bitcoin, has become a very popular investment over the last few years. As it is relatively new, at least in the mainstream, most traditional investing platforms do not offer this service. As a result, a swathe of new companies has sprung up offering their services to buy cryptocurrencies. So if you can’t use your traditional Hargreaves Lansdown investment account, how do you pick which platform to use?

Firstly, it’s important to understand the different types of platforms. They can be broken down into two main categories:

  • Cryptocurrency exchanges
  • Cryptocurrency trading platforms

The exchanges allow you to buy the actual cryptocurrency. This means the asset stays in your name or wallet.

On the other hand, trading platforms hold the asset for you while you buy and sell. Therefore, the asset (ie, crypto coins) stay in their name rather than yours.

With so many news stories about platforms and exchanges being hacked, most investors want the option to move their cryptocurrency to whichever platform they choose. Crucially, this can only be done on an exchange.

If you are looking to buy and hold for the long term and want to store your Bitcoin safely away from a platform, then you’ll need to use an exchange. On the other hand, if you plan to buy and sell Bitcoin frequently, then a platform may be easier.

Cryptocurrency exchanges UK

According to a recent FCA survey, the most popular Bitcoin and cryptocurrency trading platform in the UK is Coinbase.

In fact, Coinbase is one of the largest cryptocurrency exchanges in the world. It boasts 43 million users across 100 countries which have traded cryptocurrencies worth $455 Billion.

The next two most popular are Binance and Kraken. Binance is a larger platform and has lower fees than Coinbase. Also, Kraken does not provide a wallet service, so you’ll need a hardware wallet (see below) for long-term investments.

These are the largest platforms in the UK. While there are others out there, sticking to a large reputable exchange offers peace of mind to most people.

All the platforms mentioned have the following features:

  • Web platform & mobile app.
  • Cna purchase Bitcoin and many other cryptocurrencies.
  • Funding your account with a debit/credit card or bank transfer.

Ultimately, most of these exchanges work in a similar way. However, there are a few differences to consider which can be found in the table below.

PlatformDeposit FeesTrading Fees
CoinbaseFree Bank Transfers
1.49% for cards
0.5% spread plus the greater of 1.49% or

£2.99 trade between $50-$200,

£1.99 trade between $25-$50,

£1.49 trade between $10-$25,

£0.99 trade under $10

BinanceFree Bank Transfers
1.8% for cards
0.1%
KrakenFree Bank Transfers
3.7% for cards + 0.25 E
0.26% > $50,000
0.24% < $50,000

Get FREE Bitcoin with Coinbase

If you plan to use Coinbase then you can get some free Bitcoin using this link. To earn your free Bitcoin you’ll need to purchase $100 of any coin and in return, you’ll get a $10 bonus. That’s an instant 10% return!

Cryptocurrency trading platforms UK

The two most popular crypto trading platforms are eToro and Revolut. Both offer the ability to buy and sell Bitcoin or other cryptocurrencies with ease.

Both trading platforms are simple to sign up for and allow you to buy and sell cryptocurrencies from your mobile.

If you plan to buy and sell assets quickly and don’t plan on holding, then a trading platform could be better for you.

However, if you plan to buy and hold your Bitcoin, a trading platform won’t give you the option to move your crypto into an offline wallet. You may want to do this for added security.

Fundamentally, the main difference between the two is that Revolut is a bank as well as a trading platform. A lot of people use Revolut as a travel card due to the low fees. eToro, on the other hand, is dedicated to trading only.

Both platforms allow you to trade commodities such as gold, as well as shares like Apple and Amazon.

PlatformDeposit FeesTrading Fees
RevolutFree Bank Transfers

1.49% for cards

non-subscribers pay 2.5% mark-up
eToroBank Transfers min $500 or Card/Paypal min $200

0.5% FX fee (plus your bank’s fee)

0.75% spread

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Step two - confirm your identity

Whichever platform you choose, you’ll need to confirm your identity. To do this, an email address must be provided, along with your phone number, government ID (passport, driving licence etc) and proof of address.

Platforms are usually fairly quick to verify users, but in busy times this process can take longer.

You may think Bitcoin is the currency of criminals or that the coins are untraceable, but this isn’t really the case. Each transaction is logged on a ledger and of course, your identity is confirmed when registering with an exchange or platform.

If you’re looking for a way to hide your wealth, then this isn’t it.

Step three - do you need a hardware wallet for your Bitcoin?

A hardware wallet stores your Bitcoin in a secure hardware device. These devices typically look like USB keys.

The main principle behind a hardware wallet is to provide full isolation between your Bitcoin and your easy-to-hack computer or smartphone.

Hardware wallets store your cryptocurrencies’ private keys (think password) in a secure hardware device that can’t be tampered with. Think of it like putting your money in a vault and not under a mattress at home where it’s much easier to find.

If you plan to hold your cryptocurrencies for a long time, a hardware wallet is usually a good investment. It takes your Bitcoin entirely off and separate from a crypto exchange and keeps it safe with you. Just make sure to remember the password!.

Hardware wallets

The hardware wallets below are some of the most popular on the market and readily available on Amazon.

Remember, when moving cryptocurrencies onto a hardware wallet, the security lies with you. If you lose your password or the device, your investment is gone forever. You don’t want to be this guy from Newport who threw away a hard drive containing over £4m, desperately asking the council to search through landfill sites!

It’s important to have a safe, dry place to store your wallet and another for your recovery passwords.

Ledger Nano S

The Ledger Nano S is a compact cryptocurrency hardware wallet that supports all major coins on the market. You have to physically wire it to your computer with a USB cable, so it won’t work if you only have a mobile. It has the highest level of built-in security and contains all the instructions on how to move your cryptocurrency from your exchange to your hardware wallet. This is what I use, which cost me around £55 on Amazon.

Ledger Nano X

The Nano X is similar to the Nano S. However, it has built-in Bluetooth which means it can also work with your mobile phone. If you don’t have a laptop, then this is the one for you.

The Nano X also has a built-in battery, meaning you don’t have to plug it into your computer for it to power up, unlike the Nano S.

Personally, I wish I had purchased this key, but the price put me off. At the time, I was generally inexperienced with cryptocurrencies and I invested only a relatively small amount. As my cryptocurrency investment increases, this is looking like a more attractive wallet. Maybe I’ll add it to my Christmas list!

Trezor Model T

If you want the top-of-the-line model, then the Model T is the place to look. The feature that stands out most to me with the Model T is the advanced security features such as Multi-Factor Authentication (MFA) and FIDO2 support.

On the downside, it doesn’t have Bluetooth like the Ledger Nano X which makes using it with just a mobile really fiddly. It requires 3rd party apps to get this working so for me, I’d steer clear of this if you only have a mobile.

The Trezor Model T is currently on Amazon for £169 which feels expensive. However, it all depends on how much you’re investing and if you feel the additional security features are worth it.

Do I need a Bitcoin hardware wallet?

The short answer is no. You don’t have to have a hardware wallet. Your Bitcoin can be stored on a cryptocurrency exchange or trading platform. Just remember that cryptocurrency is not legal tender and as such you have no formal protection by the FCA if your money was stolen.

Adding a hardware wallet into the equation not only increases security but also makes buying and selling cryptocurrency harder. I think a little bit of friction is a good thing when it comes to long-term investing. I like to separate out my savings into a different bank, exactly for this reason.

Having your savings and investments in easy-to-access accounts makes us more likely to spend that money. Similarly, having your Bitcoin on an exchange makes it much easier to trade, which usually means you don’t hold onto it for the long term. Typically, those holding investments over a longer-term tend to do better.

If you’d like to learn more about investing in general, then check out our Beginners Guide to Investing – How to bankroll your financial freedom.

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Step four - fund your account

Next, it’s time to move some money into your chosen cryptocurrency exchange or platform.

Cryptocurrencies are highly volatile assets. This means the price could go up or down quickly. Please only invest what you can afford to lose. My personal rule with risky investments is not to stake more than 1% of my net worth on any single investment.

Usually, it’s cheapest to fund your account via a bank transfer. This removes some of the fees you’ll see in the tables above. For some platforms, this process can take a few days. Personally, I use Coinbase to purchase Bitcoin and my bank transfers went through in under ten minutes.

Beware, some banks will restrict card purchases to cryptocurrency platforms, so sticking to a bank transfer is usually best. However, there are a few exceptions that I could find:

  • Nationwide will block bank transfers to Coinbase.
  • Santander has historically blocked some transfers to Coinbase.
  • Virgin Money has banned all Credit Card purchases from exchanges.
  • Starling has blocked all cryptocurrency purchases.
  • Monzo may block large transfers.

*disclaimer – I could not verify all of these. As always, do your own research and check with your banking provider. 

How to add funds to your Coinbase account

Below is the process to transfer money from your bank into Coinbase. Once this is done, you can use the same bank details next time.

Coinbase website:

  • Firstly, to add funds via the Coinbase website, go to the Portfolio tab.
  • Next, click British Pound. On the left-hand side, you’ll see a deposit / withdraw box.
  • Then, click Deposit and the bank transfer screen will pop up. You’ll need to copy your unique reference and then log into your bank and do a transfer using the details supplied.

Coinbase mobile app:

  • Click the Portfolio button at the bottom of the screen.
  • Then, scroll down then find and click British Pound.
  • Next, click the Deposit button. This will bring up a screen giving you the bank transfer details. Complete the details in your banking app and transfer the required funds.

How to add funds to your Binance account

Personally, I found the process of adding funds to Binance a little tricky. I think that’s because its a trading platform as well as a crypto-exchange. Below are the steps to fund your account in the cheapest way via a bank transfer.

Binance website:

  • Once you’re logged in, go to the top menu and drop down the Buy Crypto menu.
  • You can change your account here to Pay with £GBP. Mine defaulted to Euro.
  • From the Buy Crypto menu, click Bank Deposit. You’ll need to make sure your account is verified if you haven’t already.
  • Next, ensure the currency selected in £GBP, then click the Faster Payments box, this ensures you are not charged for the transfer. You should now be able to see the bank details to complete your transfer. Make sure you include your reference code to ensure transfers are not delayed.

Binance mobile app:

  • Bank transfers are currently only supported on the website.
  • You can log into the website, follow the steps above and complete the bank transfer on your phone.

Step five - buy your Bitcoin

Finally, we get to the fun part! After all that, it’s finally time to buy your Bitcoin or your cryptocurrency of choice.

My personal list sticks with the largest and most well-known coins for my long-term investments. That means no Dogecoin for me, sorry Elon!

For most coins, you can make your purchase fractions of a single coin, so there’s no need to worry about saving up $30,000 for one single Bitcoin. Typically, you can state the amount you’d like to invest and the platform will calculate the correct fraction for you.

Once you’ve selected your coin and entered the amount you want to invest, you click the buy button and within a few seconds, the coins will be yours.

If you’ve invested in a hardware wallet, then you can follow the manufacturer’s instructions to move your investment across. This is usually straight forward once you’ve set up your wallet (mine took about 20 minutes).

How to buy Bitcoin with Coinbase

Once my identification was verified and my funds had cleared, buying Bitcoin with Coinbase was really easy.

Buy Bitcoin on the Coinbase website:

  • Click the blue Buy / Sell button at the top right of the screen.
  • Under the Buy field select Bitcoin.
  • Select Pay with £ GBP Wallet.
  • Click the Preview Buy button.
  • At this point you’ll be told how much Bitcoin you’ll be able to buy, the fee you pay and the conversion rate. If you’re happy, click Buy Now.

Buy Bitcoin on the Coinbase mobile app:

  • Click the blue button in the bottom menu bar.
  • Click Buy.
  • Select Bitcoin.
  • Type in the amount in pounds that you’d like to spend on Bitcoin.
  • Press the Preview Buy button.
  • At this point you’ll be told how much Bitcoin you’ll be able to buy, the fee you pay and the conversion rate. If you’re happy, click Buy Now.

How to buy Bitcoin with Binance

For me, buying Bitcoin felt a little harder on Binance. I found the Binance mobile app much simpler to use than the website.

Buy Bitcoin on the Binance website:

Here’s the easiest way to buy Bitcoin I could find:

  • Click the Binance logo at the top left.
  • Click the yellow Buy Now button on the page below the menus.
  • Select GBP from the currency box on the right.
  • Enter the amount in pounds you wish to spend.
  • Select Bitcoin under the Buy field.
  • Choose your payment method.
  • Click Buy BTC.

Buy Bitcoin on the Binance mobile app:

I chose the option to use Binance Lite, this is a simpler interface for users who don’t plan to trade frequently. To purchase Bitcoin:

  • Click the yellow button in the bottom menu bar.
  • Select Buy.
  • Select Bitcoin.
  • Enter the amount in pounds you wish to invest.
  • Click Buy BTC.
  • Select how you wish to pay, usually Fiat Balance GBP.
  • Press Confirm.

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Coinbase vs Binance

There are two main differences between Coinbase and Binance:

Usability

I found Coinbase far easier to use. Its website and mobile app are clear and easy to navigate. When I used Binance, it took me some time to work out how to actually buy Bitcoin. I think this is because Binance offers other trading services, whereas Coinbase appears to be solely focused on being a cryptocurrency exchange.

Once I put the Binance mobile app into Lite mode, it was a much easier experience but still not as good as Coinbase.

Costs

Binance is the clear winner when it came to costs. If you purchased £1,000 of Bitcoin, Coinbase would cost around £15, whereas Binance would cost just £1. Coinbase‘s costs are even higher for lower amounts, with investors paying £2.99 for £100 investment in Bitcoin. That means you’re down 3% before you even start!

So, it’s a toss-up between ease of use vs costs. Coinbase was the platform I used first. It’s an intuitive platform that’s easy to use, so I can see why it’s so popular. Personally, as a cost-focused investor at heart, I’m considering using Binance for my future transactions.

If you use any of our links to Coinbase and buy $100 of Bitcoin you’ll get around £7 ($10) in free Bitcoin. If your buying under £500 of Bitcoin, this should help offset the fees.

Is my Bitcoin safe?

Cryptocurrencies are not regulated in the UK by the Financial Conduct Authority. Therefore, this also means Bitcoin is not protected by the Financial Services Compensation Scheme.

As a result, the protection of your coins is down to you. For me, this was one of the key reasons I used a hardware wallet.

Once you have set up your account, it’s good to use the following steps to further protect your investment.

  • Use a strong password.
  • Enable 2-step verification.
  • Ensure your email is protected.
  • Ensure your mobile is secure.
  • Keep your devices clean and updated.
  • Protect your cloud storage accounts with additional security such as 2-step authentication.
  • Stay alert for phishing.

In summary, how safe it is, is down to you.

Do I have to pay tax on Bitcoin profits?

HMRC class Bitcoin as an asset by HMRC. Therefore, if you make any profit, it’s subject to Capital Gains Tax.

Furthremore, Bitcoin cannot be held inside any type of ISA, which would normally be used to protect your investments in stocks, shares and cash from tax. Our Stocks and Shares ISA Guide will walk you through what investments can be held in an ISA.

As such, profits made on cryptocurrencies are treated in a similar way to investments held in a General Investment Account.

Ultimately, everyone’s tax situation is going to be different. However, the vast majority can use their Capital Tax Gains Allowance and therefore avoid tax on any profit under this amount. Beyond this point, most people will then pay 20%.

Example: you purchase £10,000 of Bitcoin and sell it at £30,000. You have now made a tidy £20,000 profit. You would deduct the tax-free allowance (currently £12,300 in 20/21) from the £20,000. This now leaves you with £7,700. On this remaining amount, tax is payable at a rate of 20% on the £7,700. Therefore, you would owe a further £1,540 in tax.

As always, seek advice from a tax professional.

What happens to my investment if I die?

As Bitcoin is securely stored in a private account or hardware wallet, then you’re going to have to think about what happens if something unfortunate happens to you.

Because it usually exists offline, Bitcoin is unlike other investments that can be looked up on the internet and passed to your partner or family. If you don’t plan for the worse, then your investment could be lost.

Writing instructions into your will is a good start, especially if you have a large investment. As I use a hardware key, I have cut the recovery password in half and given each half to someone I trust. This way, if the worst happened to me, the two parts of the recovery password can be put back together to access my investment. Some online will writing services allow you to store passwords in a lockbox for this purpose.

Sadly, most people in the UK don’t have a will. This makes passing on your final wishes much harder. It also means your money or investments could go to the wrong person. If you’d like to easily set up your will from the comfort of your own home, then check out our article Making a Will online.

How to safely buy Bitcoin in the UK

Bitcoin isn’t an investment for everyone. Its price can fluctuate wildly like an Alton Towers rollercoaster. Those who have bought and held have been rewarded over the long-term. However, we never know what’s around the next corner and past performance is not an indicator of future returns.

For me, buying Bitcoin was about diversification. I didn’t want to miss out on something that promises to revolutionise the world of finance. Maybe it was a bit of FOMO, who knows. However, I only put what I consider a relatively small amount into it so far and it represents a small percentage of my portfolio. I do plan on slowly adding more over the next few years, but I can’t see my investment style changing simply because of Bitcoin hype.

Ultimately, if you do choose to invest, get educated and do your research. Things are a bit different in this brave new world and it’s important to at least have an idea of what you are doing. Select a platform suitable for you, think about fees and pay great attention to security.

As always, let us know how you get on in the Eat Sleep Money Facebook group and share your story!

Here’s to Financial Fitness

EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.