How to buy bitcoins in Canada
Latest news articles around the web regarding bitcoin — last updated April 4, 2013
April 4, 2013 – TheRegister – Bitcoin briefly soars to record $147 high, driven by Cyprus bank flap
Have you ever heard of a bitcoin before? We’re guessing that this may be the first time that many of you have heard of it. Even if you have heard of bitcoins, we’re guessing that you may not know exactly what they are, how they work, what they’re used for or how to acquire them. We’re going to try to answer the most common questions regarding bitcoins in this article. We find bitcoins to be a fascinating, yet confusing topic as a good understanding of bitcoins would require a person to be proficient in macroeconomic theories, financial theory, cryptography and computer programming. We’re not proficient in any of these subject matters unfortunately; therefore we are left with only a rudimentary understanding. Nevertheless, we’d like to share what we know about this subject matter.
Quick guide on how to purchase bitcoins in Canada
If you’re looking for a quick guide on how to buy bitcoins, follow these steps. If you need more instructions, please see our step by step guide here (near the end of this article).
1) Deposit funds into an exchange such as Canadian Virtual Exchange
What is a bitcoin?
Bitcoin (BTC) is an experimental digital currency that was introduced on January 9, 2009. Its main features are that its electronic (paperless, in most forms), uses a peer to peer network (therefore there’s no centralized authority that issues bitcoins or confirms transactions), it’s encrypted, it’s potentially anonymous, the transactions are irreversible and there is a finite supply.
Who created bitcoin?
The identity of the bitcoin creator is unknown. He or she is known only by their pseudonym Satoshi Nakamoto. The most common way to write Nakamoto is 中本 and 中 means inside or middle, 本 means book, main or original and Satoshi is commonly written as 智 meaning wisdom, knowledge or sage. The pseudonym can be translated as “wisdom in story” or “wisdom in origin”. The creator is believed to be of Japanese descent, but he has not written a single word in Japanese, the bitcoin client does not have a Japanese version and the bitcoin webpage does not have a Japanese version. You can read Satoshi Nakamoto’s white paper describing the bitcoin network here.
What is a bitcoin worth?
The exchange rate for bitcoins has varied quite a bit. A bitcoin was worth as little as $2 USD and as high as +$30 USD. At the time of this writing, it’s currently trading at approximately $13 CAD. There are many nice charts showing bitcoin historical prices.
Update (March 20, 2013) -- Bitcoins are hovering at $50 each now! The Economist published an article predicting its crash.
Why do bitcoins have value?
Bitcoins have no intrinsic value as it is not backed by anything. This is not that different than fiat money. Fiat money (like the Canadian dollar) has no intrinsic value either. However, some may argue that the Canadian dollar is backed by the taxation and income generating power of the Canadian government and its value is derived by its relative scarcity. Gold backed currency was backed by the promise of delivering physical gold in exchange for paper money. Since 1971 when former President Richard Nixon took the United States off of the gold standard, no currency in the world has been backed by gold. Some argue that bitcoins derives its value from the cost of electricity, also known as the theory labor of value (see bitcoin mining below), but others disagree. The popular opinion is that the value of bitcoins is based on what people are willing to pay/sell bitcoins (the laws of demand and supply). This is known as the subjective theory of value. Bitcoins have value because they’re useful and they’re scarce.
Do some people speculate on bitcoin?
Yes. Some people believe that bitcoins will increase in value over time. Therefore, they’re hoarding bitcoins and waiting.
How do bitcoins compare to other forms of money?
Bitcoins were designed to avoid or at least mitigate many of the disadvantages inherent with other forms of money. For example, there is a limited and finite supply of bitcoins. Therefore, bitcoins are not subject to inflation caused by increased supply (a common result of printing money). There are many other advantages to using bitcoins. Bitcoins do not rely upon any central authority. Therefore, it is not regulated or subject to the manipulation by any specific country. Bitcoins are not subject to taxes (not yet at least), potentially anonymous (cannot track past transactions easily) and irreversible (unlike credit cards, paypal or online interac, each bitcoin payment is generally permanent).
How many bitcoins are there? What’s the market capitalization?
As of this writing, there is approximately 10 million bitcoins in existence. The bitcoin network is designed so that there will never be more than 21 million bitcoins in existence. It is estimated that by 2028, 98% of bitcoins will have been mined and by 2040, all bitcoins will be generated. At the current trading value of $13 per BTC, the total value of bitcoins on the planet is approximately $140 million USD.
How often do bitcoins change hands? What’s the volume?
There is only 10 million bitcoins in existence, but incredibly there are days where 14 million bitcoins exchange hands. Therefore, the entire bitcoin economy was traded 1.4x in a single day. That’s not normal behaviour of course, but it has happened. You can see a chart of transaction volume here. It appears that the average trading volume is approximately a million a day.
How many people use bitcoins?
It’s difficult to say with any certainty, but it is estimated that 60,000 people use bitcoin.
What happens when all 21 million bitcoins are generated?
Bitcoins are in theory infinitely divisible (right now, there are 8 decimal points ). Therefore, “As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller units, such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).”
How did the first bitcoin transaction take place? How much were early bitcoins valued?
The first version of the bitcoin client was released on a crytography mailing list on January 11, 2009. The first bitcoin transaction was between Satoshi Nakamoto and Hal Finney (a fellow cryptographer, one of the lead programmers at PGP Corporation and an Atari 2600 developer). The first exchange rate for bitcoins was published on October 5, 2009. Bitcoins were deemed to be too expensive at the time. The exchange rate was $1 USD = 1,309.03 bitcoins.
What is bitcoin mining?
You can earn bitcoins by running a software on your computer. This is called bitcoin mining. You can spend a small fortune on graphic cards in order to “mine” bitcoins on your desktop computer. The software will try to solve complex mathematical formulas which are used to confirm past bitcoin transactions, to confirm who owns which bitcoins and to prevent fraud (i.e. buying something twice with the same bitcoins). This computational power is used only to maintain the bitcoin network. Therefore, there is no higher purpose like in many other distributed computer networks (e.g. finding aliens, solving unproven mathematical problems, curing cancer, cracking encryptions, etc.). The computational power in the bitcoin network is already more powerful than the world’s fastest supercomputer. Bitcoins are automatically awarded by the network to certain miners in order to encourage users to solve or prove the mathematical problems. Therefore, proving these problems ensures the integrity of the bitcoin network. The number of Bitcoins awarded/generated is set to decrease geometrically, with a 50% reduction every 4 years. This algorithm was chosen because it approximates the rate at which commodities like gold are mined. A bitcoin miner may also earn bitcoins in transaction fees for large transactions (as eventually, there will be no more bitcoins to mine). Bitcoin miners often pool their resources together to mine bitcoins, therefore any reward earned will be divided pro rata among the miners. There are quite a number of bitcoin pools. Some have even utilized the computing power of Amazon EC2 cloud computing to mine bitcoins. That being said, we do not recommend bitcoin mining as the capital investment is high and you may spend more money on electricity than what you’ll earn in bitcoins. There are various online calculators to help you decide if mining bitcoins could be a profitable endeavor.
What is a bitcoin wallet?
Bitcoins need to be stored somewhere. They cannot be in a void. In you’re using the default bitcoin client, there is a file called “wallet.dat” on your computer and that file stores a collection of secret keys that allows you to spend your bitcoins. It’s the equivalent of your bank account details. A bitcoin wallet can be in digital form or on in paper form. You can have a paper wallet by printing out the secret keys on a piece of paper. Some argue that a paper wallet is more secure if done properly, but we think that it defeats the purpose of having a digital currency. If you use the default bitcoin client, your bitcoin wallet is stored on your computer. If the hard drive in that computer dies and you didn’t backup your wallet, you lose all of your bitcoins. If someone gains access to your computer and steals your wallet, you may lose all of your bitcoins. That’s why a lot of people encrypt their wallets using various techniques. There are many ways to help secure your wallet. You can even encrypt your wallet with truecrypt and upload it to a cloud service like dropbox. If you install a bitcoin app on your smartphone (android or iOS), your wallet is on your smartphone or tablet device. Therefore, if you lose your smartphone or tablet device, you lose your bitcoins if you didn’t make a backup of your wallet. The rule is that if you have any significant amount of bitcoins, make a backup of your wallet.
What happens if you lose your wallet?
Just like your real wallet, if you lose your bitcoin wallet, you lose your bitcoins forever. What’s interesting is that since there is a maximum number of bitcoins that will be generated, the lost bitcoins will never be replaced. It’s not possible to replace lost bitcoins, as how can you differentiate between lost bitcoins and bitcoins sitting in a wallet waiting to be spent? Therefore, the more users that lose their wallets, the more valuable the remaining bitcoins become as bitcoins become more scarce.
What about deflation?
As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. You can read more about the deflationary spiral here.
Are bitcoins subject to inflation?
As there is a limited supply of 21 million bitcoins, bitcoins will not be subject to inflation caused by increased supply. However, bitcoins can suffer from inflation if demand drops.
What’s a bitcoin address?
A bitcoin address is sort of like an email address, it can look something like this.
The bitcoin address is what you give people so that they can send you bitcoins. A person can have multiple bitcoin addresses, just as they can have multiple email addresses. To promote privacy, your bitcoin address will change after every transaction. In other words, if you send or receive bitcoins from your wallet, your wallet will generate a new bitcoin address immediately afterwards. You don’t have to keep track of your bitcoin addresses. If you care about privacy, always give you the the newest generated bitcoin address. That being said, you can still receive bitcoins using any of your old bitcoin addresses. Please note that bitcoin addresses are case sensitive, therefore it’s recommended to copy it and paste the bitcoin address instead of typing it in by hand.
Can you use QR codes instead of a bitcoin address?
Yes. You can generate a QR code at Wolfram Alpha to make it easier for people to send you bitcoins with their smartphones. All that you need to do is paste in your bitcoin address followed by QR CODE and it will generate a QR code for you.
What happens if I make a typo and send bitcoins to a non-valid bitcoin address?
A valid bitcoin address has to pass a 32 bit checksum verification. Therefore, the odds of typing in a valid bitcoin address by accident is about 1 in 4,294,967,296. In other words, 4,294,967,295 out of 4,294,967,296 random addresses will result in an invalid bitcoin address. If you beat the odds and send bitcoins to a valid address by accident, the bitcoins are gone for good. If you try to send it to a non-valid bitcoin address, your bitcoin client will not allow you.
What can you buy with bitcoins?
You can buy a lot of different things, such as vacations, hotel stays, coffee, tea, electronics, gold/silver, clothes, software, gift cards, Usenet service, VPN’s, VPS’s, etc. Recently, WordPress.com started accepting bitcoins, which is one of the more reputable names that is accepting bitcoins.
Reddit.com CEO recently hinted that Reddit is considering accepting bitcoins for its premium service.
What are the regulatory concerns regarding bitcoins?
It is interesting to note that Amazon does not accept bitcoins, probably due to regulatory uncertainty surrounding bitcoins. How do you tax bitcoins? Should Amazon ever accept bitcoins, we’re betting that bitcoin prices will probably rise. There is so much regulatory uncertainty regarding bitcoins that even a non-profit organization called EFF stopped accepting bitcoin donations because they didn’t know how to treat them under securities law, the Stamp Payments Act, tax evasion laws, consumer protection and money laundering regulation. Eventually, these legal uncertainties will be ironed out when a court is asked to decide these questions or if certain clarification amendments to legislation is passed. We’re betting that it’s going to be the IRS that will be pushing bitcoin jurisprudence forward.
Update (March 20, 2013) – Bitcoin Exchanges are now subject to anti-money laundering regulations. Individual bitcoin owners are exempt.
How do you buy bitcoins?
There are many different ways one can acquire bitcoins. You can mine bitcoins on your computer or you can buy them from someone that already has bitcoins. You can try to buy bitcoins in person from someone in your area. This involves meeting face to face with the bitcoin seller in your area. You can also buy bitcoins over-the-counter (OTC) from IRC, Bitcoinary or on a forum. This entails you agreeing to send someone funds via paypal or by another method, and you hope that the bitcoin seller sends you bitcoins afterwards. It is based on a feedback system similar to eBay. For various reasons, we do not recommend any of these methods as bitcoin mining is too slow, expensive and complex, OTC lacks certainty (you have to trust strangers on the internet) and meeting strangers in person to buy bitcoins sounds undesirable as we tend to be anti-social human beings at hippowise (maybe it’s just me).
What is a bitcoin exchange?
There are multiple bitcoin exchanges, just as there are multiple stock market exchanges. As you can trade the shares of the same company on different stock exchanges, you can trade bitcoins on many different exchanges as well. Bitcoins are traded in 18 different currencies, therefore there could be a slight price discrepancy between the exchanges as demand and supply varies from exchange to exchange. Arbitrageurs will undoubtedly take advantage of any market inefficiencies. Therefore, the spread between bitcoin prices will tend to narrow. By far, the largest bitcoin exchange is mtgoxUSD with almost 60% of the market. We’re mostly interested in Canadian funds and there are only 2 bitcoin exchanges that trade in Canadian dollars, Mt. Gox (CAD) and Canadian Virtual Exchange. There is no easy way for a Canadian to deposit cash into Mt. Gox, therefore we recommend using the Canadian Virtual Exchange. We’ll get into this later.
How to buy bitcoins in the United States?
It is much easier to buy bitcoins in the United States than in Canada as you can buy bitcoins from any Walmart and at participating 7-11′s. The easiest way is to buy bitcoins in the United States is to fill out a form at BitInstant, decide how many bitcoins you want to buy and print off the barcode that is generated for your transaction. The transaction is now pending. Visit your local Walmart or participating 7-11. The cashier scans the barcode and takes payment (it’s just a standard “bill payment” transaction as far as their cashier is concerned). Walmart’s or 7-11′s computer talks to BitInstant’s computer, and by the time you get home you should see the bitcoins in your bitcoin wallet.
Now, that you have a general overview of bitcoins, let’s discuss how you can buy bitcoins in Canada. It’s not as simple as you may think as bitcoin transactions are generally irreversible, therefore you cannot usually buy bitcoins with a credit card, via paypal or via e-interac as those are all reversible methods of payment.
Step 1: Sign up for an account.
The first thing that you have to do is sign up for an account at Virtex here. If you clear your browser cache often, every time that you try to login to your Virtex account, it will send you an email and you have to click on that email to confirm your identity before it will allow you to login into your account.
Step 2: Submit a form on Virtex, so they know how much money you want to deposit with them.
Go to the deposit page here. You will see an 8 digit account number. That’s your account number at Virtex.
Choose between Cash Deposit at RBC, BMO or Scotiabank. You do not need to be a client at any of the banks in order to make a cash deposit. Therefore, you can pick any bank that’s convenient for you. For the amount (CAD), there is a special instruction.
Updated April 7, 2013
Due to the disappearance of the penny, cavirtex has changed their policies. Please see their note below (link):
Step 3: Go to your local RBC, BMO or Scotiabank bank branch.
These are Virtex’s bank account information at RBC, BMO and Scotiabank. Print out the bank account details for the bank that you’d like to use. Go to your local branch and ask the teller to deposit the funds into the account specified on the print out. If they ask you, you can tell the teller that it’s not for a business transaction. Make sure to deposit the same amount as you specified above. Therefore, if you initially wanted to deposit $50, you must deposit $50.78 into Vertex’s bank account. The extra 78 cents will be credited to you as well. The bank will typically ask you for your name to add to the notes of the deposit. The teller will not ask you for identification if you deposit cash. Make sure to take a deposit receipt to prove that you deposited the funds (should the need arise). Virtex checks cash deposits throughout the day. You will receive an email when your account has been credited.
Step 4: Check your balance and open a trade
Let’s assume that you deposited $50.78, a few hours later you should see the funds deposited into your Virtex account as shown below. Notice that the credited amount is less than you deposited? There is an approximate $3 fee per cash deposit. Virtex is running a business after all.
Now that the funds are in your account, you can open a trade in order to purchase bitcoins. As you will soon realize, buying bitcoins on an exchange is a similar experience as buying shares on a stock exchange. With a bitcoin exchange, there is an order book, bids and asks, bid-ask spread and candle stick charts. It’s pretty neat. To open a trade, click here. Fill out the form by inputting how many bitcoins (BTC) you would like to buy, the price you’re willing to pay per bitcoin (up to 2 decimal places) and click buy. Take a look at the order book here to figure out what your bid price should be.
This is what the Order Book looks like on Virtex.
Just like in the stock market, if you want your order to be filled immediately, enter in the lowest “Selling BTC” (aka the ask price, in this example it’s $12.20) and your order should be filled almost instantaneously. It will only cost you a little bit more, but it’s up to you if it’s worth it. The default price is the lowest “Selling BTC” price. It’s inputted for you automatically. The difference between the highest Buying BTC price (bid) and the lowest Selling BTC price (ask) is the bid-ask spread. The smaller the spread, the more efficient the market and the more liquid the assets are. Cash is very liquid therefore the bid-ask spread is measured in 1/100th of a percent. We’re not exactly sure if Virtex acts as a market maker, but if they do, Virtex keeps the spread. The market maker would buy bitcoins at a certain price and sell them at a higher price, therefore keeping the spread for themselves. That’s the reward for creating liquidity in the market. You should make sure that the total cost is less than what you have available in your account. There is a 3% trade commission fee per trade, therefore you will have to try a couple of times to figure out how many bitcoins you can buy. Once you’ve entered in the order to buy bitcoins, you should see something like below. Push confirm if it’s correct.
Once your entire is filled, you should see something like this. Assuming you deposited approximately $50, you would now be the proud owner of approximately 3.73 bitcoins.
Step 4: Setup a bitcoin wallet
We’re going to use an Android smartphone app for this demonstration, but the same general principle applies for iOS bitcoins apps. You can also setup a bitcoin wallet on your PC instead. We just like having our bitcoin wallet on our phone.
Download this app from the Google Play store called Bitcoin Wallet. It looks like this.
Once it’s installed, you may have to wait a few minutes so that it connects to the bitcoin network. If you navigate around, you should see your very first bitcoin address (as we explained above). Copy your bitcoin address and send it to yourself by email.
If you navigate to another page, you should see something like below. It shows that you have 0 bitcoins. Now, it’s time to send your bitcoins to your new wallet.
Step 5: Transfer your bitcoins from Virtex to your bitcoin wallet
Click here to withdraw or transfer your bitcoins to your wallet. Input in how many bitcoins you would like to send (including decimals) and enter in the bitcoin address that was generated by your wallet (the one that you sent to yourself by email). Double check to make sure that the bitcoin address that you inputted matches exactly with the bitcoin address generated by your wallet. It is case sensitive. Once you’re sure that everything is correct, push “Withdraw BTC”.
It is generally good practice not to leave your bitcoins on Virtex or any other exchange for a very long period of time as your bitcoins are actually in Virtex’s own bitcoin wallet. Therefore, should Virtex’s bitcoin wallet be compromised somehow, you may lose all of your bitcoins. This has actually happened various times at other exchanges or payment processors. We’re not saying that Virtex is not secure, we’re just saying that other larger exchanges have been compromised in the past.
Step 6: The waiting game
It may take a few minutes for the bitcoins transfer to hit your wallet. If you would like a status update, go here and enter in your bitcoin address. You can read more about this here. Once the bitcoins arrive in your wallet, it should look something like below. Please note that you cannot spend your bitcoins for about 10 minutes. This is the average time it takes to confirm the transaction in order to ensure that the payment is irreversible and that you’re not trying to double spend your bitcoins. This waiting time is normal. If you would like to know more about this, read this.
Congratulations! You have now successfully purchased bitcoins and transferred them to your own bitcoin wallet. You are now part of the bitcoin revolution. Should you have any questions, corrections or suggestions, please feel free to leave a comment.
Update April 3, 2013 - How to sell bitcoins into CAD
Selling bitcoins is easy, so here’s a quick run down on what you need to do.
1) Login to cavirtex.com and navigate to this page https://www.cavirtex.com/deposit
You should see something like below. Copy the bitcoin address in the box. This is the address to your bitcoin wallet at Cavirtex.
2) Open your bitcoin wallet where you have the bitcoins that you would like to sell and transfer those bitcoins to the address that you just copied (there should be a way to do this in your wallet). Please wait an hour for the bitcoins to show up in your cavirtex account.
3) After an hour or so, your bitcoins should appear in your cavirtex, like below.
4) Once your bitcoins have arrived, you may now try to sell them on the exchange. Navigate to this link https://www.cavirtex.com/trade fill out the sell form. The order will be filled whenever someone is willing to pay your asking price. It can take 1 second or it may never get filled (it all depends on the price that you’re asking).
5) Once the trade has taken place, the funds should be deposited into your cavirtex account. All that you need to do now is withdraw the funds via one of the options that they offer at this link https://www.cavirtex.com/methods#cad_withdraw
I hope that it’s clear! Good luck!