bitcoin beginner: a step by step guide to buying, selling and investing in bitcoins

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Page 1: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

TableofContents

IntroductionWhatisBitcoinBitcoinasaCurrencyBitcoinasaPaymentSystemSolvingtheDoubleSpendProblem

HistoryofBitcoinWhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoney

HowDoesBitcoinWorkPublic-keyCryptographyMillionsofDepositBoxesMiningforCoinsAChainofBlocksNetworkVerification

HowtoObtainBitcoinDigitalFaucetFreeCoinsSellYourStuffPurchasingBitcoins

StoringandSecuringYourBitcoin1mdashBitcoin-QtTheRealDeal2mdashTheModifiedClients3mdashAccessibleAnywhereOnlineWallets4mdashBitcoinontheGoMobileWallets5mdashPaperwalletTheThreatsAvoidingTheseRisks

SpendingandAcceptingBitcoinAcceptingBitcoin

TheFutureofBitcoinLearnMore

IntroductionThroughouthistorytheprimarymethodofcommunicatingwithsomeoneoverlongdistanceswassendingaletterThiscouldtakedaysweeksevenmonthswithnoguaranteetheletterwouldarriveatallEventhenitwasonlyone-waycommunicationforaconversationtotakeplaceitwouldtakelongerstill

EmailchangedcommunicationsdrasticallyMessagesweresentandreceivedinstantlyfromanywhereintheworldBeforeemailpeopledidnrsquotevenrecognizethedrawbacksoftheoldcommunicationssystemOnceemailbecamewidelyadoptedthedrawbackswereinstantlyobviousandwersquoveneverlookedback

ThisistrueofourcurrentsystemofmoneytodayMostpeopledonrsquotstoptothinkaboutthedrawbacksofourcurrentmonetarysystembutanewtechnologyisalreadybeginningtochangethatThisnewtechnologymdashcalledBitcoinmdashisrapidlychangingthewayweviewmoney

ThisguidewillexplaintoyouwhatBitcoinisgivealaymanrsquosviewofhowitworksandexplainexactlyhowyoucanobtainBitcoinstorethemsafelyspendthemandevencreatethemyourselfBitcoinisacomplicatedsubjectbutinthisguideIwillgiveyoueverythingyouneedtoknowinordertounderstandthesystemandgetstarted

WhatisBitcoinWhenpeoplesayldquoBitcoinrdquotheyarereferringtooneoftwothings

1Adigitalcurrency

2Apaymentsystemusedforsendingandreceivingmoneyonline

TypicallythetermisusedtoapplytothecurrencyitselfbutthepaymentsystemiseverybitasimportantasthecurrencyLetmeexplainboth

BitcoinasaCurrencyBitcoinisadigitaldecentralizedpeertopeerpseudonymouscurrencybasedoncryptographyIfthatsentencemadenosensetoyoudonrsquotworry-Irsquollbreakitdownforyou

DigitalndashBitcoinsexistonlyascodetheydonotexistasanythingphysicalPeoplecan(andhave)madephysicalrepresentationsofBitcoinbutultimatelytheyarebasedinthedigitalworld

DecentralizedndashThereisnocentralbankorinstitutionthatissuesorcontrolsBitcoinItisagroupofindividualsallovertheworldwhoruntheprogramthatkeepsthemonetarysystemrunning

PeertoPeerndashYoucontrolyourownBitcoinandwhenyousendBitcointosomeoneelseitgoesdirectlytothemTherearenobanksormiddlemen

PseudonymousndashWhileallBitcointransactionsarepublicallyviewableinanopenledgercalledtheBlockchain(wersquollgettothatlater)thesenderandreceiverareonlyknownasastringofnumbersandlettersIfyoursquorecarefulaboutyouridentityusingBitcoinscanbedoneanonymously

BasedonCryptographyndashThestrengthofBitcoinasadigitalcurrencyliesinthecodewhichusesstrongcryptographytoensurethatthecoinscannotbeaccessedwithoutproperpermission

BitcoinisthefirstdigitalcurrencythathasthesecharacteristicsandasaresultitisthefirstdigitalcurrencytobecomewidelyadoptedontheinternetAsofJune2013itishandlingnearly60000transactionseachdayandthisnumberisacceleratingquickly

BitcoinasaPaymentSystemSolvingtheDoubleSpendProblemAsanewdigitalcurrencyBitcoinisimpressivebutthetrulyrevolutionaryaspectofBitcoinisinanewpaymentsystemBeforeIexplainthissystemletmebrieflydescribeoneoftheprimaryreasonswhydigitalcurrencieshavealwaysfailedinthepast

InthephysicalworldmoneycanrsquotbeintwoplacesatonceonceyouspendititisinsidestoreArsquoscashregisteranditcanrsquotbeinstoreBrsquoscashregisterWithdigitalcurrencythisisnrsquotnecessarilytrueSincedigitalcurrencyiscomputercodethesamemoneycouldactuallyresideinmultipleplacesThisisobviouslyahugeproblemandwouldleadtorampantfraud

HoweverwedotransacthugeamountsofmoneydigitallytodaysohowcomewedonrsquotseemoredoublespendingWellwehaveservicesthattakecareoftheproblemsuchasPayPalTheyreviewallthetransactionstoensurethatthesamemoneyisnrsquotspenttwice

ButtherearesubstantialproblemswithusingacentralizedservicetodealwiththedoublespendproblemFirsttheyareasinglepointoffailureThismeansthatifPayPalweretohavetechnicalproblemsndashorperhapsiftheydonrsquotlikewhatyouaretryingtopurchasendashthenyoucanrsquotmoveyourmoneyatallAlsoyouhavetopaythemfortheirservicetypicallywithfeesthatare2orevenhigher

BitcoinrsquospaymentsystemsolvesthedoublespendproblemdoesitwithoutrelyingonasinglepointoffailureandrequiressubstantiallysmallerfeesItdoesthisbyusingapublicledgercalledtheBlockchainwhichIrsquolldiscussinmoredetaillaterinthebook

HistoryofBitcoinWheredidBitcoincomefromEventhoughitisonlyfiveyearsolditalreadyhasauniquestory

TheideaforBitcoincamefromadevelopernamedSatoshiNakamotoThatwasthenameontheoriginalpaperthatlaidoutthetechnicalaspectsofthenewprojectndashbutitwasapseudonymTherealidentityofSatoshiNakamotoisstillunknown

TheoriginalpaperwaswritteninOctober2008Thenine-pagepaperbrieflytouchesoneachofthemajoraspectsofthesystemthatSatoshienvisionedaswellasnamingthisnewldquoPeer-to-PeerElectronicCashSystemrdquowiththemonikerthatitusestodayBitcoin

AfterthepaperwaspublishedSatoshicreatedthefirstsoftwareprogramtobeginmining(theprocessofcreatingBitcoin)InJanuary2009SatoshiminedthefirstsetofBitcoinnamedtheGenesisblockShortlyafterheannouncedtheprojecttoagroupofcryptographyexpertsmanyofwhomwereapartoftheldquocypherpunkrdquomovementSatoshidevelopedmanyoftheideasofBitcoinfrompreviouscypherpunkworksInitiallythisgroupofcomputerexpertsapproachedBitcoinasaninterestinghobbydiscussinghowthesystemmayormaynotworkandhowgovernmentsmayreacttoit

Itwasnrsquotuntilthebeginningof2010thatBitcoinwasusedforreal-worldtransactionsBythistimealargercommunityofdevelopershadreviewedthecodendashalongwithSatoshindashandreleasedversion02improvingtheclientThefirstBitcointransactionforaphysicalgoodoccurredonMay212010whenaBitcoinusernamedLaszlopurchasedapizzaworth$25ndashfor10000BitcoinsThistransactionspawnedthefamousldquoBitcoinPizzaIndexrdquowhichcontinuallyupdatesthepriceofthatfirstpizza(asofthewritingofthisbookworthover$12million)

TheBitcoincommunityslowlygrewover2010MtGoxthelargestBitcoinexchangewasfoundedandmadeiteasiertobuyandsellBitcoinThepriceeventuallyreachedparitywiththeUSDollarinFebruary2011andsoonafter

beganrisingrapidly

ThisrapidrisewasprimarilyaresultofincreasedmediaattentionSeveralnewsitesbegancoveringBitcoinandaverageinternetusersbeganbuyingthemAlsonewsofldquoTheSilkRoadrdquobegantoemergeThishiddenwebsitealloweduserstobuyandsellillegalmerchandisendashmostlydrugsndashusingBitcoinforsecurityandanonymity

Thisnewfoundattentionandscrutinydrovethepricehigherstillreachingahighpointof$31inJune2011ButthisrapidpriceincreasewouldsoondeflateThelargestexchangeMtGoxhadtheirdatabasecompromisedbyhackersThisledtosomelarge-scaletheftsofBitcointotalinginthehundredsofthousandsofdollarswhichshookconfidenceinthenewcurrencyThepricedroppeddramaticallyandmanywroteoffBitcoinasafailure

ButBitcoinwasnrsquotfinishedanditslowlybegantobuildmoreusersandfollowersoverthenextyearBytheendof2012thereweremoreusersthaneverbeforeandmorebusinessesbeganacceptingBitcoinaspaymentforgoodsandservices

2013wastrulythebreakthroughyearforBitcoinStartingtheyeararound$13thepricebeganrapidlyincreasingasBitcoinreceivedmorenewscoveragethaneverbeforeWell-knowninternetbrandsbeganacceptingBitcoinsuchasWordpressandRedditNewuserscameintothemarketquicklyandbecauseitisnrsquoteasytoobtainnewBitcoinsthedemandoutstrippedsupplyandpricesrosefurtherByApril10ththepricewasastaggering$266perBitcoin

ThatpricesooncollapsedwhenMtGoxagainhadtechnicalproblemsthistimeduetoalonglagtimeforplacingordersNewbuyerspanickedwhenthepricebegandroppingandthefloodofsellordersdroppedthepricedownto$55inafewdays

AfterthislastbubblethepricehasslowlyincreasedandremainedmuchmorestableThisislikelyduetotheincreasedacceptanceofBitcoinfrommerchantsandthenewservicesthatcontinuetopopuptomakeobtainingandtradingBitcoineasier

Asofthewritingofthisbook(June2013)thetotalnumberofBitcointransactionshasnearlyreachedeighteenmillionandthemarketcap(numberofBitcoinstimesprice)isover$1billionItisnrsquotknownexactlyhowmanypeopleuseBitcoinbutestimatesaretypicallybetween100kand200kandgrowing

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
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Page 2: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

IntroductionThroughouthistorytheprimarymethodofcommunicatingwithsomeoneoverlongdistanceswassendingaletterThiscouldtakedaysweeksevenmonthswithnoguaranteetheletterwouldarriveatallEventhenitwasonlyone-waycommunicationforaconversationtotakeplaceitwouldtakelongerstill

EmailchangedcommunicationsdrasticallyMessagesweresentandreceivedinstantlyfromanywhereintheworldBeforeemailpeopledidnrsquotevenrecognizethedrawbacksoftheoldcommunicationssystemOnceemailbecamewidelyadoptedthedrawbackswereinstantlyobviousandwersquoveneverlookedback

ThisistrueofourcurrentsystemofmoneytodayMostpeopledonrsquotstoptothinkaboutthedrawbacksofourcurrentmonetarysystembutanewtechnologyisalreadybeginningtochangethatThisnewtechnologymdashcalledBitcoinmdashisrapidlychangingthewayweviewmoney

ThisguidewillexplaintoyouwhatBitcoinisgivealaymanrsquosviewofhowitworksandexplainexactlyhowyoucanobtainBitcoinstorethemsafelyspendthemandevencreatethemyourselfBitcoinisacomplicatedsubjectbutinthisguideIwillgiveyoueverythingyouneedtoknowinordertounderstandthesystemandgetstarted

WhatisBitcoinWhenpeoplesayldquoBitcoinrdquotheyarereferringtooneoftwothings

1Adigitalcurrency

2Apaymentsystemusedforsendingandreceivingmoneyonline

TypicallythetermisusedtoapplytothecurrencyitselfbutthepaymentsystemiseverybitasimportantasthecurrencyLetmeexplainboth

BitcoinasaCurrencyBitcoinisadigitaldecentralizedpeertopeerpseudonymouscurrencybasedoncryptographyIfthatsentencemadenosensetoyoudonrsquotworry-Irsquollbreakitdownforyou

DigitalndashBitcoinsexistonlyascodetheydonotexistasanythingphysicalPeoplecan(andhave)madephysicalrepresentationsofBitcoinbutultimatelytheyarebasedinthedigitalworld

DecentralizedndashThereisnocentralbankorinstitutionthatissuesorcontrolsBitcoinItisagroupofindividualsallovertheworldwhoruntheprogramthatkeepsthemonetarysystemrunning

PeertoPeerndashYoucontrolyourownBitcoinandwhenyousendBitcointosomeoneelseitgoesdirectlytothemTherearenobanksormiddlemen

PseudonymousndashWhileallBitcointransactionsarepublicallyviewableinanopenledgercalledtheBlockchain(wersquollgettothatlater)thesenderandreceiverareonlyknownasastringofnumbersandlettersIfyoursquorecarefulaboutyouridentityusingBitcoinscanbedoneanonymously

BasedonCryptographyndashThestrengthofBitcoinasadigitalcurrencyliesinthecodewhichusesstrongcryptographytoensurethatthecoinscannotbeaccessedwithoutproperpermission

BitcoinisthefirstdigitalcurrencythathasthesecharacteristicsandasaresultitisthefirstdigitalcurrencytobecomewidelyadoptedontheinternetAsofJune2013itishandlingnearly60000transactionseachdayandthisnumberisacceleratingquickly

BitcoinasaPaymentSystemSolvingtheDoubleSpendProblemAsanewdigitalcurrencyBitcoinisimpressivebutthetrulyrevolutionaryaspectofBitcoinisinanewpaymentsystemBeforeIexplainthissystemletmebrieflydescribeoneoftheprimaryreasonswhydigitalcurrencieshavealwaysfailedinthepast

InthephysicalworldmoneycanrsquotbeintwoplacesatonceonceyouspendititisinsidestoreArsquoscashregisteranditcanrsquotbeinstoreBrsquoscashregisterWithdigitalcurrencythisisnrsquotnecessarilytrueSincedigitalcurrencyiscomputercodethesamemoneycouldactuallyresideinmultipleplacesThisisobviouslyahugeproblemandwouldleadtorampantfraud

HoweverwedotransacthugeamountsofmoneydigitallytodaysohowcomewedonrsquotseemoredoublespendingWellwehaveservicesthattakecareoftheproblemsuchasPayPalTheyreviewallthetransactionstoensurethatthesamemoneyisnrsquotspenttwice

ButtherearesubstantialproblemswithusingacentralizedservicetodealwiththedoublespendproblemFirsttheyareasinglepointoffailureThismeansthatifPayPalweretohavetechnicalproblemsndashorperhapsiftheydonrsquotlikewhatyouaretryingtopurchasendashthenyoucanrsquotmoveyourmoneyatallAlsoyouhavetopaythemfortheirservicetypicallywithfeesthatare2orevenhigher

BitcoinrsquospaymentsystemsolvesthedoublespendproblemdoesitwithoutrelyingonasinglepointoffailureandrequiressubstantiallysmallerfeesItdoesthisbyusingapublicledgercalledtheBlockchainwhichIrsquolldiscussinmoredetaillaterinthebook

HistoryofBitcoinWheredidBitcoincomefromEventhoughitisonlyfiveyearsolditalreadyhasauniquestory

TheideaforBitcoincamefromadevelopernamedSatoshiNakamotoThatwasthenameontheoriginalpaperthatlaidoutthetechnicalaspectsofthenewprojectndashbutitwasapseudonymTherealidentityofSatoshiNakamotoisstillunknown

TheoriginalpaperwaswritteninOctober2008Thenine-pagepaperbrieflytouchesoneachofthemajoraspectsofthesystemthatSatoshienvisionedaswellasnamingthisnewldquoPeer-to-PeerElectronicCashSystemrdquowiththemonikerthatitusestodayBitcoin

AfterthepaperwaspublishedSatoshicreatedthefirstsoftwareprogramtobeginmining(theprocessofcreatingBitcoin)InJanuary2009SatoshiminedthefirstsetofBitcoinnamedtheGenesisblockShortlyafterheannouncedtheprojecttoagroupofcryptographyexpertsmanyofwhomwereapartoftheldquocypherpunkrdquomovementSatoshidevelopedmanyoftheideasofBitcoinfrompreviouscypherpunkworksInitiallythisgroupofcomputerexpertsapproachedBitcoinasaninterestinghobbydiscussinghowthesystemmayormaynotworkandhowgovernmentsmayreacttoit

Itwasnrsquotuntilthebeginningof2010thatBitcoinwasusedforreal-worldtransactionsBythistimealargercommunityofdevelopershadreviewedthecodendashalongwithSatoshindashandreleasedversion02improvingtheclientThefirstBitcointransactionforaphysicalgoodoccurredonMay212010whenaBitcoinusernamedLaszlopurchasedapizzaworth$25ndashfor10000BitcoinsThistransactionspawnedthefamousldquoBitcoinPizzaIndexrdquowhichcontinuallyupdatesthepriceofthatfirstpizza(asofthewritingofthisbookworthover$12million)

TheBitcoincommunityslowlygrewover2010MtGoxthelargestBitcoinexchangewasfoundedandmadeiteasiertobuyandsellBitcoinThepriceeventuallyreachedparitywiththeUSDollarinFebruary2011andsoonafter

beganrisingrapidly

ThisrapidrisewasprimarilyaresultofincreasedmediaattentionSeveralnewsitesbegancoveringBitcoinandaverageinternetusersbeganbuyingthemAlsonewsofldquoTheSilkRoadrdquobegantoemergeThishiddenwebsitealloweduserstobuyandsellillegalmerchandisendashmostlydrugsndashusingBitcoinforsecurityandanonymity

Thisnewfoundattentionandscrutinydrovethepricehigherstillreachingahighpointof$31inJune2011ButthisrapidpriceincreasewouldsoondeflateThelargestexchangeMtGoxhadtheirdatabasecompromisedbyhackersThisledtosomelarge-scaletheftsofBitcointotalinginthehundredsofthousandsofdollarswhichshookconfidenceinthenewcurrencyThepricedroppeddramaticallyandmanywroteoffBitcoinasafailure

ButBitcoinwasnrsquotfinishedanditslowlybegantobuildmoreusersandfollowersoverthenextyearBytheendof2012thereweremoreusersthaneverbeforeandmorebusinessesbeganacceptingBitcoinaspaymentforgoodsandservices

2013wastrulythebreakthroughyearforBitcoinStartingtheyeararound$13thepricebeganrapidlyincreasingasBitcoinreceivedmorenewscoveragethaneverbeforeWell-knowninternetbrandsbeganacceptingBitcoinsuchasWordpressandRedditNewuserscameintothemarketquicklyandbecauseitisnrsquoteasytoobtainnewBitcoinsthedemandoutstrippedsupplyandpricesrosefurtherByApril10ththepricewasastaggering$266perBitcoin

ThatpricesooncollapsedwhenMtGoxagainhadtechnicalproblemsthistimeduetoalonglagtimeforplacingordersNewbuyerspanickedwhenthepricebegandroppingandthefloodofsellordersdroppedthepricedownto$55inafewdays

AfterthislastbubblethepricehasslowlyincreasedandremainedmuchmorestableThisislikelyduetotheincreasedacceptanceofBitcoinfrommerchantsandthenewservicesthatcontinuetopopuptomakeobtainingandtradingBitcoineasier

Asofthewritingofthisbook(June2013)thetotalnumberofBitcointransactionshasnearlyreachedeighteenmillionandthemarketcap(numberofBitcoinstimesprice)isover$1billionItisnrsquotknownexactlyhowmanypeopleuseBitcoinbutestimatesaretypicallybetween100kand200kandgrowing

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 3: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

WhatisBitcoinWhenpeoplesayldquoBitcoinrdquotheyarereferringtooneoftwothings

1Adigitalcurrency

2Apaymentsystemusedforsendingandreceivingmoneyonline

TypicallythetermisusedtoapplytothecurrencyitselfbutthepaymentsystemiseverybitasimportantasthecurrencyLetmeexplainboth

BitcoinasaCurrencyBitcoinisadigitaldecentralizedpeertopeerpseudonymouscurrencybasedoncryptographyIfthatsentencemadenosensetoyoudonrsquotworry-Irsquollbreakitdownforyou

DigitalndashBitcoinsexistonlyascodetheydonotexistasanythingphysicalPeoplecan(andhave)madephysicalrepresentationsofBitcoinbutultimatelytheyarebasedinthedigitalworld

DecentralizedndashThereisnocentralbankorinstitutionthatissuesorcontrolsBitcoinItisagroupofindividualsallovertheworldwhoruntheprogramthatkeepsthemonetarysystemrunning

PeertoPeerndashYoucontrolyourownBitcoinandwhenyousendBitcointosomeoneelseitgoesdirectlytothemTherearenobanksormiddlemen

PseudonymousndashWhileallBitcointransactionsarepublicallyviewableinanopenledgercalledtheBlockchain(wersquollgettothatlater)thesenderandreceiverareonlyknownasastringofnumbersandlettersIfyoursquorecarefulaboutyouridentityusingBitcoinscanbedoneanonymously

BasedonCryptographyndashThestrengthofBitcoinasadigitalcurrencyliesinthecodewhichusesstrongcryptographytoensurethatthecoinscannotbeaccessedwithoutproperpermission

BitcoinisthefirstdigitalcurrencythathasthesecharacteristicsandasaresultitisthefirstdigitalcurrencytobecomewidelyadoptedontheinternetAsofJune2013itishandlingnearly60000transactionseachdayandthisnumberisacceleratingquickly

BitcoinasaPaymentSystemSolvingtheDoubleSpendProblemAsanewdigitalcurrencyBitcoinisimpressivebutthetrulyrevolutionaryaspectofBitcoinisinanewpaymentsystemBeforeIexplainthissystemletmebrieflydescribeoneoftheprimaryreasonswhydigitalcurrencieshavealwaysfailedinthepast

InthephysicalworldmoneycanrsquotbeintwoplacesatonceonceyouspendititisinsidestoreArsquoscashregisteranditcanrsquotbeinstoreBrsquoscashregisterWithdigitalcurrencythisisnrsquotnecessarilytrueSincedigitalcurrencyiscomputercodethesamemoneycouldactuallyresideinmultipleplacesThisisobviouslyahugeproblemandwouldleadtorampantfraud

HoweverwedotransacthugeamountsofmoneydigitallytodaysohowcomewedonrsquotseemoredoublespendingWellwehaveservicesthattakecareoftheproblemsuchasPayPalTheyreviewallthetransactionstoensurethatthesamemoneyisnrsquotspenttwice

ButtherearesubstantialproblemswithusingacentralizedservicetodealwiththedoublespendproblemFirsttheyareasinglepointoffailureThismeansthatifPayPalweretohavetechnicalproblemsndashorperhapsiftheydonrsquotlikewhatyouaretryingtopurchasendashthenyoucanrsquotmoveyourmoneyatallAlsoyouhavetopaythemfortheirservicetypicallywithfeesthatare2orevenhigher

BitcoinrsquospaymentsystemsolvesthedoublespendproblemdoesitwithoutrelyingonasinglepointoffailureandrequiressubstantiallysmallerfeesItdoesthisbyusingapublicledgercalledtheBlockchainwhichIrsquolldiscussinmoredetaillaterinthebook

HistoryofBitcoinWheredidBitcoincomefromEventhoughitisonlyfiveyearsolditalreadyhasauniquestory

TheideaforBitcoincamefromadevelopernamedSatoshiNakamotoThatwasthenameontheoriginalpaperthatlaidoutthetechnicalaspectsofthenewprojectndashbutitwasapseudonymTherealidentityofSatoshiNakamotoisstillunknown

TheoriginalpaperwaswritteninOctober2008Thenine-pagepaperbrieflytouchesoneachofthemajoraspectsofthesystemthatSatoshienvisionedaswellasnamingthisnewldquoPeer-to-PeerElectronicCashSystemrdquowiththemonikerthatitusestodayBitcoin

AfterthepaperwaspublishedSatoshicreatedthefirstsoftwareprogramtobeginmining(theprocessofcreatingBitcoin)InJanuary2009SatoshiminedthefirstsetofBitcoinnamedtheGenesisblockShortlyafterheannouncedtheprojecttoagroupofcryptographyexpertsmanyofwhomwereapartoftheldquocypherpunkrdquomovementSatoshidevelopedmanyoftheideasofBitcoinfrompreviouscypherpunkworksInitiallythisgroupofcomputerexpertsapproachedBitcoinasaninterestinghobbydiscussinghowthesystemmayormaynotworkandhowgovernmentsmayreacttoit

Itwasnrsquotuntilthebeginningof2010thatBitcoinwasusedforreal-worldtransactionsBythistimealargercommunityofdevelopershadreviewedthecodendashalongwithSatoshindashandreleasedversion02improvingtheclientThefirstBitcointransactionforaphysicalgoodoccurredonMay212010whenaBitcoinusernamedLaszlopurchasedapizzaworth$25ndashfor10000BitcoinsThistransactionspawnedthefamousldquoBitcoinPizzaIndexrdquowhichcontinuallyupdatesthepriceofthatfirstpizza(asofthewritingofthisbookworthover$12million)

TheBitcoincommunityslowlygrewover2010MtGoxthelargestBitcoinexchangewasfoundedandmadeiteasiertobuyandsellBitcoinThepriceeventuallyreachedparitywiththeUSDollarinFebruary2011andsoonafter

beganrisingrapidly

ThisrapidrisewasprimarilyaresultofincreasedmediaattentionSeveralnewsitesbegancoveringBitcoinandaverageinternetusersbeganbuyingthemAlsonewsofldquoTheSilkRoadrdquobegantoemergeThishiddenwebsitealloweduserstobuyandsellillegalmerchandisendashmostlydrugsndashusingBitcoinforsecurityandanonymity

Thisnewfoundattentionandscrutinydrovethepricehigherstillreachingahighpointof$31inJune2011ButthisrapidpriceincreasewouldsoondeflateThelargestexchangeMtGoxhadtheirdatabasecompromisedbyhackersThisledtosomelarge-scaletheftsofBitcointotalinginthehundredsofthousandsofdollarswhichshookconfidenceinthenewcurrencyThepricedroppeddramaticallyandmanywroteoffBitcoinasafailure

ButBitcoinwasnrsquotfinishedanditslowlybegantobuildmoreusersandfollowersoverthenextyearBytheendof2012thereweremoreusersthaneverbeforeandmorebusinessesbeganacceptingBitcoinaspaymentforgoodsandservices

2013wastrulythebreakthroughyearforBitcoinStartingtheyeararound$13thepricebeganrapidlyincreasingasBitcoinreceivedmorenewscoveragethaneverbeforeWell-knowninternetbrandsbeganacceptingBitcoinsuchasWordpressandRedditNewuserscameintothemarketquicklyandbecauseitisnrsquoteasytoobtainnewBitcoinsthedemandoutstrippedsupplyandpricesrosefurtherByApril10ththepricewasastaggering$266perBitcoin

ThatpricesooncollapsedwhenMtGoxagainhadtechnicalproblemsthistimeduetoalonglagtimeforplacingordersNewbuyerspanickedwhenthepricebegandroppingandthefloodofsellordersdroppedthepricedownto$55inafewdays

AfterthislastbubblethepricehasslowlyincreasedandremainedmuchmorestableThisislikelyduetotheincreasedacceptanceofBitcoinfrommerchantsandthenewservicesthatcontinuetopopuptomakeobtainingandtradingBitcoineasier

Asofthewritingofthisbook(June2013)thetotalnumberofBitcointransactionshasnearlyreachedeighteenmillionandthemarketcap(numberofBitcoinstimesprice)isover$1billionItisnrsquotknownexactlyhowmanypeopleuseBitcoinbutestimatesaretypicallybetween100kand200kandgrowing

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 4: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

BitcoinasaCurrencyBitcoinisadigitaldecentralizedpeertopeerpseudonymouscurrencybasedoncryptographyIfthatsentencemadenosensetoyoudonrsquotworry-Irsquollbreakitdownforyou

DigitalndashBitcoinsexistonlyascodetheydonotexistasanythingphysicalPeoplecan(andhave)madephysicalrepresentationsofBitcoinbutultimatelytheyarebasedinthedigitalworld

DecentralizedndashThereisnocentralbankorinstitutionthatissuesorcontrolsBitcoinItisagroupofindividualsallovertheworldwhoruntheprogramthatkeepsthemonetarysystemrunning

PeertoPeerndashYoucontrolyourownBitcoinandwhenyousendBitcointosomeoneelseitgoesdirectlytothemTherearenobanksormiddlemen

PseudonymousndashWhileallBitcointransactionsarepublicallyviewableinanopenledgercalledtheBlockchain(wersquollgettothatlater)thesenderandreceiverareonlyknownasastringofnumbersandlettersIfyoursquorecarefulaboutyouridentityusingBitcoinscanbedoneanonymously

BasedonCryptographyndashThestrengthofBitcoinasadigitalcurrencyliesinthecodewhichusesstrongcryptographytoensurethatthecoinscannotbeaccessedwithoutproperpermission

BitcoinisthefirstdigitalcurrencythathasthesecharacteristicsandasaresultitisthefirstdigitalcurrencytobecomewidelyadoptedontheinternetAsofJune2013itishandlingnearly60000transactionseachdayandthisnumberisacceleratingquickly

BitcoinasaPaymentSystemSolvingtheDoubleSpendProblemAsanewdigitalcurrencyBitcoinisimpressivebutthetrulyrevolutionaryaspectofBitcoinisinanewpaymentsystemBeforeIexplainthissystemletmebrieflydescribeoneoftheprimaryreasonswhydigitalcurrencieshavealwaysfailedinthepast

InthephysicalworldmoneycanrsquotbeintwoplacesatonceonceyouspendititisinsidestoreArsquoscashregisteranditcanrsquotbeinstoreBrsquoscashregisterWithdigitalcurrencythisisnrsquotnecessarilytrueSincedigitalcurrencyiscomputercodethesamemoneycouldactuallyresideinmultipleplacesThisisobviouslyahugeproblemandwouldleadtorampantfraud

HoweverwedotransacthugeamountsofmoneydigitallytodaysohowcomewedonrsquotseemoredoublespendingWellwehaveservicesthattakecareoftheproblemsuchasPayPalTheyreviewallthetransactionstoensurethatthesamemoneyisnrsquotspenttwice

ButtherearesubstantialproblemswithusingacentralizedservicetodealwiththedoublespendproblemFirsttheyareasinglepointoffailureThismeansthatifPayPalweretohavetechnicalproblemsndashorperhapsiftheydonrsquotlikewhatyouaretryingtopurchasendashthenyoucanrsquotmoveyourmoneyatallAlsoyouhavetopaythemfortheirservicetypicallywithfeesthatare2orevenhigher

BitcoinrsquospaymentsystemsolvesthedoublespendproblemdoesitwithoutrelyingonasinglepointoffailureandrequiressubstantiallysmallerfeesItdoesthisbyusingapublicledgercalledtheBlockchainwhichIrsquolldiscussinmoredetaillaterinthebook

HistoryofBitcoinWheredidBitcoincomefromEventhoughitisonlyfiveyearsolditalreadyhasauniquestory

TheideaforBitcoincamefromadevelopernamedSatoshiNakamotoThatwasthenameontheoriginalpaperthatlaidoutthetechnicalaspectsofthenewprojectndashbutitwasapseudonymTherealidentityofSatoshiNakamotoisstillunknown

TheoriginalpaperwaswritteninOctober2008Thenine-pagepaperbrieflytouchesoneachofthemajoraspectsofthesystemthatSatoshienvisionedaswellasnamingthisnewldquoPeer-to-PeerElectronicCashSystemrdquowiththemonikerthatitusestodayBitcoin

AfterthepaperwaspublishedSatoshicreatedthefirstsoftwareprogramtobeginmining(theprocessofcreatingBitcoin)InJanuary2009SatoshiminedthefirstsetofBitcoinnamedtheGenesisblockShortlyafterheannouncedtheprojecttoagroupofcryptographyexpertsmanyofwhomwereapartoftheldquocypherpunkrdquomovementSatoshidevelopedmanyoftheideasofBitcoinfrompreviouscypherpunkworksInitiallythisgroupofcomputerexpertsapproachedBitcoinasaninterestinghobbydiscussinghowthesystemmayormaynotworkandhowgovernmentsmayreacttoit

Itwasnrsquotuntilthebeginningof2010thatBitcoinwasusedforreal-worldtransactionsBythistimealargercommunityofdevelopershadreviewedthecodendashalongwithSatoshindashandreleasedversion02improvingtheclientThefirstBitcointransactionforaphysicalgoodoccurredonMay212010whenaBitcoinusernamedLaszlopurchasedapizzaworth$25ndashfor10000BitcoinsThistransactionspawnedthefamousldquoBitcoinPizzaIndexrdquowhichcontinuallyupdatesthepriceofthatfirstpizza(asofthewritingofthisbookworthover$12million)

TheBitcoincommunityslowlygrewover2010MtGoxthelargestBitcoinexchangewasfoundedandmadeiteasiertobuyandsellBitcoinThepriceeventuallyreachedparitywiththeUSDollarinFebruary2011andsoonafter

beganrisingrapidly

ThisrapidrisewasprimarilyaresultofincreasedmediaattentionSeveralnewsitesbegancoveringBitcoinandaverageinternetusersbeganbuyingthemAlsonewsofldquoTheSilkRoadrdquobegantoemergeThishiddenwebsitealloweduserstobuyandsellillegalmerchandisendashmostlydrugsndashusingBitcoinforsecurityandanonymity

Thisnewfoundattentionandscrutinydrovethepricehigherstillreachingahighpointof$31inJune2011ButthisrapidpriceincreasewouldsoondeflateThelargestexchangeMtGoxhadtheirdatabasecompromisedbyhackersThisledtosomelarge-scaletheftsofBitcointotalinginthehundredsofthousandsofdollarswhichshookconfidenceinthenewcurrencyThepricedroppeddramaticallyandmanywroteoffBitcoinasafailure

ButBitcoinwasnrsquotfinishedanditslowlybegantobuildmoreusersandfollowersoverthenextyearBytheendof2012thereweremoreusersthaneverbeforeandmorebusinessesbeganacceptingBitcoinaspaymentforgoodsandservices

2013wastrulythebreakthroughyearforBitcoinStartingtheyeararound$13thepricebeganrapidlyincreasingasBitcoinreceivedmorenewscoveragethaneverbeforeWell-knowninternetbrandsbeganacceptingBitcoinsuchasWordpressandRedditNewuserscameintothemarketquicklyandbecauseitisnrsquoteasytoobtainnewBitcoinsthedemandoutstrippedsupplyandpricesrosefurtherByApril10ththepricewasastaggering$266perBitcoin

ThatpricesooncollapsedwhenMtGoxagainhadtechnicalproblemsthistimeduetoalonglagtimeforplacingordersNewbuyerspanickedwhenthepricebegandroppingandthefloodofsellordersdroppedthepricedownto$55inafewdays

AfterthislastbubblethepricehasslowlyincreasedandremainedmuchmorestableThisislikelyduetotheincreasedacceptanceofBitcoinfrommerchantsandthenewservicesthatcontinuetopopuptomakeobtainingandtradingBitcoineasier

Asofthewritingofthisbook(June2013)thetotalnumberofBitcointransactionshasnearlyreachedeighteenmillionandthemarketcap(numberofBitcoinstimesprice)isover$1billionItisnrsquotknownexactlyhowmanypeopleuseBitcoinbutestimatesaretypicallybetween100kand200kandgrowing

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 5: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

BitcoinasaPaymentSystemSolvingtheDoubleSpendProblemAsanewdigitalcurrencyBitcoinisimpressivebutthetrulyrevolutionaryaspectofBitcoinisinanewpaymentsystemBeforeIexplainthissystemletmebrieflydescribeoneoftheprimaryreasonswhydigitalcurrencieshavealwaysfailedinthepast

InthephysicalworldmoneycanrsquotbeintwoplacesatonceonceyouspendititisinsidestoreArsquoscashregisteranditcanrsquotbeinstoreBrsquoscashregisterWithdigitalcurrencythisisnrsquotnecessarilytrueSincedigitalcurrencyiscomputercodethesamemoneycouldactuallyresideinmultipleplacesThisisobviouslyahugeproblemandwouldleadtorampantfraud

HoweverwedotransacthugeamountsofmoneydigitallytodaysohowcomewedonrsquotseemoredoublespendingWellwehaveservicesthattakecareoftheproblemsuchasPayPalTheyreviewallthetransactionstoensurethatthesamemoneyisnrsquotspenttwice

ButtherearesubstantialproblemswithusingacentralizedservicetodealwiththedoublespendproblemFirsttheyareasinglepointoffailureThismeansthatifPayPalweretohavetechnicalproblemsndashorperhapsiftheydonrsquotlikewhatyouaretryingtopurchasendashthenyoucanrsquotmoveyourmoneyatallAlsoyouhavetopaythemfortheirservicetypicallywithfeesthatare2orevenhigher

BitcoinrsquospaymentsystemsolvesthedoublespendproblemdoesitwithoutrelyingonasinglepointoffailureandrequiressubstantiallysmallerfeesItdoesthisbyusingapublicledgercalledtheBlockchainwhichIrsquolldiscussinmoredetaillaterinthebook

HistoryofBitcoinWheredidBitcoincomefromEventhoughitisonlyfiveyearsolditalreadyhasauniquestory

TheideaforBitcoincamefromadevelopernamedSatoshiNakamotoThatwasthenameontheoriginalpaperthatlaidoutthetechnicalaspectsofthenewprojectndashbutitwasapseudonymTherealidentityofSatoshiNakamotoisstillunknown

TheoriginalpaperwaswritteninOctober2008Thenine-pagepaperbrieflytouchesoneachofthemajoraspectsofthesystemthatSatoshienvisionedaswellasnamingthisnewldquoPeer-to-PeerElectronicCashSystemrdquowiththemonikerthatitusestodayBitcoin

AfterthepaperwaspublishedSatoshicreatedthefirstsoftwareprogramtobeginmining(theprocessofcreatingBitcoin)InJanuary2009SatoshiminedthefirstsetofBitcoinnamedtheGenesisblockShortlyafterheannouncedtheprojecttoagroupofcryptographyexpertsmanyofwhomwereapartoftheldquocypherpunkrdquomovementSatoshidevelopedmanyoftheideasofBitcoinfrompreviouscypherpunkworksInitiallythisgroupofcomputerexpertsapproachedBitcoinasaninterestinghobbydiscussinghowthesystemmayormaynotworkandhowgovernmentsmayreacttoit

Itwasnrsquotuntilthebeginningof2010thatBitcoinwasusedforreal-worldtransactionsBythistimealargercommunityofdevelopershadreviewedthecodendashalongwithSatoshindashandreleasedversion02improvingtheclientThefirstBitcointransactionforaphysicalgoodoccurredonMay212010whenaBitcoinusernamedLaszlopurchasedapizzaworth$25ndashfor10000BitcoinsThistransactionspawnedthefamousldquoBitcoinPizzaIndexrdquowhichcontinuallyupdatesthepriceofthatfirstpizza(asofthewritingofthisbookworthover$12million)

TheBitcoincommunityslowlygrewover2010MtGoxthelargestBitcoinexchangewasfoundedandmadeiteasiertobuyandsellBitcoinThepriceeventuallyreachedparitywiththeUSDollarinFebruary2011andsoonafter

beganrisingrapidly

ThisrapidrisewasprimarilyaresultofincreasedmediaattentionSeveralnewsitesbegancoveringBitcoinandaverageinternetusersbeganbuyingthemAlsonewsofldquoTheSilkRoadrdquobegantoemergeThishiddenwebsitealloweduserstobuyandsellillegalmerchandisendashmostlydrugsndashusingBitcoinforsecurityandanonymity

Thisnewfoundattentionandscrutinydrovethepricehigherstillreachingahighpointof$31inJune2011ButthisrapidpriceincreasewouldsoondeflateThelargestexchangeMtGoxhadtheirdatabasecompromisedbyhackersThisledtosomelarge-scaletheftsofBitcointotalinginthehundredsofthousandsofdollarswhichshookconfidenceinthenewcurrencyThepricedroppeddramaticallyandmanywroteoffBitcoinasafailure

ButBitcoinwasnrsquotfinishedanditslowlybegantobuildmoreusersandfollowersoverthenextyearBytheendof2012thereweremoreusersthaneverbeforeandmorebusinessesbeganacceptingBitcoinaspaymentforgoodsandservices

2013wastrulythebreakthroughyearforBitcoinStartingtheyeararound$13thepricebeganrapidlyincreasingasBitcoinreceivedmorenewscoveragethaneverbeforeWell-knowninternetbrandsbeganacceptingBitcoinsuchasWordpressandRedditNewuserscameintothemarketquicklyandbecauseitisnrsquoteasytoobtainnewBitcoinsthedemandoutstrippedsupplyandpricesrosefurtherByApril10ththepricewasastaggering$266perBitcoin

ThatpricesooncollapsedwhenMtGoxagainhadtechnicalproblemsthistimeduetoalonglagtimeforplacingordersNewbuyerspanickedwhenthepricebegandroppingandthefloodofsellordersdroppedthepricedownto$55inafewdays

AfterthislastbubblethepricehasslowlyincreasedandremainedmuchmorestableThisislikelyduetotheincreasedacceptanceofBitcoinfrommerchantsandthenewservicesthatcontinuetopopuptomakeobtainingandtradingBitcoineasier

Asofthewritingofthisbook(June2013)thetotalnumberofBitcointransactionshasnearlyreachedeighteenmillionandthemarketcap(numberofBitcoinstimesprice)isover$1billionItisnrsquotknownexactlyhowmanypeopleuseBitcoinbutestimatesaretypicallybetween100kand200kandgrowing

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 6: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

HistoryofBitcoinWheredidBitcoincomefromEventhoughitisonlyfiveyearsolditalreadyhasauniquestory

TheideaforBitcoincamefromadevelopernamedSatoshiNakamotoThatwasthenameontheoriginalpaperthatlaidoutthetechnicalaspectsofthenewprojectndashbutitwasapseudonymTherealidentityofSatoshiNakamotoisstillunknown

TheoriginalpaperwaswritteninOctober2008Thenine-pagepaperbrieflytouchesoneachofthemajoraspectsofthesystemthatSatoshienvisionedaswellasnamingthisnewldquoPeer-to-PeerElectronicCashSystemrdquowiththemonikerthatitusestodayBitcoin

AfterthepaperwaspublishedSatoshicreatedthefirstsoftwareprogramtobeginmining(theprocessofcreatingBitcoin)InJanuary2009SatoshiminedthefirstsetofBitcoinnamedtheGenesisblockShortlyafterheannouncedtheprojecttoagroupofcryptographyexpertsmanyofwhomwereapartoftheldquocypherpunkrdquomovementSatoshidevelopedmanyoftheideasofBitcoinfrompreviouscypherpunkworksInitiallythisgroupofcomputerexpertsapproachedBitcoinasaninterestinghobbydiscussinghowthesystemmayormaynotworkandhowgovernmentsmayreacttoit

Itwasnrsquotuntilthebeginningof2010thatBitcoinwasusedforreal-worldtransactionsBythistimealargercommunityofdevelopershadreviewedthecodendashalongwithSatoshindashandreleasedversion02improvingtheclientThefirstBitcointransactionforaphysicalgoodoccurredonMay212010whenaBitcoinusernamedLaszlopurchasedapizzaworth$25ndashfor10000BitcoinsThistransactionspawnedthefamousldquoBitcoinPizzaIndexrdquowhichcontinuallyupdatesthepriceofthatfirstpizza(asofthewritingofthisbookworthover$12million)

TheBitcoincommunityslowlygrewover2010MtGoxthelargestBitcoinexchangewasfoundedandmadeiteasiertobuyandsellBitcoinThepriceeventuallyreachedparitywiththeUSDollarinFebruary2011andsoonafter

beganrisingrapidly

ThisrapidrisewasprimarilyaresultofincreasedmediaattentionSeveralnewsitesbegancoveringBitcoinandaverageinternetusersbeganbuyingthemAlsonewsofldquoTheSilkRoadrdquobegantoemergeThishiddenwebsitealloweduserstobuyandsellillegalmerchandisendashmostlydrugsndashusingBitcoinforsecurityandanonymity

Thisnewfoundattentionandscrutinydrovethepricehigherstillreachingahighpointof$31inJune2011ButthisrapidpriceincreasewouldsoondeflateThelargestexchangeMtGoxhadtheirdatabasecompromisedbyhackersThisledtosomelarge-scaletheftsofBitcointotalinginthehundredsofthousandsofdollarswhichshookconfidenceinthenewcurrencyThepricedroppeddramaticallyandmanywroteoffBitcoinasafailure

ButBitcoinwasnrsquotfinishedanditslowlybegantobuildmoreusersandfollowersoverthenextyearBytheendof2012thereweremoreusersthaneverbeforeandmorebusinessesbeganacceptingBitcoinaspaymentforgoodsandservices

2013wastrulythebreakthroughyearforBitcoinStartingtheyeararound$13thepricebeganrapidlyincreasingasBitcoinreceivedmorenewscoveragethaneverbeforeWell-knowninternetbrandsbeganacceptingBitcoinsuchasWordpressandRedditNewuserscameintothemarketquicklyandbecauseitisnrsquoteasytoobtainnewBitcoinsthedemandoutstrippedsupplyandpricesrosefurtherByApril10ththepricewasastaggering$266perBitcoin

ThatpricesooncollapsedwhenMtGoxagainhadtechnicalproblemsthistimeduetoalonglagtimeforplacingordersNewbuyerspanickedwhenthepricebegandroppingandthefloodofsellordersdroppedthepricedownto$55inafewdays

AfterthislastbubblethepricehasslowlyincreasedandremainedmuchmorestableThisislikelyduetotheincreasedacceptanceofBitcoinfrommerchantsandthenewservicesthatcontinuetopopuptomakeobtainingandtradingBitcoineasier

Asofthewritingofthisbook(June2013)thetotalnumberofBitcointransactionshasnearlyreachedeighteenmillionandthemarketcap(numberofBitcoinstimesprice)isover$1billionItisnrsquotknownexactlyhowmanypeopleuseBitcoinbutestimatesaretypicallybetween100kand200kandgrowing

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 7: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

beganrisingrapidly

ThisrapidrisewasprimarilyaresultofincreasedmediaattentionSeveralnewsitesbegancoveringBitcoinandaverageinternetusersbeganbuyingthemAlsonewsofldquoTheSilkRoadrdquobegantoemergeThishiddenwebsitealloweduserstobuyandsellillegalmerchandisendashmostlydrugsndashusingBitcoinforsecurityandanonymity

Thisnewfoundattentionandscrutinydrovethepricehigherstillreachingahighpointof$31inJune2011ButthisrapidpriceincreasewouldsoondeflateThelargestexchangeMtGoxhadtheirdatabasecompromisedbyhackersThisledtosomelarge-scaletheftsofBitcointotalinginthehundredsofthousandsofdollarswhichshookconfidenceinthenewcurrencyThepricedroppeddramaticallyandmanywroteoffBitcoinasafailure

ButBitcoinwasnrsquotfinishedanditslowlybegantobuildmoreusersandfollowersoverthenextyearBytheendof2012thereweremoreusersthaneverbeforeandmorebusinessesbeganacceptingBitcoinaspaymentforgoodsandservices

2013wastrulythebreakthroughyearforBitcoinStartingtheyeararound$13thepricebeganrapidlyincreasingasBitcoinreceivedmorenewscoveragethaneverbeforeWell-knowninternetbrandsbeganacceptingBitcoinsuchasWordpressandRedditNewuserscameintothemarketquicklyandbecauseitisnrsquoteasytoobtainnewBitcoinsthedemandoutstrippedsupplyandpricesrosefurtherByApril10ththepricewasastaggering$266perBitcoin

ThatpricesooncollapsedwhenMtGoxagainhadtechnicalproblemsthistimeduetoalonglagtimeforplacingordersNewbuyerspanickedwhenthepricebegandroppingandthefloodofsellordersdroppedthepricedownto$55inafewdays

AfterthislastbubblethepricehasslowlyincreasedandremainedmuchmorestableThisislikelyduetotheincreasedacceptanceofBitcoinfrommerchantsandthenewservicesthatcontinuetopopuptomakeobtainingandtradingBitcoineasier

Asofthewritingofthisbook(June2013)thetotalnumberofBitcointransactionshasnearlyreachedeighteenmillionandthemarketcap(numberofBitcoinstimesprice)isover$1billionItisnrsquotknownexactlyhowmanypeopleuseBitcoinbutestimatesaretypicallybetween100kand200kandgrowing

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 8: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

rapidly

InabsolutenumberstheUnitedStateshasthemostBitcoinusersbutpercapitaScandinaviancountrieshavethemostusersThemostrapidlygrowingadoptersofBitcoinarenowndashatleasttemporarilyndashtheChineseafterseveralreportsonBitcoinhittheirmainstreammediaBecauseofthenecessityforhavingacomputerandinternetinfrastructurewehaveyettoseedevelopingcountriesuseBitcoinfrequently

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 9: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

WhyUseBitcoinTheAdvantagesandDisadvantagesofDigitalMoneyNowyouhaveageneralsenseforwhatBitcoinisandknowaboutitshistoryButwhyuseitatallWhatiswrongwithourcurrentmoney

BitcoinisnrsquotforeveryoneItdoesrequiresomeamountoftechnicalknowledgetopurchaseanduseaswellassafelystoreyourcoinsItalsoisavolatilemarketwithrapidpricefluctuationsthatcanwreakhavocforinvestorsWhiletheseproblemswilllessenwithtimetheyarestillabarriertomany

HowevertherearesignificantdrawbackstoourcurrentmonetarysystemthatmakeBitcoinappealinganditcanbesummarizedinonewordtrust

ReducingthetrustneededfortransactionswasoneoftheprimarydriversforBitcoininthefirstplaceAsSatoshirsquosoriginalpaperstatesinhisconcludingparagraphldquoWehaveproposedasystemforelectronictransactionswithoutrelyingontrustrdquo

Inordertousemoneytodayyoumusthaveasignificantamountoftrustinmultipleinstitutions

1BanksWhenusingbanksyouaretrustingthattheywillbeabletopayyoubackwhenyouwithdrawyourmoneyandthattheywillnotgobankruptAswehaveseenmanytimesinhistorybankrunsandfinancialpanicsprovethatyoucannotbecertainyourmoneyissafeinsideabank

2CentralBanksTheUnitedStateshastheFederalReservetheEuropeanUnionhastheEuropeanCentralBank(ECB)JapanhastheBankofJapanthisisrepeatedtheworldoverCountrieshavecentralbanksthatcontroltheissuanceoftheircurrencyTypicallythiscurrencyisnotbackedbyanycommodity(suchasgoldorsilver)andthereforeisonlyvaluablebylawndashalsocalledfiatmoneyWetrustthatcentralbankswillnotcreatetoomuchfiatmoneywhichresultsininflationandhigherpricesforeverybodyUnfortunatelysincethefinancialcrisisin2008centralbanksacrosstheworldhaveallprintedmorefiatmoneywhich

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 10: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

likelymeanswewillfaceinflationinthefuture

3PaymentProcessorsWetrustthatwhenwespendoracceptmoneyonlinethepaymentprocessorswillensuretherearenodoublespendsandthattheywillnotreversethetransactionWealsotrustthattheywillallowustospendourmoneyaswelikebutthisisnrsquotalwaystruePoliticaladvocacygroupWikileakswastryingtosolicitdonationsin2012butduetopressurefromgovernmentspaymentprocessors(suchasVisaandPayPal)refusedtoallowdonationsfromtheirusers

4GovernmentsEventsinCyprusduringMarchof2013showhowdangerousgovernmentscanbetoourcurrencyInvestorsinbankshadmanyoftheirassetsconfiscatedinordertopayforthecountryrsquosdebtproblemsAlsogovernmentstendtorestrictthetypesofthingsthatindividualscanspendmoneyonsuchasdrugsprostitutiongamblingetc

5IdentityRequiredForbankspaymentprocessorsandgovernmentusingcurrencytypicallyrequiresbeingidentifiedUnderthecurrencysystemunlessyouareusingcashinpersonyoumustbeidentifiedwhichcancauseprivacyandsecurityproblems

HowdoesBitcoinreducethetrustnecessaryintheseinstitutionsIrsquollwalkthrougheachofthemagain

1BanksNobanksareneededwhenusingBitcoinYoumanagethecurrencyyourselfandifyoutaketherightprecautionsyoucanbesureyourBitcoinarerightwhereyouleftthem

2CentralBanksBitcoinarenotcreatedbyanycentralinstitutionandtheyarecreatedbythenetworkatapredictableandsteadyrateNoneedtoworryaboutinflation

3PaymentProcessorsTherearenoneBitcoinispeer-to-peermeaningthetransactionoccursdirectlyfromoneusertoanotherNomiddlemenatall

4GovernmentsThereislittlethatgovernmentscandotonegativelyimpactBitcoinTheycannotconfiscatecoinsfrombanksandtheycanrsquotpreventusersfromspendingtheirBitcoinhowevertheylikeHowevertheyarenrsquotcompletelypowerlesstheycantargettheexchangesthepointsatwhichpeoplebuyorsellBitcoinforfiatcurrenciesStilltheircontrol

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 11: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

overBitcoinissubstantiallylessthantraditionalcurrencies

5IdentityNotRequiredIfyouchoosetobeanonymouswithBitcoinyoucanbeEventhoughalltransactionsarepubliclyviewableontheblockchainthesenderandreceiverofthefundsareonlyknownbyastringofnumbersandlettersIfyoursquorecarefulyoucannotbeidentifiedintheblockchain

UsingBitcoinmeansnothavingtoplacetrustintheseinstitutionsWhilethisargumentwastheprimarysellingpointforSatoshitherearemanyotheradvantagesthatBitcoinoffersaswell

SimpletouseWhiletheymaynotbeveryeasytoobtaintheyareeasytospendAllyouneedtodoisinputthereceiverrsquospublicaddress(oftendonebyscanningaQRcode)entertheamountandhitsend

InternetIntegratedBitcoinismadefortheinternetanditshowsItisveryeasytointegrateBitcoinintoonlineservicesManywebsitesofferApplicationProgrammingInterface(API)aroundBitcoinservicessuchasthecurrentpriceordetailsontheblockchainOnegoodexampleisBitcointipbotonRedditapopularwebsitethataggregatescontentThisbotallowsuserstosendBitcointoeachotherwithinReddititself

FastABitcointransactionoccursasquicklyassendinganemailWiringmoneytoanothercountrycouldtakedaysbutonlytakessecondswithBitcoinHoweveritiswisetowaitforverificationfromthenetworkndashIrsquolltalkaboutthatsoon

SecureThecryptographybehindBitcoinisveryadvancedandcurrentlyitisnrsquotfeasibleforanyonetobreakitNearlyalltheftofBitcoinhasoccurredbecauseofimproperstorageofthecoinsorahackingoftheexchangesthemselvesAsfarasanyoneinthecommunityknowsnoonehaseverbrokenthecryptographyndashanditisnrsquotforlackoftryingSeveralwellknownsecurityexpertshaveopenlytriedtoexposesecurityholesinthecodeonlytoadmitdefeat

DeflationaryTherewillonlybe21millionBitcoinsevercreatedndashweareat11millionnowndashandthisslowmonetarygrowthmeansthatthecoinswilllikelyincreaseinvalueovertimeWhilethereisnocertaintythatthisincreaserelativetofiatmoneywillcontinueifthecoinsareindemandandusedfortransactionsastheyaretodaythepriceshould

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 12: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

continuetoslowlyriseasfewerandfewerBitcoinbecomeavailable

BecauseoftheseadvantagesthenumberofpeopleusingBitcoinhascontinuallygrownsinceitsintroductionin2009HoweverBitcoinisnrsquotperfectHerearesomeofthedisadvantages

SteepLearningCurveManypeopleareturnedofftoBitcoinbeforetheyeventryitduetothecomplexityoftheissueLearningaboutcryptographytheblockchainminingmaintainingwalletsupdatingsoftware-allofthesethingsintimidateeveryonebutthemosttech-savvyFortunatelyasBitcoinbecomesmorepopularmoreeffortisputintoexplainingBitcoininamoreaccessibleway(asthisbookisdoing)

ObtainingBitcoinGettingyourhandsonsomecoinsisstillnotasimpleprocessItcantakedaysorevenweekstoobtainthemonlineAgainthisischangingndashnewexchangesareopeningeverymonthandasmorepeopleownBitcointhemselvestheyaremoreabletoselltheminperson

ConfirmationTakesTimeTransactionsoccurquicklybuttobecertainthattherestofthenetworkagreesthetransactionisvalidthereisawaitforconfirmationForlargertransactionstherecommendedtimeis6blocks(explainedlater)andthistypicallytakesanhourOfcourseyoudonrsquothavetowaitthatlongndashmanyusersacceptzeroconfirmations

ProtectingyourWalletJustlikeinreallifeifyoudonrsquotprotectyourBitcoinwalletyoucanhaveyourmoneystolenSecuringBitcoincanbesomewhatdifficultsinceanycomputerconnectedtotheinternetispotentiallyvulnerableTherearewaystosecureyourcoinsbuttheydorequiresomeeffortandtechnicalknowledge(Irsquollwalkthroughthemlater)

LimitedAcceptanceThenumberofmerchantsacceptingBitcoinsisincreasingdailybutitisonlyasmallfractionoftheoveralleconomyForonlineservicesespeciallyBitcoinisgainingcredibilityandnotorietybutinothersectorsitisonlynowmakinginroadsItmaybemanyyearsndashifeverndashthatBitcoinisacceptedaswidelyasotheroptionssuchasVisaorPayPal

UncertainFutureWhileallsignspointtoBitcoinbecomingthefirsttruecurrencyoftheinternettherearenoguaranteesItmaycompletely

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 13: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

crashandburnleavinghundredsofthousandsofuserswithworthlesscoins

TakingalltheadvantagesanddisadvantagesintoaccountwhoisBitcoinmostusefulforWhoshouldnrsquotbeusingit

HistoricallythemosttypicalBitcoinuserwasatechnicallyadeptyoungmaninhislate20rsquosorearly30rsquoswhohaslibertarianpoliticalleaningsTheappealisobviousBitcoinappealstothetech-savvyitissomethingnewthatisinterestingandithaspoliticalimplicationsthattendtowardlessgovernmentcontroloversociety

ButthisprofileofastereotypicalBitcoinuserisbeginningtobreakdownasmorepeopleareinterestedinBitcoinpurelyforitsbusinessbenefitsThestoryofBitcoinin2013hasbeenthebusinessintereststhatarestartingtotakeBitcoinseriously

PayPalCEOJohnDonahoemadeheadlineswheninMayhetoldtheWallStreetJournalldquoItrsquosanewdisruptivetechnologysoyeahwersquorelookingatBitcoincloselyTheremaybewaystoenableitinsidePayPalrdquoPeterThielrsquosFoundersFundinvested$2millionintheBitcoincompanyBitPayFredWilsonofUnionSquareVenturesndashearlyinvestorinTwitterandKickstarterndashinvested$5millioninanotherBitcoincompanyCoinbaseCameronandTylerWinklevossofFacebookfameinvestedheavilyinBitcoinreportedcapturing1oftheentiremarket

TheseinvestorsarenrsquotinterestedinBitcoinbecausetheyarepassionateaboutcryptographyorbecauseoftheirpoliticalleaningsndashtheyrecognizethatitmightbethecurrencyoftheinternetinthefutureandwanttobeinvolvedinthatprocess

SoshouldyouuseBitcoinIfyouprimarilytransactbusinessofflinethenIwouldnrsquotmaketheinvestmentnowWaitafewyearsuntilthebiginvestorshavecreatedalargerinfrastructureandtheBitcoineconomyhasgrownThentherewillbeasmallerlearningcurvefewerbarrierstoobtainingcoinsandyouwonrsquotneedtounderstandthetechnology

HoweverifyoubuyorsellgoodsorservicesonlineIwouldfamiliarizeyourselfwithBitcoinnowForaselleranactivecommunityofBitcoinusersalreadyexistsandacceptingBitcoinforyourservicesisalowcostwaytoappealtoanemergingmarketAsabuyertransactionsaresimplequickand

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 14: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

donrsquotrequireanyfeesorsigningupwithyourpersonalinformationUsingBitcoinonlinewillmakeyouunderstandwhyitisdubbedthecurrencyoftheinternet

ThereisareasontohaveBitcoinapartfrombeingapartoftheinterneteconomyndashinvestmentTherearetwoprimaryreasonspeopleinvestinBitcoins

1IfcentralbanksacrosstheworldcontinuetodevaluetheircurrenciesthenholdingBitcoinmayprotectagainstinflationDespitethevalidconcernoverinflationIwouldcautionagainstsignificantinvestmentinBitcoinasaninflationhedgeThecurrencyisstillyoungandneedstoproveitselfifwedidfaceasevereeconomicdownturnitisunknownhowwidelyacceptedBitcoinwouldbe

2IfBitcoinbecomeswidelyadoptedevenreplacingsomenationalcurrenciesthenitwillbecomeincrediblyvaluableSincethesupplyofBitcoinwillneverexceed21millionifthedemandforcoinsrisesbecauseitiswidelyusedthenthepricewillnecessarilyincreaseaswellSomepredictpricesinthethousandsoreventensofthousandsper10BTCIdonrsquotbelieveitislikelytoeverachievethatamountofacceptanceHoweverthepotentialupsideissignificantsoaslongasyoucanaffordtolosetheinvestmentitmaybeaspeculationworthmaking

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 15: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

HowDoesBitcoinWorkAtthispointyoumightbeinterestedinlearninghowyoucanobtainBitcoinIdiscussthatherebutbeforeyouskiptothatpartitwouldbevaluabletounderstandtheinnerworkingsofthisnewtechnologyItisnrsquotanecessitytoknowhowBitcoinworksinordertouseitndashsoyoucanskipaheadifyoulikendashbutIdorecommendthatusersfamiliarizethemselveswiththebasicssotheyarenrsquotcompletelyinthedarkwhenitcomestotheirownmoney

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 16: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

Public-keyCryptographyTounderstandBitcoinyouneedtounderstandtheprincipleofpublic-keycryptographyWhilethedetailsarecomplicateditessentiallymeansthateachuserthatwishestocommunicatewithanotheruserhastwokeys(groupsofnumbers)OnekeyispubliceveryonecanseethisseriesofnumbersAnotherisprivateonlytheindividualuserhasthiskey

Herersquosanexampleofhowpublic-keycryptographyisusedTosendasecretletterAlicewouldencrypttheletterusingthepublickeyofBettyAlicethensendsthisletteralongBettyreceivestheletterandthendecryptsitusingherprivatekey

Thereasonpublic-keycryptographyispowerfulisbecauseitdoesnrsquotmatterifsomeoneelsendashletrsquossayCharliendashinterceptstheletterWithouttheprivatekeythatonlyBettyhashecanrsquotdecryptitThistechnologyallowseveryonetoseetheencryptedletterbutonlytheintendedrecipientcanactuallyreadit

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 17: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

MillionsofDepositBoxesHowdoesBitcoinusepublic-keycryptographyEarlierImentionedtheblockchainndashapublicrecordofallBitcointransactionsThinkoftheblockchainashavingmillionsofsafetydepositboxesmadeoutofbulletproofglassTheboxeshavevaryingamountsofBitcoininsidethembutaresecurelylockedEventhougheveryonecanseewhateachboxcontainsonlytheownerscanunlockthem

Thesedepositboxesarecalledthepublickeysndasheveryonecanseethenumbers(alsocalledanaddress)andtheamountwithintheboxesTheownersofeachdepositboxaccesstheirBitcoinusingtheirprivatekeyWhileeveryonecanseethedepositboxesandtheamountofBitcoininsideonlytheownersoftheprivatekeycanusethemoney

InourearlierexampleAlicesentBettyamessagethatonlyBettycouldreadBitcoinworksthesamewayexceptwearenrsquotsendinglettersbutinsteadinformationtellingyourdepositboxtogivesomeofyourBitcointoanotherdepositboxTousetheexampleagainherersquoshowitworksAlicewantstosend1BTCtoBettysoshesendsoutamessagetotheentirenetworkThismessageincludesBettyrsquospublicaddress(thelocationofherdepositbox)theamountofBitcoinshewantstosendtoBettyandadigitalsignaturethatverifiessheistheowneroftheprivatekeytoherowndepositbox

WhenAlicesendsthismessagetothenetworkothernetworkusersverifythatthismessageisaccurateIfallthenumbersmatchupthenthetransactiongetsputintoablock(acollectionofothertransactions)andthisblockeventuallygetspublishedintheblockchainOncethatoccurstherestofthenetworkrecognizesthatAlicersquosdepositboxis10BTCsmallerthanbeforeandBettyrsquosdepositboxhasgrownby10BTCSincetheblockchainisapublicledgerthatextendsallthewaybacktothefirstBitcointransactionitknowstheexactamountofBitcoinineverydepositboxthatexists

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 18: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

MiningforCoinsNowyouunderstandhowtransactionstakeplacebutyoumightbewonderingwhereBitcoinsevencomefrominthefirstplaceRememberhowImentionedsomenetworkusersverifythetransactionsareaccurateandthenincludetheminablocktobepublishedtotheentirenetworkThisprocessrequiressignificantcomputingpowersowhywouldotherusersbewillingtodothisBecausetheyarerewardedwithBitcoin

DevotingyourcomputertoprocessingtransactionsiscalledminingMinersverifytransactionsandastheyaredoingsotheyarelookingforthesolutiontoamathematicalproblemIftheyarethefirsttofindtheanswerthecodeallowsthemtopublishtheblockoftransactionstotherestofthenetworkWhoeverpublishestheblockgetsarewardcurrentlysetat25BTCThisrewardhalveseveryfewyearssothattheamountofBitcoinnevergrowstooquicklyAlsoasmorepeopledevotemorecomputingpowertothenetworkinordertoincreasethechanceofgettingablockrewardthedifficultyofminingincreasesThecodeautomaticallyadjuststhedifficultyofthemathematicalproblemsothatanewblockisminedapproximatelyevery10minutes

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 19: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

AChainofBlocksOnemoreimportantthingtomentionabouttheblocksndashtheyarebuiltoneachotherinachain(hencethetermblockchain)ItisimperativetohaveacontinuousandchronologicalrecordofalltransactionsthisensurestheamountsofeachandeverydepositboxhavebeenaccountedforInordertodothiseachblockhastwoadditionalelementsapartfromthetransactionsOneisamuch-shortenedsnapshotofallpreviousblockscalledahashThishashensuresthattheblockchainisbuildingonthepreviousblocksallthewaybacktotheoriginalblock(calledthegenesisblock)ThesecondaspectistheanswertothecomplicatedmathproblemtheminersneedtosolveThenextblockcannotbemineduntiltheproblemhasbeensolvedensuringthatblocksarecreatedinchronologicalorderAsofJune2013therehavebeenmorethan238000blockspublishedintheblockchain

InthiswaytheBitcoinecosystemkeepsevolvingTransactionsgetcompiledintonewblockstheblocksarepublishedtotherestofthenetworkinacontinuouschainminersgetrewardsfortheirworkandthosenewBitcoinsareusedfortransactionsstartingthecycleoveragain

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 20: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

NetworkVerificationHowisthissystemkeptincheckAfterallAlicecouldsendamessagesayingthatshehas50BTCtosendtoBettyeventhoughherdepositboxonlyhas20BTCTherearemanywaysthatdishonestuserscouldattempttotrickthesystembutfortunatelyitrsquosvirtuallyimpossibleThisisbecauseBitcoinisadecentralizedsystemwherealltransactionsarepublicandrequireverificationfromtherestofthenetworkIfAlicetriedtosendmorecoinsthanshehadtherecipientwouldimmediatelycheckthebalanceoftheaccountrecognizethisandrejectthetransactionItwouldnevermakeitswayintotheblockandtherestofthenetworkwouldneverevenseethefalsetransactionThisverificationisdoneinthecodeoftheBitcoinprogramitselfsoitisnearlyinstant

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 21: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

HowtoObtainBitcoinSoyoursquoresoldonthebenefitsofhavingBitcoinGreatButhowcanyougetthemThereareavarietyofmethodssomesimplerthanothersbutIrsquollwalkthrougheachofthemforyou

BeforeItalkabouthowtogetcoinshereisawarningitisimportanttoknowhowtoproperlystoreandsecurethemYourcoinsareonlyassafeasyoumakethemIrsquolldiscussthedifferentwaystosafelyhandleyourBitcoinsinthenextsectionsomakesureyoursquovereadthatsectionbeforegoingoutandbuyingany

TherearefourwaystoobtainBitcoinreceivingthemforfreesellingyourgoodsandservicesforthembuyingthemdirectlyorminingthem

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 22: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

DigitalFaucetFreeCoinsYesyoucangetfreeBitcoinsTherearemultiplewebsitesthatgivefreecoinstogetusersstarted(calledfaucets)HoweverwiththeriseinBitcoinrsquosvaluemanyfaucetshaveshutdownandtheremainingonesgiveoutminisculeamountsofcoinsWhiletheywerevaluablewhenBitcoinwasinitsinfancyIwouldnrsquotbotherspendingtimewithfaucetstoday

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 23: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

SellYourStuffYoucansellyourgoodsorservicestoobtainBitcoinSomeEbay-likewebsitesonlydealinBitcoinsuchasBitmitAquicksearchonCraigslistforthetermldquoBitcoinrdquowillshowmanydealersofferingtheproductsforcoinInternetforumsexistforBitcoinuserstobuyandselltheirownmerchandisesuchasRedditrsquosBitmarketThisisarelativelysimplewaytoobtainBitcoinifyouhaveanythingvaluableyoudonrsquotmindpartingwith

WhilemostitemsofferedforsalebyBitcoinusersarenrsquotveryexpensivetherearesomeexamplesofverylargetransactionsATexasfamilysoldtheirPorschefor300BTCrecentlyACanadianmanputhishouseonthemarketforBitcoin

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 24: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

PurchasingBitcoinsThemostcommonwaytoobtainBitcoinisbypurchasingthemTherearemanydifferentavenuestopurchaseBitcoinbuttwowaysarethemostcommon

OneistopurchaseBitcoinslocallyandinpersonThisfrequentlyoccursifyouknowsomeonewithBitcoinAvidBitcoinusersareoftenhappytosellasmallamounttootherusersinordertogetthemstarted

HoweveryoucertainlydonrsquotneedtoknowaguyinordertobuythemlocallyApopularwebsitecalledLocalBitcoinsallowsyoutosearchforsellersinyourareaandthenarrangeameetingtomakethetransactionThesepersonaltransactionsdocarrysomeamountofrisksinceyouhavenoguaranteetheywillsendyouthecoinonceyouhandoverthemoney(orvisa-versa)HoweverthewebsiteusesareputationalsystemsothateachsellerhasreviewsfrompreviousbuyersInthiswayitisinasellerrsquosinteresttoensuretheydonrsquotcheattheirclientsThevastmajorityofusersreportpositiveinteractionswithLocalBitcoins

ThesecondwaytoobtainBitcoinisprobablythemostcommonofallpurchasethemfromanexchangeoraffiliatedpaymentprocessorExchangesarebusinessesthatwillbuyandsellBitcoinforvariousnationalcurrenciessuchasdollarspoundseurooryen

ExchangeshavebeenacriticalpartofBitcoinrsquosexpansionOriginallyminersweretheprimaryusersofBitcoinsincetherewasnrsquotreallyamarketplacetoselltheircoinsOnceexchangesbecamepopularcoinscouldbepurchasedbyanyonenoneedtohaveacomputersetuptominecoins

TherearemanyexchangesavailableSomeofthemareprimarilyusefulbecausetheyserveaspecificregionordealprimarilyinacertaincurrencyHereisalistofthemostpopularones

MtGoxThisis-byfar-thelargestexchangeforBitcoinMtGoxwasanearlyentryintothemarketandforsometimetheyhadnearly100marketshareasaBitcoinexchangeThishasslowlydeclinedovertimeandisnowsomewherenear60MtGoxisbasedonJapanbuttransactsindollarspoundseurosandyenTheyhavedrawnmuchcriticismfromthecommunityfornotactinginaprofessionalortimelymannerandcausingsometurmoilintheBitcoinmarketsbuttheyarestilltheindustryleaderbyalongshot

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 25: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

CampBXThisexchangeisbasedintheUSanddealsindollarsWhileMtGoxnolongeracceptspaymentsthroughonlinepaymentprocessorDwollaCampBXstilldoes

BitStampAnexchangelocatedinEuropedealingwithmultiplecurrencies

BTC-EARussianexchangedealinginmultiplecurrenciesandalsodealingincryptocurrenciesotherthanBitcoin

CoinbaseThisserviceestablishedin2012operatesoutofCaliforniaItallowsyoutolinkyourbankaccountdirectlytotheirserviceenablinguserstobuyBitcoininstantlyfromtheirbankaccountThereisalimitonhowmanyBitcoinyoucanbuyorsellwiththeirservice

BitInstantAservicesimilartoCoinbaseexceptyoudonrsquotneedabankaccountForafeeyoucandepositcashatlocalstoresintheUSsuchasCVSorWal-MartandusingapaymentprocessoryoursquollreceivesomeBitcoinminuteslater

ThisisonlyahandfuloftheservicesoutthereyoucanusetoobtainBitcoin

DespitetherebeingmanywaystoobtainBitcoinitoftentakespatiencetofinallyhavesomecoininyourwalletMostoftheexchangesrequireidentificationinorderforthemtocomplywiththeirnationrsquoslawsTheprocessofverifyingidentificationcantakedaysorevenweeksMtGoxisfamousforhavingaqueueofpeoplewaitingforidentificationthathasstretchedintothethousands

OnceyoursquoreverifiedyouthenneedtofundtheexchangeForsometimeoneofthemostpopularwaystofundMtGoxaccountswasDwollaaninexpensiveonlinepaymentprocessorHoweverinMay2013theUSgovernmentshutdownMtGoxrsquosaccountthatusedDwollacitingincorrectpermittingNowgettingfundstothelargestexchangerequiresawiretransferorusinganotherpaymentprocessor

DwollacanstillbeusedatCampBXandafewotherplacesbutitrsquosunclearforhowlongDwollawillstillbeaviableexchangefundingmethodGiventheuncertaintyaroundDwollafornowwhatisthebestwaytoobtaincoins

ThisdependsonyourlevelofpatienceacceptanceoffeesanddesiredanonymityIfyouarepatientwantlowfeesanddonrsquotmindyourcoinstiedto

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 26: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

youridentityIwouldsuggestusingCoinbaseItissimpletosetupyoujustregisteranaccountwithanemailaddressandthenlinkabankaccountYoucanchoosetoinstantlylinktheaccountusingyouronlinebankinglogincredentialsAstrustworthyasCoinbaseisIwouldrecommendtheirsecondoptionTheymaketwosmalldepositsintoyouraccountandyouverifyyouraccountbasedonenteringthecorrectamountdepositedThisprocessdoestakeseveraldaysfromstarttofinishbuttherearefewfees

IfyouareimpatientandneedBitcointodayandyoucantoleratehigherfeesIwouldsuggestusingBitInstantItlivesuptoitsnamendashonceyoufilloutaformontheirsiteyougotoalocalstorethatoffersmoneytransferservices(therearemany)deposittheexactamountrequestedandonlyminuteslaterthecoinsaredepositedinyourwalletBecauseyouneedtofilloutyourpersonalinformationthismethodalsoisnrsquotanonymous

IfyouwantanonymityuseLocalBitcoinandtransactforcashinpersonObviouslybecarefuldoingthisAsImentionedearliermostusersreportpositiveresultsbuttherearesomescammersintheBitcoincommunitywhomayliterallytakeyourmoneyandrunLookforsellerswhohaveagoodreputationonline

BeverywaryofindividualssellingBitcoinoutsideofreputablecommunitiesIfanyonewantstousePayPalespeciallytobuyyourBitcoinsthatisawarningsignPayPalisnrsquotagoodideatobuyorsellBitcoinbecausetransactionsarereversiblemeaningsomeonecouldreceivethecoinsthentakebacktheirpayment

DosomequickGooglesearchesoftheexchangesandservicesIsuggestedandfindoutwhichworksbestforyouButrememberdonrsquotbuyuntilyoursquovereadthesectiononsecuringyourcoins

MiningforBitcoin

ThereisonelastwaytoobtainBitcoinandthatistominethemFormostreadersIdoubtthisisaviableoptionsoyoucanreadthissectionifyouhaveaninterestinlearningaboutminingbutfeelfreetoskipahead

AsImentionedearlierminingBitcoinmeansthatyouarelendingyourcomputerpowertoverifyingotheruserrsquostransactionswhilesearchingforthesolutiontothemathematicalproblemTheminerthatfindsthissolutionfirstwillpublishthenextblockandreceivea25BTCreward

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 27: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

25BTCcreatedapproximatelyevery10minutesisalotofmoneysoitrsquoseasytounderstandwhymanypeoplewanttobeBitcoinminers

HerersquosthebadnewsThetrainhasalreadyleftthestationwhenitcomestoBitcoinminingItrsquosveryunlikelythatanyonewhowouldstarttodayandinvestthesignificantresourcesoftimecomputingpowerelectricityandmoneyintorunningaminingrigwillrecoupthatcostforaveryverylongtimendashifever

IfthatrsquostruethenwhyaretheresomanyminersoutthereBecauseminingusedtobeveryprofitablePreviouslyminersusedtheCPUstoruntheprogramthatminedcoinsAfterawhilesomeonerealizedthatusingaGPU(thegraphicscard)wouldactuallysolvethemathematicalsolutionmuchmorequicklyMorepeoplebeganrunningGPUrigswithmultiplevideocardsAsmorepeopleenteredtheminingmarketthechancesofanyonegettingtheblockrewarddwindled

MinersworkedaroundthisproblembyjoiningminingpoolsTheycontributedtheircomputerpowertothepoolofminersandinreturnifthenextblockwasfoundbythepooltheydividedtheblockrewardamongsteveryoneparticipatingThisworkedwellforawhilealthoughminingpoolsdealtwithnewproblemssuchasstoragespaceandcoolingtheirrigsdown

ThenanewdevelopmentinminingcamealongApplicationSpecificIntegratedCircuitsorASICsTheserigswerespecificallydesignedtomineBitcoinndashandthatisalltheycandoBecausetheydonothingbutmineBitcointheydonrsquotrequirenearlyasmuchenergyasastandardminingrigArigthatuseslittlepowerandisordersofmagnitudebetterthantheprevioustechnologywasasignificantstepforwardforminersbutitcamewithapriceThesenewmachinesareinhighdemandandsotheyareexpensivendashveryexpensiveFindingaqualityASICcouldeasilycostthousandsofdollars

Thiscreatesadilemmaforanyonelookingtoenterintotheminingmarketbecausenowtherearesomanyotherplayersandsuchadvancedtechnologythatthechancesofyouactuallygettingablockrewardareverysmallunlessyoumakeasignificantinvestment(bothupfrontandcontinuing)YouwouldbefarbetterofftakingthosethousandsofdollarsandsimplybuyingtheBitcoindirectly

IdonrsquotrecommendreadersattempttomineBitcoinThatisbecomingaspecializedservicetakenonbyincreasinglargerplayerswithaccesstoinfrastructureGonearethedayswhererunningtheBitcoinclientonyourlaptop

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 28: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

computercouldeasilybringinhundredsofBitcoin

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 29: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

StoringandSecuringYourBitcoinNowyouknowwhatBitcoinareandhowtoobtainthemThereisonlyonemorethingyouneedtoknowbeforeyoucanbeginusingBitcoinstorageandsecurityThisisoneofthemoredauntingaspectsaboutusingBitcoinbecauseifyoumakeamistakeyoucouldloseyourcoinspermanentlyItrequiressometechnicalskillthoughnothingtoocomplexThisisnrsquotasectionyoucanskipIfyoudoyoumayaswellbejugglingyourkey-ringoverasewergrateorleavingyourwalletbehindinataxi-cab

FirstletmeexplainsometerminologyWhenthemediadiscussesBitcointheyoftensaythatthecoinsarekeptinwalletswhichistruebutmisleadingThecoinsareactuallyintheirdepositboxes(theirpublicaddresses)andawalletissimplyaservicethatcollectsallofauserrsquosdepositboxesintooneplaceThinkofawalletasyourownlittlebankyouhaveyourownrowofdepositboxesandalltheprivatekeystothoseboxesaswellWhenyouneedtosendBitcoinfromanyofyourpublicaddressesthewallethasyourprivatekeyrightthereforyou

ThiswalletcanbestoredinmanydifferentplacesTherearefivemainwaystokeepawallet

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 30: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

1mdashBitcoin-QtTheRealDealThefirstoptionistheoriginaloptionThisisthecomputerprogram(calledaclient)thatthecoreofdevelopersworkingonBitcoinreleaseeverysooftenwithupdatestomakethesystembetter

ThisclientdownloadstheentireblockchainontoyourcomputerSincethisistherecordofeveryBitcointransactionevermadethereisalotofdatatostoreAsofJune2013theblockchainwasabout8Gbsinsize

Thisstandaloneprogramhasitsadvantages

Whenyouarerunningtheprogramyouareanodeinthenetworksoyouarehelpingtheblockchainstayhealthybyverifyingtransactions

Youarenottrustingathirdpartywithyourprivatekeystheyarestoredlocallyonyourharddrive

Thecodeisthemostreviewedandmostsecure

Therearesomedisadvantagesaswell

Downloadingtheentireblockchaintakesaverylongtime(hoursorevendaysdependingonyourinternetconnection)andsignificantharddrivespace

Itrequirestimetosyncwiththenetworkifyouhavenrsquotruntheprograminawhile

Ifyouencryptyourwalletthenforgetyourpassphraseyourcoinscannotberetrieved

Youareconnectedtotheinternetincreasingthechancethatsomeonecouldstealyourprivatekeys

Youcanonlyaccessyourcoinsfromthecomputerthathastheclient

WhileBitcoin-QtisasolidchoicetouseasyourwalletIwouldnotrecommenditforthefirsttimeBitcoinuserTherearebetterchoicesIfyoudowanttousethemainclientvisithere

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 31: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

2mdashTheModifiedClientsTherearesomeclientsthatarealsostandaloneprogramsbuthavesomedifferentfeaturesfromthemainBitcoin-QtclientHereareafewofthemorepopularmodifiedclients

MultibitThisisconsideredalsquolightweightrsquoclientsinceitdoesnrsquotrequiredownloadingtheentireblockchainandusesfewersystemresourcesSettingupandsyncingtheclientismucheasierandfasterthanusingBitcoin-QtForfirst-timeuserswhowantastandaloneprogramastheirwalletIrecommendMultibit

ElectrumThisclientdoesnrsquotdownloadanyoftheblockchainatallitconnectstoaremoteserverAssuchitisveryfastItalsoallowsuserstocreatealsquosecretseedrsquowhentheyfirstsetupthewalletIfyourcomputerevercrashedyoucouldrecoveryourcoinsusingthissystemunlikewiththeotherclientsImention

ArmoryThisclientisverysecureandveryfeature-richTherearemanyneatoptionsforuserssuchascreatingaldquocold-storagerdquowalletforextrasecurityHoweverthisclienthasmorefeaturesthananewuserwilleverneed

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 32: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

3mdashAccessibleAnywhereOnlineWalletsYoudonrsquotneedtohaveastandaloneprogramonyourcomputertouseBitcoinyoucanuseanonlinewalletThisisexactlywhatitsoundslikeawebsitethatofferstoholdyourBitcoinsinaneasily-accessibleonlinewalletThishasitsadvantages

NosyncingnecessaryyourBitcoinareinstantlyavailable

Itcanbeaccessedinmoreplacesthanjustyourcomputerallyouneedisaninternetbrowser

YoucanusebrowserpluginstomakeusingBitcoinonlineverysimple

Yourcoinsarenrsquotstoredonyourharddrivesoifyourcomputercrashesyourcoinswillstillbesafeonline

Howevertherearesomesignificantdrawbackstousinganonlinewallet

YoutrustathirdpartywithyourmoneyWhileseveralonlinewalletshaveanexcellentreputationitisstillasignificantrisktoletanotherpartyholdyourprivatekeys

AsIrsquollexplainsoonifyouareconnectedtotheinternetyouarealreadyvulnerabletomaliciousattackerswhocouldtrytostealyourcoinsUsinganonlinewalletcanmakethatattackeveneasier

TheonlinewalletservicesthemselvescanbemdashandhavebeenmdashattackedSeveralhavebeenshutdownbecauseoftheseattacks

SoshouldyouuseanonlinewalletIdoforsmallamountsItrsquosasimplewaytokeepasmallamountofcoinsavailableifIrsquomgoingoutoftownandwanttomakesureIcanaccesssomecoinseasilyButIwouldneverrecommendusinganonlinewalletforlargeamountsofcoins

WhichwallettouseMtGoxandCoinbasehavewalletsbuiltintotheirservicesandbotharefinetousebutmyrecommendationisBlockchainThisisthemostwidelyusedonlinewalletandforgoodreasonitissimplebuthasanexcellentreputation

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 33: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

4mdashBitcoinontheGoMobileWalletsYoudonrsquotneedacomputertouseBitcoinatallmdashmostsmartphonesarecapableofusingawalletappTheyarenrsquotabletodownloadmuchoftheblockchainatallandarenrsquotparticularlysecureeither

AndroidhasmanydifferentwalletsavailableCheckthereviewsfirsttomakesuretheyarelegitimateIuseanappsimplytitledldquoBitcoinWalletrdquoTheiPhoneisalittlebittrickiermdashtheyunfortunatelydonrsquotallowtheirappstouseBitcoinHoweveryoucangetalimitedfunctionwalletfordownloadthroughtheiriTunesstore

ShouldyouuseamobilewalletIwoulddefinitelyuseonebutwiththesamewarningastheonlinewalletonlyinsmallamountsItrsquosneattocarryBitcoinwithyouwhereveryougoandifyoueverdohappenuponabusinessthatadvertisestheyacceptBitcoinconsiderbuyingsomethingsmallasashowofsupport

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 34: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

5mdashPaperwalletNotonlydoyounotneedcomputerstouseBitcoinyoudonrsquotneedsmartphoneseitherInfactyoucankeepBitcoinonnothingbutpaper

FirstofallwhywouldyouevenwanttokeepyourcoinsonpaperWellthatrsquossimplemdashpaperwalletsarebyfarthesafestwaytostoreyourBitcoinIfyouhavelargeamountsofcoinsoryoudonrsquotwanttospendthecoinsbutjustsavethemthenyoushouldconsiderusingapaperwallet

ItdoesnrsquotseemtomakesensethatBitcoinadigitalcurrencywouldbeabletobestoredonpaperButrememberthebeautyofBitcoinisinpublic-keycryptographyandthepublicledger(orblockchain)TocreateapaperwalletallyouneedtodoiscreateanewpublicaddressandprivatekeyputsomeBitcoininthepublicaddressthenprintofftheprivatekeyandstoreitsomewheresafeTouseyourBitcoinlateryoucaninputtheprivatekeyOftenpaperwalletgeneratorscreateaQRcodesothatyoucansimplyscantheprivatekey

WhiletheprocessissimpleenoughitgetsmorecomplicatedtocreateapaperwalletinatotallysecurewayIrsquollwalkyouthroughcreatingasecurepaperwalletlaterbutfirstyouneedtounderstandwhyproperstorageissoimportant

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 35: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

TheThreatsYounowknowthedifferentwaystostoreyourcoinsbutwhatareyoukeepingthemsafefromThereareseveralthreatstoyourdigitalmoneyandbeingawareofthemwillhelpyouavoidthemasmuchasyoupossiblycan

1YourselfYouareprobablythegreatestthreattoyourowncoinsThismaysoundstrangebutitrsquostruetherearemanyhorrorstoriesonlineofpeoplemakingmistakesandhavinglosttheirBitcoinTherearetwoprimarymistakesthatBitcoinusersmakeOneistoencryptaBitcoinwalletthenforgetthepasswordThesecondisharddrivedamageorothertechnicalerrorthatcausesthelossoftheprivatekey

SomeofthestandaloneBitcoinclientsallowyoutoencryptyourwalletsothatifsomeonegainsaccesstoyourcomputertheycannotgetyourcoinsHoweverpeoplesometimessetupthisencryptionthenforgetaboutitmdashuntiltheywanttospendtheircoinsThentheyneedthepasswordmdashoopsTheycanrsquotrememberAndifthishappenstoyouyoursquoresunkthereisnowaytorecoverthosecoinsIrecommendthatifyouthinkencryptionisnecessaryyouwritedownyourpasswordandkeepitinasafeplaceThisisobviouslytrueforanonlinewalletaswellsinceyouneedapasswordtologin

SincemanyusersstoretheircoinsonalocaldriveanotherproblemisharddrivefailuresleadingtolostcoinsThisisashamesinceitissoeasilyavoidableallyouneedtodoitcreateacopyofthewalletfileandstoreitonaUSBdriveoranonlinestoragesystemsuchasGoogleDriveorDropboxIfyoudohaveabackup(youshould)Irecommendencryptingthatcopymdashjustwritedownthepasswordfirst

2PhysicalTheftRoommatesandldquoFriendsrdquo

WhilethisisfarfromthemostdangerousthreatmostBitcoinerswillfacecoinscanbestolenjustlikecashIfyouhaveapaperwalletoramobilewalletoraclientonalaptopathiefcouldsimplywalkoffwithyourcoinsIftheyknowhowtouseBitcoinandtheygetaccesstoyourwallettheycouldtransferyourcoinstoanotheraddresstheyown

ThisdoesnrsquotseemtohappenalltoofrequentlybutwhenIdohearaboutittypicallyitoccursincollegedormsorothersettingswherepeoplehavetechsavvyacquaintancesIfthisconcernsyoujustkeepyourwalletencryptedandkeepacloseeyeonit

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 36: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

3ActiveAttacksHackingThereareafewtech-savvycriminalsouttherewhotrytostealasmanyBitcoinastheycanTheytypicallytargetexchangesoronlinewalletsweretherearelotsofuserssoindividualuserstypicallyarenrsquotatriskunlesstheyhavecoinsstoredonline

SeveralexchangeshavebeenhackedinthepastfewyearsleadingtovariousamountsoflostcoinsAstheBitcoincommunitygrowsandastheinfrastructuregrowsitislikelythatthesetypesofattackswillbecomemitigatedoncebiggercompaniesimplementmorerigorouslytestedsafetymeasuresFornowthebestapproachistostoreonlysmallamountsintheexchangesoronlinewallets

4PassiveAttacksMalwareThesearelikelyanevengreaterthreatthanactiveattackstotheaverageBitcoinusersincetheytargettheindividualcomputerthatmightholdthecoinsApassiveattackisaccomplishedwithmalicioussoftwaremeanttocompromiseyourcomputerThesecanincludethingslikekeyloggerswhichrecordallofyourkeystrokesandsendthemtotheattackerKeyloggersarecommonlyusedtoobtainpasswordsandifanattackerhasyourpasswordstheyhaveyourBitcoin

Alternativelythemalwaremightbeapieceofsoftwarethatsearchesyourcomputerforawalletfileandifitfindsoneitsendsthatfile(orjusttheprivatekeys)alongtotheattacker

Thistypeofattackcanevencomefromabrowserifyouallowabadscripttorunitcanwreakhavocespeciallywithonlinewallets

Thismalwareisunfortunatelyalltooeasytocontractespeciallyifyoudonrsquothavegoodprotectionagainstitandareunsafeinyourwebbrowsing

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 37: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

AvoidingTheseRisksTherearesomespecificmeasuresyoucantaketoavoidtheserisksAfewofthemaresimplebutsomerequiretechnicalknowledgeandsometimecommitmentYoudeterminehowsafeyourcoinsareifyoudonrsquothavemanycoinstoprotectoryouaresorichthatyoudonrsquotcarethenyoudonrsquotneedtofeelcompelledtofollowthesesuggestions

1HaveaCleanOperatingSystemYouroperatingsystem(OS)isthetypeofsoftwareyouusetorunyourcomputerTherearethreemainOSusedtodayWindowsMacOSandLinuxMalwareismosthappyrunningonWindowssoitistheleastsafeclienttorunaBitcoinclientonAMacisnrsquotawholelotbetterbutLinuxissignificantlysafertouseforBitcoinIfyouplanonkeepingasignificantamountofcoinsonacomputerIwouldrecommendinstallingaLinuxdistributionandlearninghowtouseitTheyarefreeandhavenearlyallthesamefeaturesthattheirexpensivecounterpartshavebesidesbeingsafer

InfactIwouldrecommendgettinganolderlaptopwipingtheharddrivecompletelyandinstallingLinuxFindinganoldlaptoponlinethroughEbayorCraigslistisusuallysimpleandcheapThisgivesyouthemostsecuritysinceyouarecertaintheOSiscleanandcannothavemalwareIfyouarelookingforagooddistributionofLinux(therearemanykindsofLinuxtoinstall)IrecommendeitherUbuntuorMint

2RecognizetheInternetisDangerousTheinternetisanaccidentwaitingtohappenintermsofBitcoinsafetyYourcomputermdashandcoinsmdashhaveadirectconnectionwithanyoneelseintheworldYouhaveafewoptionstomitigatethisriskYoucanoperateofflinealtogetherbyusingapaperwalletorofflineservice(theArmoryclientallowsforthis)ThisisthebestoptionforlargeamountsofBitcoinanditisgenerallytruethatthemoreyouareabletodoofflinethebetterStoringBitcoinofflineiscalledlsquocoldstoragersquo

OryoucancarefullyworkonacomputerconnectedtotheinternetUsingLinuxyouwillbesomewhatsafersinceitisnrsquotaseasyforanattackertodirectlyaccessyouorcontractmalwareIfyouareusingWindowsyouneedtoensureyouareuptodateonyourprotectivesoftwareIrecommendusingMicrosoftSecurityEssentialsafreeprogramthatgivesexcellentprotectionAlsomakesuretoregularlyupdateyoursoftwareandruntheappropriatescanstomake

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 38: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

sureyouarecleanJustrememberthatevenifyourscansshowyouarecleanitispossibletohavemalwareonaWindowsystem

WheneveryouarebrowsingtheinternetbecarefulwhereyougoandwhatyouclickonThesameistruefordownloadingfilesandtorrentsMalicioussoftwareisfrequentlyspreadthroughfalselylabeleddownloads

3Use2-FactorAuthenticationOnlineexchangesandwalletsnearlyallofferaservicecalled2-factorauthenticationThismeansthatwhenyoutrytologintoyouraccountorwhenyoutrytosendBitcoinitrequiresthatanoutsidesourceverifytherequestsaregenuineandnotfromamalicioussourceTypicallythishappensbysendingyouatextonyoursmartphoneorbyrequiringyoutoinputanauthenticationcodegeneratedbyaprogramelsewhere

Youshouldalwaysenable2-factorauthenticationIusetheGoogleAuthenticatorapponmyphonewhichIpreferbutthereareplentyofothersystemslikethis

4UsePaperWalletsIrsquovementionedpaperwalletsmultipletimesandthatrsquosbecausetheyarethemostsecureandsimplestwaytostoreyourcoinsTogenerateatrulysecurepaperwalletyouneedtomakesurethatyourprivatekeysareneveronanOSthatisnrsquotcleanandthattheyneverseetheinternetTodothatyouneedtofollowthesesteps

1FindapaperwalletgeneratorthatistrustworthyIwouldsuggestusingBitaddresstocreateyourwallet

2YoucanprintoffthepaperwalletfromBitaddressabovebutthisisnottrulysecuresincetheprivatekeysarecreatedbyathirdpartywhileconnectedtotheinternetYouneedtousetheirtoolswhileofflineTodothissavetheBitaddresspage(asanhtmfile)

3PutthefileonaUSBdrive

4OpenthefileonacleanOSthatisnotconnectedtotheinternetmdashandpreferablyneverhasbeen

5GenerateanewBitcoinaddressusingtheBitaddressservice

6Printoffthepaperwallet

7Deletethefileandmakesurethatthereisnoelectronicrecordofthe

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 39: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

privatekeyremainingonthecomputerorUSBdrive

8EnsuretheprintedpaperwalletremainssecurefromtheftfirefloodbugsorotherdamageIfyouloseyourpaperwalletorisitnotreadableyoucannotretrieveyourBitcoinRemembertouseBitcoinyoumusthaveaprivatekeythatcorrespondstoyourpublicaddressApaperwalletmdashproperlycreatedmdashensuresthattheprivatekeyonlyresidesonapieceapaperandnooneelsecanusethecoinsinthatparticularpublicaddressThatrsquoswhyifyouloseyourpaperwalletyouloseyourprivatekeyandyoulosetheabilitytoaccessyourcoinstoo

9SendcoinstothepublicaddressofyourpaperwalletYoursquoredone

NowifyouwanttousethosecoinsyouimportyourprivatekeysintowhateverwalletyouareusingBitaddressandmostpaperwalletgeneratorsgenerateaQRcodethatallowsforquickrecoveryofyourprivatekeywhenyouneeditbyscanningthecodewithasmartphoneorwebcam

AquicknoteonpaperwalletsIfyoudochoosetolsquowithdrawalrsquofromthewalletmakesureyoutakeoutallthecoinfromthatwalletatonceApaperwalletthathasbeenusedoncemeansitisnolongerapaperwalletyouwillneedtocreateanewonetobecompletelysecureagain

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 40: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

SpendingandAcceptingBitcoinYoursquovegotyourcoinsandtheyaresafelystoredbutwhatcanyoudowiththemSinceBitcoinisdigitalmoneyanywayyoucurrentlyspendyourmoneycouldbedonewithBitcoinTheonlyrestrictionisontheotherpartybeingwillingtoacceptthemaspayment

WhiletheBitcoineconomyisstillyoungmoreandmorebusinessesareacceptingthisdigitalcurrencyeverydayEvenapartfrombusinessesthereisanecosystemofindividualswhoaretryingtotransactasmanyoftheiraffairsastheycaninBitcoin

ForalistofbusinessesandwebsitesthatacceptBitcoinvisithereAnothergoodsiteishereHerearesomeofthemorepopularwaystospendcoins

BitmitThisplatformallowsbuyersandsellerstolisttheirgoodsforBitcoin

CoingigAnotherplatformservice

CraigslistSearchforBitcoinonCragislistandyoursquollfindpeoplewillingtosellforcoins

rBitmarketAsubredditcommunityforbuyingandsellinggoodsinBitcoin

BitcoinTalkForumThisforumisfullofveryactiveusersandhasasectionentirelydedicatedtobuyingandsellinggoodsandservicesinBitcoin

GyftThisisasmartphoneappthatallowsyoutopurchasegift-cardswithBitcoinGyfthasrapidlybecomeaconvenientwaytospendcoinsatstoresthatdonrsquotacceptthemdirectly

BitspendThisserviceallowsyoutospendyourBitcoinalmostanywhere(Amazonispopular)YoutellthemexactlywhatyouwanttopurchasesendthemtheBitcoininthecorrespondingamountandtheymakethetransactionforafeeThereareseveraloftheseservicesavailableBitspendiscurrentlythemostpopular

BitcoinStoreThissitedealswithelectronicsandhassurprisinglylowpricesAverypopularsite

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 41: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

WordpressThelargestonlinebloggingplatformacceptsBitcoinaspayment

RedditThisextremelypopularcontentaggregationsitetakesBitcoinforitsextraservices

SatoshidiceApopulargamblingsitethatletsyousendBitcoinasabetItrsquosfunbutpleaseplayresponsibly

OKCupidOneofthemorerespectedonlinedatingsitesacceptsBitcoinfortheirpaidservices

NameCheapOneofthelargerwebdomainandhostingsites

AmagiMetalsandCoinabulThesepreciousmetalsdealersarewell-knownandhappilyacceptBitcoin

BitPremierIfyoursquorerichcheckoutthisluxurysiteTheyhaveeverythingfromhigh-endsportscarstoyachts

PrivateInternetAccessAVirtualPrivateNetwork(VPN)thatallowsyoutoconnectanonymouslytotheinternetOneofthefirsttoacceptBitcoin

SealsWithClubsGreatonlinepokersiteonlyusesBitcoin

BettingTherearemultipleplatformsthatallowforbettingwithBitcoinBetsofBitcoinandBitBetaretwoofthebest

CharityManycharitiesandpoliticalorganizationsnowacceptBitcoinHereisalistofsomeofthemorepopularones

HiddenservicesTherearemanysitesthatarenrsquotaccessiblethroughtheregularinternetthatoffergoodsandservicesofquestionablelegalityThemostprominentiscalledTheSilkRoadamarketplacefordrugsandotheritemsIwouldadviseagainstusingthesesitesObviouslyyoudosoatyourownrisk

ThisisonlythetipoftheicebergSearcharoundonlineandyoursquollfindmanyopportunitiestospendyourcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 42: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

AcceptingBitcoinSincethisisagrowingmarketdonrsquotjustlookforwaystospendyourcoinsmdashconsiderofferingyourowngoodsorservicesforBitcoinaswellYoucanusetheplatformswementionedabovetodothisbutyoucanalsouseservicescreatedspecificallyformerchants(oneofthebestisBitPay)Hereisahow-toguideforsmall-businesseswhowanttoacceptBitcoin

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 43: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

TheFutureofBitcoinWhereisBitcoinheadedNooneknowsforsurebutapopularrefrainisheardintheBitcoincommunityIntenyearseitherBitcoinwillbeworthnothingorsignificantlymorethantodayIbelievethisistrue

TheideaofdigitalmoneythatyoumanageyourselfisapowerfuloneandinthefirstfouryearsofthismonetaryexperimentwersquoveseenexplosivegrowthItrsquoseasytoseecontinuedgrowthinbothindividualusersandbusinessesthatacceptcoinsIfitcontinuesatitscurrentpacethevalueof10BTCwillcontinuetorisecomparedtoothercurrenciesEventuallygoodsandservicesmightbepricedinBitcoinitselfinsteadofrelyingonothercurrenciestojudgevalueOnlineshoppingmightnotrequireenteringyourcreditcardinformationorsigningupforaPayPalaccountYouridentitywouldnrsquotneedtoberevealedwhenpurchasinggoodsunlessyoumadethatchoice

AnotheraspectofBitcointhatIhavenrsquotdiscussedisthepotentialforsmartcontractswhichusethecryptographyinherentinBitcointofacilitatemorecomplextransactionssuchasescrowservicesarbitrationorevenestatemanagementIfBitcoinbecomesmorepopulartheseserviceswilllikelybeimplementedinthecode(asSatoshioriginallyintended)

ButthefutureisfarfromcertainTherearethreeprimarythreatstoBitcointhatIseeonthehorizonthatcouldsubstantiallyrestrainmdashorevendestroymdashthisnewmonetarysystem

1TechnicalRightnowtheBitcoineconomyrunsfairlysmoothlyhandlingtensofthousandsoftransactionsdailyButwhatwillhappenifthathitsmillionsoftransactionsdailyCanBitcoinhandlethesameamountofvolumethatamajorcreditcarddoesThereisspeculationonbothsidesoftheissuebutnoonereallyknowsIfthesystemisnrsquotabletohandlealargeamountoftransactionsitsvalueisobviouslylimited

2GovernmentalBecauseBitcoincanbeusedforillegalactivities(socancash)andbecausetheBitcoinsystemisinherentlydifficultto

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 44: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

regulategovernmentsacrosstheworldmightdecidetolimittheircitizensrsquoabilitytouseBitcoinIfthishappensitwillobviouslyinhibittheBitcoineconomysignificantly

3CompetitionRightnowBitcoinistheclearleaderamongdigitalcurrenciesbutitisnrsquottheonlyoneSeveralalternativecryptocurrencieshavetakentheBitcoincodealtereditandlaunchedtheirowncurrencySomeofthemostpopularonesincludeLitecoinPPCoinandRippleThesearenrsquotnearlyasvaluableasBitcoinbutitispossiblethatonedayanotherdigitalcurrencycouldreplaceBitcoinifitweresignificantlybetter

IfBitcoincanhandlelargetransactionsavoidgovernmentrestrictionsandbeatthecompetitionIbelieveitwillbecomethestandardcurrencyoftheinternetThismonetaryexperimenthasevolvedfromanine-pagepaperwritteninFall2008toabilliondollarmarketplacetodaywithmillionsofdollarsofinvestmentcapitalflowingintonewstart-upsandnewserviceslaunchedeachweek

OnlytimewilltellifBitcoinwillbeasrevolutionarytoourcurrentmonetarysystemasemailwastotheoldsystemofcommunicationsItrsquoscertainlyofftoagreatstartandIhopethisguidehashelpedyoutojointhisgrandmonetaryexperiment

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 45: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

LearnMoreIfyouwanttokeepuptodateonBitcoindevelopmentshereareafewresourcesforyou

BitcoinTalkorgThisforumistheprimarydiscussionareaonlineaboutBitcoinIfyouwanttobeinvolvedinthecommunityyoushoulddefinitelycheckitout

rBitcoinVeryactivesubredditdedicatedtoBitcoinMyprimarysourceforinformationonthesubject

ListentoBitcoinAnamazingwebsitethataudiblyshowsBitcointransactionsinreal-timeAmust-visit

BitcoinityChartReal-timechartofBitcoinpriceandvolumeUsefulfortradersandBitcoinaddicts

JournalistsBloggersandOtherMediaThereareseveraljournalistsandbloggerswhocoverBitcoinregularlyalongwithaBitcoinMagazine

oMaxKeiserbroadcaster

oJerryBritoascholarattheMercatusCenteratGeorgeMasonUniversity

oJeffreyTuckerownerofLaissez-FaireBooks

oTimothyBLeejournalistattheWashingtonPost

oTheGenesisBlockExcellentblogaboutBitcoin

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More
Page 46: Bitcoin Beginner: A Step By Step Guide To Buying, Selling And Investing In Bitcoins

FurtherReadingWanttoreadmoreaboutBitcoinTheebookyoursquovejustreadisjoinedbyotherbest-sellingproductsintheircategoryFeelfreetocheckthemoutBitcoinStepByStepmdash$599

BitcoinABasicExplanationofEverythingmdash$499

BitcoinRevolutionEndingTyrannyforFunampProfitmdash$599

ProfitingwithBitcoinmdash$499

  • Table of ContentsIntroduction
  • What is Bitcoin
    • Bitcoin as a Currency
    • Bitcoin as a Payment System Solving the Double Spend Problem
      • History of Bitcoin
      • Why Use Bitcoin
        • The Advantages and Disadvantages of Digital Money
          • How Does Bitcoin Work
            • Public-key Cryptography
            • Millions of Deposit Boxes
            • Mining for Coins
            • A Chain of Blocks
            • Network Verification
              • How to Obtain Bitcoin
                • Digital Faucet Free Coins
                • Sell Your Stuff
                • Purchasing Bitcoins
                  • Storing and Securing Your Bitcoin
                    • 1 mdash Bitcoin-Qt The Real Deal
                    • 2 mdash The Modified Clients
                    • 3 mdash Accessible Anywhere Online Wallets
                    • 4 mdash Bitcoin on the Go Mobile Wallets
                    • 5 mdash Paper wallet
                    • The Threats
                    • Avoiding These Risks
                      • Spending and Accepting Bitcoin
                        • Accepting Bitcoin
                          • The Future of Bitcoin
                          • Learn More