bitcoin beginner: a step by step guide to buying, selling and investing in bitcoins
TRANSCRIPT
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
- Learn More
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
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- Bitcoin as a Currency
- Bitcoin as a Payment System Solving the Double Spend Problem
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- History of Bitcoin
- Why Use Bitcoin
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- The Advantages and Disadvantages of Digital Money
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- How Does Bitcoin Work
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- Public-key Cryptography
- Millions of Deposit Boxes
- Mining for Coins
- A Chain of Blocks
- Network Verification
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- How to Obtain Bitcoin
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- Digital Faucet Free Coins
- Sell Your Stuff
- Purchasing Bitcoins
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- Storing and Securing Your Bitcoin
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- 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
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- Spending and Accepting Bitcoin
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- Accepting Bitcoin
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- The Future of Bitcoin
- Learn More
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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
-
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
-
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
-
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
-
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
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- Bitcoin as a Currency
- Bitcoin as a Payment System Solving the Double Spend Problem
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- History of Bitcoin
- Why Use Bitcoin
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- The Advantages and Disadvantages of Digital Money
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- How Does Bitcoin Work
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- Public-key Cryptography
- Millions of Deposit Boxes
- Mining for Coins
- A Chain of Blocks
- Network Verification
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- How to Obtain Bitcoin
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- Digital Faucet Free Coins
- Sell Your Stuff
- Purchasing Bitcoins
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- Storing and Securing Your Bitcoin
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- 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
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- Spending and Accepting Bitcoin
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- Accepting Bitcoin
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- The Future of Bitcoin
- Learn More
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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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-