Over the past few years, there’s been a lot of hype about Bitcoin in New Zealand. And for good reason. At the start of 2016, one Bitcoin would have cost you around $600. Fast forward five years and, in January, the cryptocurrency hit a peak of over $56,000 each!
That’s a lot of money for what is, after all, just lines of code sitting in the memory of computers. So what is a digital currency? What is Bitcoin? And how do you buy Bitcoin in New Zealand? To help you decipher the world of cryptocurrency, here is Canstar’s step-by-step guide to buying, selling and using Bitcoin:
How to Buy Bitcoin in NZ. In this guide we cover:
- What is Bitcoin?
- How to buy Bitcoin in New Zealand
- Where to store your Bitcoin
- Where can I spend my Bitcoin?
What is Bitcoin?
Bitcoin technology was first outlined in a scholarly article entitled: Bitcoin: A Peer-to-Peer Electronic Cash System, authored by a Japanese man called Satoshi Nakamoto in 2008. However the name is considered to be a pseudonym, and the true identity of the creator or team behind Bitcoin remains a mystery.
Bitcoin is a decentralised digital cryptocurrency based on blockchain technology. Blockchain is basically a foolproof digital ledger system that records information across many computers. Each entry, or block, has a coded timestamp that means records can’t be changed or tampered with. On an open peer-to-peer system, everybody has access to the records.
Bitcoin was born as an example of the application of blockchain technology. It was created to show how electronic transactions can be simple and secure outside of traditional global banking institutions.
Ultimately, each Bitcoin, or part of a Bitcoin, is just a digital code held on a central blockchain ledger. If you hold the key to that code, you “own” that Bitcoin. If you trade or spend your Bitcoin, that keycode will pass to somebody else, just like traditional currency.
Those who download the Bitcoin software and use their computers to timestamp, process and validate transactions are rewarded with Bitcoins. This process is called mining.
Because each Bitcoin transaction is made online over the peer-to-peer network, transfers of Bitcoins can be made instantly, and at a lower cost than traditional methods. Currently, international money transfers come with relatively high fees and currency exchange rates, to cover the costs of the individual banks involved.
But unlike traditional currencies that are controlled by central banks, Bitcoin is not regulated. Because of this, buying and selling Bitcoin online comes with inherent risks, and speculation is rife. Although the value of Bitcoin is currently riding high, its value can fluctuate wildly.
How to buy Bitcoin in New Zealand
When considering whether to invest in Bitcoin, know that you don’t have to buy a whole one! Bitcoins are divisible by up to eight decimal points, meaning you have the option to buy only a fraction of a Bitcoin.
Some big investment firms also offer cryptocurrency index trading, where you can invest in an index across a range of cryptocurrencies, including Bitcoin. However, if you want to invest in just Bitcoin, there are a few ways you can buy Bitcoin in New Zealand. Here are some of the main ones:
1. Buy Bitcoins from a Bitcoin exchange
There are hundreds of Bitcoin exchanges on the internet, based all over the world. However, while Bitcoin exchanges and the trade in Bitcoins are not regulated, the Kiwi dollars you must spend to purchase Bitcoin are.
For example, there are many big exchanges over the ditch in Australia, and in the US, but to use them you’ll need a bank account in those countries. But there are some Kiwi operators, and a few big players have sites here that accept Kiwi dollars:
There are two benefits of using Kiwi dollars to buy your Bitcoin:
- You know exactly how much you’re spending
- You’ll not be hit with excessive foreign exchange fees and credit card processing fees
Beware credit card fees
On some exchanges, it’s possible to use a credit card to purchase Bitcoin. However, you can expect to get hit with extra charges. As a rule, the fees charged by exchanges are small, starting from as low as .005%. Usually, the bigger the trade, the larger their cut.
But expect an exchange to add extra credit card transaction fees on top: approx 2.5% to 3%. Plus, your credit card provider will take their cut in the form of a foreign exchange fee. In all, transaction fees can easily add up to 10% or more.
However, if you’re still interested in using your plastic to purchase Bitcoin, these three big Aussie players accept Visa and Mastercard:
And so do these giant exchanges, that top the world rankings for Bitcoin trades:
2. Receive Bitcoins for goods and services
Any business or individual can choose to accept Bitcoins as payment if they have a Bitcoin digital wallet to store the currency. A Bitcoin wallet can be downloaded from the Apple or Google Play stores. You’ll need to decide how to accept the payment, methods include:
- QR codes, which can be scanned using a smart phone and generated in a Bitcoin digital wallet app
- Online payment processing systems that can automatically convert digital currency, like Bitcoin, into a traditional currency, such as NZ dollars
- Instore custom point-of-sale terminals that integrate with your existing sales register
3. Mine your own Bitcoins
As we mention above, mining Bitcoin is the process of being rewarded to use your computer (and electricity) to timestamp, process and validate Bitcoin transactions.
In the early days of Bitcoin, it was possible to download the Bitcoin software, link up your PC and start mining. However, as the number of Bitcoins and transactions have increased, so too has the complexity of the mathematical calculations that support the system.
Nowadays, mining requires a huge investment in computer processing and electricity. So the option of mining is limited to big players who treat it as a serious business.
Source: BitcoinMiningCom (YouTube)
Where to store your Bitcoin
If you want to invest in Bitcoin, you need a secure way of storing your assets. As Bitcoin isn’t regulated, it’s not a good idea to store your Bitcoin at an exchange. There have been many recorded cases of people losing their money to cyber crime and hacking. Here in NZ, over $23m of investors’ money was lost when the Cryptopia exchange was hacked.
So, generally, it’s recommended you store your Bitcoin in a digital wallet. There are a few options available on app stores for phones, as well as wallets for desk and laptop computers. They usually come with the added benefit of scannable QR codes, which save time on entering long Bitcoin addresses with each transaction.
For an added layer of security, you could invest in a hardware wallet. These are storage devices, rather like a USB stick, that you can unplug from the internet and store in a safe place. As they are offline, they can’t be hacked and your valuable Bitcoin stolen.
Where can I spend my Bitcoin in NZ?
Online, there are plenty of retailers that accept Bitcoin. In Aotearoa, not so much. The exchange EasyCrypto publishes a list of firms that accept payment by Bitcoin, and Coinmap features an interactive map with a few Bitcoin-friendly NZ business.
However, really, why would you want to spend your Bitcoin? For, after all, Bitcoin is all about investing and speculating, not using to actually buy things.
In the early days of Bitcoin in the US, a miner used 10,000 Bitcoin to pay for two pizzas. That’s over $500m at current Bitcoin prices. Hope it was good pizza!
In fact, Bitcoin and other cryptocurrencies are increasingly regarded as securities. Like stocks and shares, they are bought, held, and sold as investments, not used as a currency to buy a coffee or pay for petrol.
Which brings us neatly to what our Financial Markets Authority has to say on the subject of cryptocurrencies and Bitcoin. For although the FMA doesn’t regulate crypto exchanges, it does offer some sage advice. Before you buy, make sure any New Zealand exchange you use is:
Ultimately, the choice to buy Bitcoin is like any other investment: it pays to do your homework. As a very volatile investment, and one that’s prone to hype and market bubbles, Bitcoin is never going to be a risk-free choice. But at least if you go in with your eyes open, you can choose to invest with a reputable exchange and keep your investment safe from fraud or cyber crime.
How to buy Bitcoin in Australia
For more information on how to buy Bitcoin across the ditch in Oz, check out the story How to Buy Bitcoin in Australia on our Aussie website.
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