bitcoin step by step -...

Bitcoin

StepbyStep

Author:MichaelCaughey

©CopyrightMichaelJCaughey2012.Allrights

reserved.

Idedicatethisbookto

thedevelopersofthesoftware,

thedesignersoftheminingrigs,

theminersdiggingforBTCblocksthatkeepthenetwork

alive,

theexchangesandservicesthattienonBTCtoBTCso

thismarketcancoincidewithtraditionalmarkets,

theoldhandsthatcontinuetohelpothersenterthe

marketplace,

thenewcomerwhowillbeanoldhandsoonenough,

themerchantsthatuseBTCintheirMarkets,

thedepositors,

Cindiforeditingthis,

andmywifewhorealizesthatIhaveBTCfever.

-Michael

Contents

IntroductionWhatIsABitcoin?BitcoinStorageBitcoinExchangeFundingYourMarketAccount

ExtractingFundstoGovernmentBackedCurrencyBitcoinTransactionsOtherTransactionTypesBitcoinsinActionEarningBitcoinsBitcoinUnderbellyAppendixA:OtherResourcesAppendixB:Bibliography

Introduction

ThegoalofthisbookisnottobethecompleteguidetoBitcoin(BTC).ThiseBookismeanttogetthenewuseruptospeedquicklyandsafely.Theusershouldbeabletohaveasecurewallet,buyandsellBTC,acceptandsendBTCwiththesameleveloftrustandconfidenceastheexistinguserbase.

TherearemanypeoplebeforemethatputalotofhardworkintodocumentingeverythingthereistoknowaboutBitcoins.Mygoalistocondenseallthatintosomethingthatwillgetyouupandrunningquickly.Ifyouarethetypeofpersonwillingtotakethetimeandmakethemistakes,youcanfigureitoutwithoutthiseBook.Ihaditfiguredoutin

aboutthreeweeksofresearchandsomethinglike80to100hoursoftime.Therehasbeenevenmoretimeaddedsincethen.Ihopetofasttrackyouruser’sexperienceandgetyouusingtheBTCinfrastructureaseasilyaspossible.ThegoalistogetyouuptospeedandusingtheBitcoinnetworkinthetimethatittakesyoutoreadthiseBook.

IwillmakereferencesthroughouttheeBooktoanumberofadditionalresourcesthatexpandontheinformationthatI’mgivingyou.OftentimesIwillpointtothewikisite.ThroughoutmanyplacesintheeBook,therearescreenshotsfromcopyrightedsources.Ididobtainthewrittenpermissiontoincludethescreenshots.Ihopeyouwillvisitthesites

referencedintheeBook.

WhatIsABitcoin?

ABitcoinisaunitofmeasureinanonlinecurrencyexchangesystem.Unlikegovernmentbackedfiat,suchastheUSD,thereisnogovernmentorcentralowneroftheBTC(Bitcoin).ABitcoinistradedwithinapeertopeernetworkwhichusescryptographicprocessestobuildtrustaroundeach

transaction,thusbuildingproofofownershipforyourBTC.AccordingtotheBitcoinwikisite:

“Bitcoinisanexperimentalnewdigitalcurrencythatenablesinstantpaymentstoanyone,anywhereintheworld.Bitcoinusespeer-to-peertechnologytooperatewithnocentral

authority:managingtransactionsandissuingmoneyarecarriedoutcollectivelybythenetwork.Bitcoinisalsothenameoftheopensourcesoftwarewhichenablestheuseofthiscurrency.

Thesoftwareisacommunity-drivenopensourceproject,released

undertheMITlicenseandoriginallycreatedbySatoshiNakamoto.

Bitcoinisoneofthefirstimplementationsofaconceptcalledcrypto-currencywhichwasfirstdescribedin1998byWeiDaionthecypherpunksmailinglist.Buildinguponthenotionthatmoneyisanyobject,oranysortof

record,acceptedaspaymentforgoodsandservicesandrepaymentofdebtsinagivencountryorsocio-economiccontext,Bitcoinisdesignedaroundtheideaofusingcryptographytocontrolthecreationandtransferofmoney,ratherthanrelyingoncentralauthorities.”(anonymous,2012)

Let’sdefineafewterms.

Bitcoin:aunitofmeasureforthecurrencytraded,whichcanbesentovertheinternet

Block:usedtorecordtheownershipoftheBTCwithinthenetwork

Hash:usedinthecryptographicprocess

MarketValue:thetotalnumberofBTCtimesthecurrentexchangerateinthegovernmentbackedcurrency

Mining:Theprocessoffindingcryptographichashesthatcanbeusedtokeepthenetworkrunningortofindnewblocksof50BTCwhichentercirculationafterfound

Thecurrentnumberofblocksis199,446.Thereare

9,972,350BTCandtheUSDExchangerateis$12.10/BTC.So,thetotalmarketcapitalizationis$120,665,435USD.Insimpleterms,ifIhad$121MillionUSD,IcouldbuyalltheBTCinexistenceifeveryonesoldthemtomeatthecurrentrate.

AsIwillexplaininthechaptersthatfollow,theexchangerateisdetermined

bysupplyanddemand.WhatyoushouldtakeawaynowisthatthenumberofBTCisnotfixedatthistimebutgrowing.Inthefutureitwillbecomefixed.

ThenumberofBTCgrowsslowlyovertimeandwillreachamaximumnumberat21millionatwhichtimetherewillbenomoreBTCcreated.Theonlymethod

throughwhichnewBTCcanenterintothemarketisthroughBTCMiningoperations.Thisiswhereusersbuyspecializedcomputerequipmentwhichcanbeusedtoprocesstheworkrequiredtofindtheuniquehashesthatareusedforthenetwork.Theminerskeepthenetworkalive.Thehardwaretheyuseiswhatkeepsthenetworktraffic

flowing.Withoutitmoving,atransactionwouldnotoccur.Theminersmustbuytheequipmentandpayfortheelectricitytorunit.Inexchange,theystandachanceoffindingnew50BTCBlocks,knownasareward.Therewardwillreduceto25BTCsometimearound12/1/2012.Onceaminerfindstherewarditbecomestheirs.Someminersminein

poolsthatshareinthefindsovertime.

IfyouarethesortofreaderthatisstronginmathandarelookingforareallygoodsourceofinformationabouthowtheBitcoininfrastructureworks,hereisagoodlinktotheBitcoinwiki:

https://en.bitcoin.it/wiki/Difficulty

https://en.bitcoin.it/wiki/Difficulty

TheeBook,whichcanbefoundfor$0.99onAmazon,describesthemathingreatdetail.

Bitcoin:APeer-to-PeerElectronicCashSystem[Illustrated]

http://www.amazon.com/Bitcoin-Peer---Peer-Illustrated-ebook/dp/B00538IVFK/ref=sr_1_1?ie=UTF8&qid=1348453217&sr=8-1&keywords=Bitcoin%3A+A+Peer-

http://www.amazon.com/Bitcoin-Peer---Peer-Illustrated-ebook/dp/B00538IVFK/ref=sr_1_1?ie=UTF8&qid=1348453217&sr=8-1&keywords=Bitcoin%3A+A+Peer-to-Peer+Electronic+Cash+System

to-Peer+Electronic+Cash+System

BitcoinStorage

AsauseroftheBitcoinnetwork,youwilleventuallyownyourownBTC.You’llneedsomewheretoputthem.Themostlogicalplaceisawallet.Asitwouldhappen,thisisexactlywhereyouwouldputthem,intoanelectronicwallet.Thewalletcanresidelocallyonyourcomputer,onaUSBStickor

onlineinoneofthemanyonlinewalletsites.

Asaprofessionalsecuritypractitioner,IfeeltheneedtomakethefollowingstatementwithregardstoallimplicationsofsecurityreferencedinthiseBook:

Note:Allclaimstosecurityinthisbookcannottakeintoaccountallthreat

vectors,namelyyou.IfyouallowanattackertoinfiltrateyourcomputerwithaTrojanthathasabackdoorandkeylogger,theywilllikelyendupwithyourwallet.

Therearemanyunforeseenattacksurfaces.Iwillattempttodocumentsomegoodpractices.Ialsocannot

speaktothelevelofsecurityactuallyprovidedonthesecureonlinewallets.Recentlyanexchangewasinfiltratedandapproximately$250,000USDworthofBTCwasstolen(Kirk,2012).

Mygoalisnottoscarewould-beusersaway,butIdowanttoinstillinthemafairsenseofsecurity.IcansaythatIusetheBitcoin

networkandfeelsafeinusingit.

TradingBTCLetusstartwithhowBTCisexchanged.Insimpleterms,theprocessofsendingBTCfromoneusertoanotherisbasedonasymmetriccryptography.ThismeansthatifAlicewantstosendBob12.5BTC,thefollowingwouldhavetooccur:

1.Bobusesthewalletapplicationtocreatean

address,whichisrepresentedbythesoftwareasalongstringofalphanumericcharacters.2.BobgivesAlicetheaddresswhichisthepublickeyforwhichBobhasamatchingprivatekeyinhiswallet.3.AliceusesherBitcoinapplicationtosend12.5BTCtoBobusingthe

providedaddress.4.Thetransactionismadepubliconthenetworkandminersbegintoprocessit.5.Oncethetransactionhasgonethroughenoughcyclesonthenetwork,itisreleasedtoBob.

The12.5BTCarenownolongerAlice’s.The12.5BTCnowbelongtoBob.The

informationthatprovesBob’sownershipexistsinthedatabaseofblockswhichisstoredonyourlocalPCbythewalletapplicationorontheonlinewalletserviceifyouchooseanonlinewallet.TheproofofownershipforBobisthatprivatekeywhichisstoredinhiswallet.ThefactthateveryoneinthenetworkhasthesameinformationprotectsBob’s

righttoownershipaslongasheretainsthesecretkeys.Hecouldgivesomeonehiswallet,oritcouldbestolenfromhimandthebearerwouldhavetheabilitytotaketheBTCandtransferthemtoanotheraccount.

OnlineWallets

Thechoicetouseanonlinewalletisonewhichshouldbeweighedheavily.IwouldliketoquotesomethingfromthewikiwhichIbelieveisveryimportant:

“Whenbitcoinsarestoredonline,theproviderretainsfullcontrolofthoseamounts.YouaretrustingathirdpartytomaintainyourBitcoin

balanceonyourbehalf.Incomparison,ifyouruntheBitcoinsoftwareyourself,youareinfullcontrolofyourcoinssolongasthewalletfilestoredonyourcomputeriskeptsecretandsecure.”(Anonymous,Browser-basedwallet,2012)

AlistofeWalletscanbefoundhere:https://en.bitcoin.it/wiki/Category:EWallets

https://en.bitcoin.it/wiki/Category:EWallets

AnewerbreedofeWalletcalledHybrideWalletcanbefoundhere:https://en.bitcoin.it/wiki/Category:HybridEWallets

AGoodplacetostartwhencreatinganonlinewalletisBlockchain:

https://blockchain.info/

https://en.bitcoin.it/wiki/Category:HybridEWalletshttps://blockchain.info/

Step1:CreateaNewWalletTheironlinewalletcanbefoundat:

https://blockchain.info/wallet/


Select“StartANewWallet”.

Step2:CreatePassword

Createyourpassword,andconfirmit.Selectacomplexpassword.Usethefollowingrule:

·Atleastonecapitalletter·Atleastonelowercaseletter·Atleastonenumber·Atleastonesymbol~!@#$%^&*()_+=-[]\

mailto:~!@#$%^&*()_+=-[]/{}|;':

{}|;’:”,./?><·Makethepasswordatleast24charactersinlength

Followingthesestepswillmakeitnearimpossibleforanattackertocrackthepasswordandgainaccesstoyouraccount.

Next:WRITEDOWNTHEPASSWORD,andkeepitsafe.

EntertheCaptcha.

Pressthe“Continue”button.

Step3:MakeNoteoftheWalletURL

Iblockedoutmyaddress

sinceIdonotwanttoprovideextrainformationtoanattacker.CopytheentireURLfromhttps://throughtotheendofthatline.

Youcanoptionallyaddanemailaddressandnickname.

Thenpress“ProceedToLogin”.

Step4:LogintoOnlineWallet

Again,Icoveredupmy

address.You’llnoticethattheaddressintheAddressBarofyourbrowseristheonepreviouslynoted.

EnteryourpasswordwhichyoucreatedinStep2.

Press“OpenWallet”.

Fromhereyoucan:

·Fundyourwallet·Withdrawfunds·Modifyyouraccount

settings·Backupyourwallet·Sendmoney·Receivemoney·Viewyour

transactions·Viewaccount

balances

You’llnoticeanaddressabovethetwitterbird.ThisistheaddressthatotherswillusewhensendingyouBTC.

UntilyouhavebecomeveryfamiliarwiththeBTCenvironmentandyourwallet,youshouldconsidernotplayingwiththeimport/exportfunctionality.

Intheremainderofthebook,Iwilldemonstratevarioustasks:

·Fundingyourwallet·SendingBTC·ReceivingBTC·Viewingtransactions

IfyouhaveaniPhone,thereisanapplication(ofcourse)thatwillallowyoutoperformsomebasicfunctionswith

yourwallet.Forinstanceyoucanviewyourbalance,sendandreceiveBTC.Hereisanaddressformoreinformationonit:

https://blockchain.info/wallet/iphone-app

ThepreviousarticleindicatedthatyoucouldnotdownloadfromtheAppStore.Apparentlythishasbeenresolved,becauseIhave

https://blockchain.info/wallet/iphone-app

downloadeditfromtheAppStoreanditworksjustfine.Additionally,yourotheroptionsaretoloaditonajailbrokenphone.Ihighlydiscouragethissinceanyjailbrokenphonecaneasilybecompromisedbyanattackerandrenderyouraccountvulnerable.Ifyouhaveawaytobuildtheapp,youcandownloadthesourcecode,compileitandloaditonyour

phone.YouwillneedaMacandanumberoftoolstodothis.Ihaveonoccasiondonethisinthepast.Itisnotforthefaintofheart.Iflikeme,youareasoftwaredeveloperandhappentohavethisenvironmentalready,thismightbeanoption.

Androidisnotleftouteither.ThereisanappontheAndroidMarket.Ihavenot

reviewedthisapp,butitdoesexist.Hereistheaddressformoreinformation:

https://blockchain.info/wallet/android-app

https://blockchain.info/wallet/android-app

Step5:VerifyYourEmailYouwillreceiveanemailshortlyaftersettingupyouraccount.Whenyoureceivetheemail:

·Logintoyouraccountifyouarenotalreadyloggedin.

·Fromthehomescreen,pressthe“AccountSettings”buttonontheright-

handsideofthescreen.

·Youwillbetakentoascreenwhichhasasmallmenuontheleft-handside.

·TheGeneralmenuwillbeselectedbydefault.

·Enterthecodeprovidedintheemailandpressthe“Verify”button.

Step6:OptionalSecurityFeaturesIfyoudecidetouseanonlinewallet,considersomeoftheadditionalprecautionsavailablesuchas:

·Doubleencryptingyourwallet-Thiswillusethepasswordpreviouslygeneratedtoauthenticateyou.Thesecondpasswordwillbe

usedtomaketransactions.·Usemulti-factorauthentication·Paymentnotifications

Step6A:DoubleEncryptionFromthemainURL:



Select“2DoubleEncryption”.

Enterapasswordusingthepreviouslymentionedstandardandwriteitdown.

Step6B:Multi-FactorAuthentication

Multi-FactorAuthentication(MFA)allowsyoutoincreasethesecurityofyouraccount.Apasswordhelpskeepyouraccountsafebecauseitallowsyoutokeepsomethingthatyouknowprivatelyandpresentittotheservice.Onlysomeonethatknowsthispieceofinformationcangainaccesstoyouraccount.MFAallowsyoutoaddsomethingthat

youhave.OnesuchsolutionistheYubiKeywhichisasmallUSBdevicethatplugsintoyourcomputerandactslikeakeyboard.WhenyoupressthebuttonontheYubiKey,ittypesaOneTimePassword(OTP).(Thiscombinedwithyourpasswordthatyouknowmeansthatonlyifsomeonehasbothcantheyaccessyouraccount.)Thismeans

thatsomeonecanonlyaccessyouraccountiftheyhaveboththeOTPandyourpasswordthatonlyyouknow.

ToconfigureyouronlinewallettouseMFA,logintothewallet.

Selectthe“AccountSettings”buttonontheright-handsideofthescreen.

Selectthe“Security”optioninthemenuontheleft-handsideofthisscreen.

OneoptionistouseaYubikey.YubikeysareasmallUSBdevicethatstorescryptographicstringhashesandaresyncedtoaserver.Youcanfindmoreinformationhere:

http://www.yubico.com/yubikey

Usingmulti-factorauthenticationmeansthatifanattackerdoesgetyourpassword,theywillalsoneed

http://www.yubico.com/yubikey

theUSBkeyinordertogainaccesstoyouraccount.Thisfollowstheruleofsomethingyouknow,yourpassword,andsomethingyouhave,yourYubikey.Ifyoudochoosetouseanonlinewallet,Istronglysuggestyouinvestina$25Yubikey.

Step6C:EmailNotificationsFromtheAccountSettings

screen,selectthe“Notification”menuoption.

Theoptionsonthisscreenarefairlystraightforward.Youcanhavethewalletnotifyyouviaanumberofdifferentmethodsandforacoupleofdifferentreasons.Thesimplestistoselectemail.

TosetupSMSNotifications,selectthe“SMS

Notifications”checkbox.Youwillbepromptedwithalistboxofcountrycodes.Selecttheonethatfitswhereyourphoneserviceresides.Thenenteryourphonenumber.IntheU.S.,makesuretoenteryourareacode.Thenpress“Enter”onyourkeyboard.

NOTE:Ientereddashesthefirsttimeandthemessagedidn’tcome

through.Afterwaitingabout15minutes,Ireturnedtothepageandtookthedashesfrom555-555-1212andmadethenumber5555551212.Then,Ihitenteragain,andtheSMSmessagearrivedwithin10seconds.

Whentheconfirmationcodearrives,enterit,andthenPress“Verify”.

ImportantNoteforOnlineWalletUserIwillusethepersonalwallettodemonstratemuchofthefunctionalityaroundsending,receivingBTC,aswellasfundingyouraccount.Whilethestepswilldiffer,thefunctionalitycanbetranslatedtohowyouwoulddoitintheonlinewallet.Thenextsectiondescribeshowtocreateyourpersonalwallet.

PersonalWallets

Iwillwalkyouthroughtheprocessofinstallingandsettingupyourwalletonyourlocalcomputer.Thebasicsetupwillinstallawallet.datandblocksdatabaseonyourlocalcomputer.IwillshowyouhowyoucansecurethisbymovingitontoasecuredriveusingTrueCrypt,anopen

sourcetoolforcreatingsecuredrivevolumes.Iwillwalkyoustepbystepthroughtheprocess.Thiswillallowyoutoeitherstorethewalletonasecuredriveonyourcomputer’sharddriveorplaceitonaUSBmemorystickwhichyoucansecureinafiresafeorothersafelocation.

Rememberthatifyoulose

thewallet,youhavelostyourmoney,sowewillalsoseewaystobackthisup.Ifallofthisseemstoomuchforyou,thenstickwiththeonlinewallet.

Step1:InstalltheBitcoinWalletSoftwareDownloadthesoftwarefromthewiki:

https://en.bitcoin.it/wiki/Main_Page


Dependingonyouroperatingsystem,downloadthecorrectoneforyou.

Thewikialsohasasetofscreenshotstowalkyouthroughthesetup:

https://en.bitcoin.it/wiki/Getting_started_installing_bitcoin-

https://en.bitcoin.it/wiki/Getting_started_installing_bitcoin-qt

qt

ThereisevenalinktogetsomefreeBTC(evenifitisjustafractionofaBTC).

Step2:SynchronizetheBlocksOnceyouhavethesoftwareinstalled,youwillnoticethatitbeginsaprocessofsynchronizingtheblocks.Thiscantakeabout24hourstocompleteandwilltransfer

2to4GBofdatatoyourcomputer.Itisanimportantstep,andyouwillhavetoletitcompletebeforeyoucontinueperformingothersteps.

Irecommendthatyoucontinuetoreadandcomebacktothissteponceitiscomplete.YoucancontinuewithSteps3&4whileyouwait.

Oncetheinitialblocksareinstalled,thenyoucancontinuewithStep5.

Step3:InstallTrueCryptThereareanumberofapplicationsthatcanbeusedforthisstep.IchoseTrueCryptbecauseit’sopensource,whichmeansit’sfreetouse.Itisalsofastandreliable.Thefactthatitisopensourcemeansthatthe

codehasbeenandcanbereviewedbyanyonewhichmakesitmuchmoresecuretouse.

DownloadTrueCryptfromhere:

http://www.truecrypt.org/downloads

Oncedownloaded,installtheapplication.

Selectthedefaults.

http://www.truecrypt.org/downloads

Step4:CreateSecureDriveOnceinstalled,opentheapplication:

Select“CreateVolume”andfollowthewizard.

Select“Next”.

Youwillwanttoplacethevolumeeitheronaharddriveoronathumbdrivewhereyoucancreateatleasta10

GBfile.

Select“Next”.

Thesizeofthedriveneedstobeatleast10GB.

Select“Next”.

Thisstepissoveryimportant.Icannotstressthisenough.

Selectacomplexpassword.Usethefollowingrule:

·Atleastonecapitalletter·Atleastonelowercaseletter·Atleastonenumber·Atleastonesymbol

~!@#$%^&*()_+=-[]\{}|;’:”,./?><·Makethepasswordatleast24charactersinlength

Followingthesestepswillmakeitnearlyimpossibleforanattackertocrackthecodeandgainaccesstothedriveshouldtheyfinditanddownloadit.Theywillhavetodownloadtheentire10GB

mailto:~!@#$%^&*()_+=-[]/{}|;':

fileinordertotrytocrackit.

Next:WRITEDOWNTHEPASSWORD,andkeepitsafe.IfyoubuildasmallfortuneinBTCinyoursecuredriveandthenforgetthepasswordtoitandyoufollowedmyrecommendation,youmaybesafefromattack,butyou’renotgoingtogetintoiteither.ThoseBTCwillbelost.

Select“LargeFiles”.

Select“Next”.

Select“Next”.

Thenmovethemousearoundonthisnextscreenandhit“Format”.

Step5:MoveWalletandBlockstoSecureDriveDonotcontinuewiththisstepuntilthewalletapplicationhasfinishedsynchronizing.

IftheWalletapplicationisrunning,exitoutoftheapplication.

OpenTrueCryptandpress

“SelectFile”.Then,selectthefilewecreatedintheaboveprocess.Alsoselectafreedriveletter.Youwillwanttousethesamedrivelettereverytime.

Nowselect“Mount”.

Enteryourpassword,andhit“OK”.

Ifeverythingworkedasitshould,nowthesecuredrive

shouldbemountedandlookslikeaharddrive.

NowweneedtoidentifywhereyourBitcoinsWalletfileis.Thereferenceforwhat’sinthedatadirectoryandwhereyoucanfinditishere:

https://en.bitcoin.it/wiki/Data_directory

Lookingatthatpage,thelocationforWin7is:

https://en.bitcoin.it/wiki/Data_directory

C:\Users\YourUserName\Appdata\Roaming\Bitcoin

WiththeBitcoinwalletapplicationclosed,youwanttocopythecontentsofthisdirectorytoyournewdrive.First,makeadirectoryinthenewdrivecalledBitcoin.Nowopenthatfolderandcopythefilesintoit.

Step6:ConfigureYourWalletApplicationtoUse

theNewLocationOncethefilesarecopiedover,weneedtotelltheappwherethedatafilesare.Thereisacommandlineoptionthatweneedtoset.TodothisonWin7,rightclickonthedesktopshortcutandselect“properties”.Ifthereisnoshortcutonyourdesktop,copyitfromtheStartMenutoyourdesktopifyou’dlike,oredittheonein

theStartMenu.Thatisuptoyou.Youwillneedtonotewhichshortcutyouedit.Thisiswhereyouwillneedtolaunchitfrominthefuture.Intheexamplebelow,ImountedmysecuredrivetoDriveX,sothewallet.datislocatedinX:\bitcoin.

Noticethe–datadir=x:\biticon

AddtheparametersaftertheBitcoin-qt.exeinthetarget.Thisiswhereyousetthecommandlineoption.ItwilldifferforLinuxandMacoperatingsystems.Press“OK”.

You’redone.

Step7:ReopenWallet

AppTheprocesstoopenyourwalletwillalwaysbethefollowing:

1.OpenTrueCrypt.2.MounttheEncryptedDrive.3.Openbitcoin-qt(yourwalletapplication)usingtheshortcutwiththemodifiedtarget.

Ifyoutrytoopenbitcoin-qt

withoutopeningtheencrypteddrivefirst,itwillnotbeabletolocatethewalletorblockswhiletheencrypteddiskdriveismounted.

Eachtimeyouopenyourwalletyouwillnoticethatitneedstosynchronizewiththenetwork.

Donotleaveitopen.Youshouldonlyopenyourwallet

whenitisrequired.IfyoudohaveaTrojanorotherbackdooronyourcomputer,yourwallet.datfileisvulnerabletobeingcopiedoffyoursystem.

Thereismoreinformationonthewikiaboutsecuringyourwallet:

https://en.bitcoin.it/wiki/Securing_your_wallet

https://en.bitcoin.it/wiki/Securing_your_wallet

Bitcoin-qtOnceinstalledandalltheblocksareupdated,youwillseethemainoverviewscreen.

TheOverviewTabshowsthecurrentnumberofBTCyou

haveandthemostrecenttransactions.

TheSendTaballowsyoutosendBTC.I’lldemonstratethisinalaterchapter.

TheReceiveTaballowsyoutosetupaddressesthatcanbeusedtoreceiveBTC.I’lldemonstratethisinalaterchapter.

TheTransactionsTabwill

showyouahistoryofthetransactionsforthiswallet.

TheAddressBookallowsyoutoenteraddressesthatyouoftensendmoneyto.

Exportallowsyoutoexportyourreceivedaddresses.

BitcoinExchange

SpendingBitcoinsiscertainlyausefulthingtobeabletodo.However,untilittakesoverastheprimarycurrency,(I’mnotsuggestingitwill.)userswillneedtobeabletomovegovernmentissuedmoneyinandoutofthesystem.Thisisdonethroughexchanges.Currently,thereareanumberofexchanges

thatconvertmanydifferentdenominationstoandfromBTC.Thepriceoftheexchangeissetbyyou,thebuyersandsellers,inanopenmarketformat.

AnyonecansellBTCforUSD,EURorothercurrency.Youcanplaceanordertosellatapresetamountknownasalimitorder.Whensomeonedecidestheyneedtobuy

BTC,theycanpurchaseatthatprice.UserscanalsodecidethattheywouldliketobuyBTCatapresetprice.Theycanenteralimitorderandwaituntilsomeonedeterminesit’sfairandsellstheirBTC.Theexchangeschargeasmallfee.OnesuchmarketMtGox,thelargestsuchmarket,charges2.5%pertrade.

LimitordersaregoodwhenyouhavealotofBTCthatyouwanttoreceiveaspecificpriceforandhavethetimetowait.IfyoujustwanttobuyorsellBTC,youcanplaceamarketorder.Ifthetransactionissmall,underathousandUSD,itshouldhitnearthecurrentbidoraskpricedependingonifyouarebuyingorselling.Ifyouplantosellalotfast,expectto

drivethepricedown.Ifyouplantobuyalot,expecttodrivethepriceup.

Atthetimeofthiswriting,thecurrentmarketcapitalizationinUSDis$120Million.Youcanseethecurrentmarketdetailsat:

http://bitcoincharts.com/bitcoin/

http://bitcoincharts.com/bitcoin/

YoucanseetheMarketBook,thelistofsellordersandbuyordersoutstandingforagivenmarket,at:

MtGox:http://bitcoincharts.com/markets/mtgoxUSD_depth.html

http://bitcoincharts.com/markets/mtgoxUSD_depth.html

ThenumberofBTCandthepricetheyarebeingsoldatorboughtatislisted.ThereisacalculatorwhichcanbeusedtodeterminehowmuchaparticularnumberBTCwillcostandiftheordercanbefilledornot.ThisisusefulifyouwanttoobtainaspecificpriceorifyouwillbefundingaBitcoinpurchase.Youshouldplanthepurchase.

Youmaybuymanycoinsanddriveuptheprice,thenmakeapurchaseshortlyafteratthiselevatedprice.ItispossiblethatthepricewilldropsignificantlyassomeoneelsesellsBTCatthebidpriceratherthanyouraskpurchase.

Forexample,basedonthenumbersinthechartshownabove,let’ssayyouwantto

buy742coins.Thelastsalepricewillbe$12.24.YouwillhavejustraisedthepriceofBTCfromabout$12.10to$12.24USD.IfsomeoneelsecomesinandsellstheirBTCtosomeonebasedonthebid,whichwouldoccuriftheydidn’twanttowaittosell,thenthenewpricewouldbe$12.08.Asyoucansee,therecanbesomevolatilityinthemarkets.

ThereareanumberofdifferentmarketsthatyoucantradeBTCtogovernmentbackedcurrencyandgovernmentbackedcurrencytoBTC.Foralistofthemarkets,visittheAllMarketspageat:

http://bitcoinwatch.com/

or

http://bitcoincharts.com/markets/list/

http://bitcoinwatch.com/http://bitcoincharts.com/markets/list/

Agraphicalmarketindexwithallthecurrentmarketscanbefoundat:

http://bitcoincharts.com/markets/

ThepageprovidesLastPrice,30daythumbnail,AveragePrice,Volume,LowandHigh,BidandAsk,24hravg.andvolume.

AnotherlistofmarketscanbefoundontheBitcoinwiki:

http://bitcoincharts.com/markets/

https://en.bitcoin.it/wiki/Buying_bitcoins

https://en.bitcoin.it/wiki/Buying_bitcoins

FundingYourMarketAccount

Giventhelargenumberofmarketsandthevariouswaystofundeachofthem,itisbeyondthescopeofthiseBooktodescribeeverypossiblecombination.IamcurrentlyamemberofMtGoxUSD,whichisalsothelargestexchange.Theyclaim,asofJuly2011,to

handle80%oftheBitcointrade.Seetheirhomepageforthereference:https://mtgox.com.Fromthecurrentnumbers,itappearstheydoindeedhavethelargestsharebutnot80%.Demonstratinghowtofundonthismarketaccountisthebestplacetostartsinceusingitwillprovideyouthebestliquidity.

https://mtgox.com

Step1:SignUpforAnAccounthttps://mtgox.com/signup

https://mtgox.com/signup

Onceyouaresignedup,you’llbeaskedtogothroughaverificationprocess.Youshouldconsiderdoingthis.However,ifyouwillnotbemovingmorethan$1,000USD/dayand$10,000USD/month,youdonotneedtobeverified.

Step2:FundYourAccountFromtheHomePage,Select“FundingOptions”.

Togetmoneyintotheaccount,youcandoabanktransfer,whichisbestforlargeamounts.Ifyouhavecashandwanttogetitintothesystemfast,thefollowingisonewaytodoit.

Step2A:ACashDeposit

throughBitInstantSelect“CashDepositviaBitInstant”.

Youcanenteranamountand

itwilltellyouthefees.Forinstance$500willbe$23.45,so$476.55willbedeposited.

Thenselectthe“AddFunds”.

Youwillbepromptedifitisvalidtosend.Thereisanupperlimitondepositthroughthismethod.

TrustCashwilluseyouraddressesprovidedtoMtGoxtodeterminethenearestlocationswhereyoucandepositthefunds.Selectabanklocationandfillintheinformation.Youwillbegivenareceipttotaketothatbanklocation.

ThehandlingfeethatI’m

seeingis$1.26,whichmightbedifferentifyouuseadifferentbankthanIselected,sothetotalfeetodepositthismoneyis

·4.49%+$1=$23·$1.26atthebank

Thatcomestoabout4.9%overall.Thatisnottoobad,butyouwilllosemoneyintheprocessoftryingtofundtheaccount.

Step2B:AlternativeBitInstant–BitInstantSiteDirectlyBeforegoingtotheBitInstantsite,itisimportanttonoteyouraccountnumberfromMtGox.Itcanbefoundatthetopofthewebpageinthecenter.Itwillsay“AccountNumber”nexttoit.Youwillneedthatnumbertoensureyouwillreceivethemoney.

Gotothesite:https://www.bitinstant.com/

https://www.bitinstant.com/

Select“MoneyGram”inthePayFromdropdownmenuand“MtGox”inthePayTodropdownmenu.Youcanexperimentwithotheroptions.LooktoseeifthereareCVSor7/11storesthatsupporttransactionsinyourarea.Nearme,onlyMoneyGramsaresupported.IcangotoWal-Martandhaveitfunded.

Intheaccountbox,placeyourMtGoxaccountnumber.

Entertheamounttosendandnotificationemail.

Whenyoudo,youwillbetakenthroughaseriesofscreenswhereyouwillverifyadditionalinformation.Icannotfinishtheprocesstogetthescreenshots.IfIdo,Iwillhaveanoutstandingmoneyorder.Sothereare

noscreenshotsforthis.Whenyoudothis,youwillendupataZipZapsitewhereyoucanenteryourphonenumberandsearchforalocationtosendtheMoneyGram.

Onceyou’redoneenteringyourinformation,select“CreatePaymentSlip”atthebottomofthescreen.

Printthisoutandtakeitto

thelocationyouchose.I’llcontinuewiththeexampleassumingyoupickedWal-Mart.AtWal-Mart,thereisaMoneyCentergenerallyinthefrontofthestore.Gothere,grabablueMoneyGramformandfillintheinformation.Theslipyouprintedoutwillhavetheinformationyouneedtoproperlyfillitout.

Paytheclerkthemoney.Drive,walk,takeacab,busortrainhome.Within30to60minutes,yourMtGoxaccountwillbefunded.

Thefeesonthisarealittlebitless:

·3.99%=$19.94on$500·$3.95MoneyGram

TotalPercentageis4.78%,

whichisalittlelessthanifyoufunditdirectlyfromMtGox.

Step3:BuyingBitcoinsIfyourecallfromtheExchangesection,youcanplaceamarketordertotellthesystemhowmuchUSDyouwanttospend,andyou’llspendthatmuchmoneyandreceivethenumberofBTCbasedoncurrentBTCforsale.Alternatively,youcanenteralimitorderandsetthepriceatwhichyouwanttobuytheBTC.Withalimit

order,youwillneedtowaituntilsomeoneinthemarketplacedecidestheywanttosellatthepriceyouareasking.

Toenteralimitorder:

·EnterthenumberBTCtobuy.·Enterthepricetopay.·Selectthe“BuyBitcoins”button.

Youropenorderwillbedisplayedinthebottomsectionofthescreen.Ifyousimplywanttoplacea

marketorder,checkthe“marketorder”checkbox.EnterthenumberofBTCyouwishtobuy,andyouwillbetoldapproximatelyhowmuchitwillcost.

YoucandothesameforSellingBitcoins.

Step4:SendingtheBitcoinstoYourWalletFromtheTradewindow:

·Select“FundingOption”.·Then,selectthe“WithdrawFunds”tab.

·EnterthenumberofBTCtotransfer.

·Enteranaddressfromyourwallet.(Seethesectioninalaterchapteraboutcreatinganaddressforotherstosendtoyou.Youwilluseoneoftheseaddresses.)·SelecttheOpentransaction.

Itisoptionaltopaythetransactionfeeonsmalltransfers.Thetransaction

feehelpspaytheminers.Thisisanotherwaytohelpfundtheinfrastructure.Ifyouconsideradding0.005BTCat$12USD/BTC,itworksouttoabout$0.06.Itisworthconsidering.Itwillspeedupyourtransaction.Ifyoudon’t,itwillstillgothroughbutcouldtakelonger.Thefeewillprovideanincentivefortheminerstocontinuetomine.

·Press“Confirm”.

Nowcheckyourwallet.Eventuallyyouwillseethemoneythere.Itdoestendtomovequickly.

ExtractingFundstoGovernmentBackedCurrencyThereareanumberofwaystoconvertyourBTCbacktoagovernmentcurrencyliketheUSDollar.MtGoxisplanningtoreleasetheirMasterCardDebitcardwhichwillallowyoutomaintainUSDbalanceinyouraccountandspenditdirectlyusingthedebit/MC.Thismeansthatyouwillnot

needtotransferthefundstoyourbankfirst.Itisduetobereleasedatanytime.Sincewehavealreadydiscussedusingthismarket,whendebitbecomesavailableitwouldbesomethingworthwhiletolookinto.ItissupposedtotieyourUSDorothercurrencytothedebitcardwhichwillworklikeaMasterCard.Therereallyis

notmuchtosayaboutthissinceithasnotyetbeenreleased.

MtGoxallowsyoutoperformabankwiretoyourbank.Thiswillallowyoutoextractlargersumsofmoneydirectlytoyourbank.Thisisgoodforlargeramountssincethereisa$25servicechargeinvolved.

Step1:WheretoGoTogettowithdrawtheoptions,ontheMtGoxsite:

·Goto“Home”inthemaintoolbar.·Thenselecttheoptionfor“Fundingoptions”.·ORURL:https://mtgox.com/trade/funding-options·Thenselect

https://mtgox.com/trade/funding-options

“WithdrawFunds”.

·Selectthe“AvailableWithdrawMethods”dropdowntoselectoneofthemanymethods.

Step2:HowtoAddOtherOptions·Pressthe“Add

WithdrawMethod”.

·Selectthe“BankTransfer”

Selectoneofthemethodsthatsuityourneeds.

Step3:AddmoneytoPayPalThereareacoupleofmethodstodothis.IwillwalkyouthroughtheoneIfoundtobetheeasiest.Thefeesarealittlehigher.

Step3A:BTCPakGotohttps://www.btcpak.com/

https://www.btcpak.com/

ThisisgoingtoallowyoutoconvertBTCtoMoneyPakwhichcanbeusedlikecashtofundyourPayPalcardorpre-paiddebitcards.

Youwillalsoneedtoaddanaddressforrefundstobesenttointheeventarefundisrequired.Thisisrarebutifforsomereasonarefundismadeandthereisnoaddress,theBTCwillbelost.

Youshoulduseanaddressthatexistsinyourwallet,soyouendupwiththemoneyintheeventofarefund.

WithoutBTCtomoveout,Icannotshowmoresteps.

You’llnoticethatthefundingoftheMPtakesaboutonehour.Theonehouristhetimethatittakesforsixconfirmationsofthetransactiontooccur.Ifyou

sendmoneyfromMtGoxandUseaGreenAddress,itwillcreatetheMoneyPakinstantly.

BitcoinTransactions

NowthatyouunderstandwhataBitcoinis,howtostorethem,whatgivesthemvalueandhowtofundyouraccount,letustalkabouthowtosendandreceivethem.WhenyouuseawallettostoreyourBTC,youknowthatitactuallystoresakey,whichprovesyourownership.Thiskeyis

actuallyapair.Thereisapublickeyandaprivatekey.Thepublickeyisknownasanaddress.ThisaddresscanbeusedtosendBTCfromoneusertoanother.BTCaretradedusingPublicKeyCryptography.

AfulldescriptionofPublicKeyCryptographyisbeyondthescopeofeBook.Iwillgiveyouasimple

explanation.Foracompleteexplanationcheckout:

http://en.wikipedia.org/wiki/Public-key_cryptography.

Twoverylargeprimenumbersarefoundthatwhenusedcanbothunlockamessageifthemessageisencryptedwithoneofthem.Oneofthenumbersbecomesthepublickeyandtheotherbecomesthesecretkey.

http://en.wikipedia.org/wiki/Public-key_cryptography

Encryptingwithonekeyallowsthemessagetobedecryptedonlybythecorrespondingnumber(key).Wecanthenprovideourpublickey,andwhensomeoneusesittosend(encrypt)BTCtous,wearetheonlyoneswithoursecretkeythatcanreceive(decrypt)it.

LetussaywehaveAliceand

BobwhowanttoexchangeBTC.Bothhaveakeypair.

1.AliceusesBob’spublickeytosendthemoney.2.TheBTCisencryptedwithBob’spublickey.3.TheTransactionissignedbymanyoftheminersusingthehashestheyarefinding.Thisbuildsthetrustinthe

network.4.BobcanthenopenthetransactionwithBob’sprivatekey.

ReceivingBTCToreceivetheBTC,openyourwallet.WewilldemonstrateherewithBitcoin-qt.Usetheprocedurespreviouslynotedtoopenyourwallet.Onceopen,ifithasshutdownforawhile,youwillnoticeitisoutofsync.

Giveitalittletimeanditwillbegintosync.

Thesyncingistheapplicationgoingoutandgettingthemostcurrentblocks.These

blockstelltheapplicationwhoownswhat.Itonlyknowsbasedonthesignedblocks.Eitheralocalprivatekeyinthewalletcandeciphertheblockandproveownership,oritcannot.Thesearetheonlytwooptions.

So,ifsomeonesendsyouBTCandyourwalletisnotinsync,youmaynotseethe

transactioncomethrough.Oncealltheblocksareinsync,youwillbeabletoseeit.

Onceyoucanseethegreencheckmarkinthelowerright-handcorner,thewallet

issynced.

InordertohavesomeonesendyouBTC,youwillneedtocreateanaddressforthem.Clickonthe“ReceiveCoins”button:

Createanewaddress.Pressthebuttoninthelowerleftsideofthescreen,“New

Address”.

Giveitaname.IlikeusingtheconventionYear-Month-Dayname.Thisallowsmetoknowhowoldtheaddressis.

Click“OK”,andtheaddresswillshowupinthereceivewindow.

Togettheaddresssothatyoucanprovideittoothers,rightclickontheaddressand

select“CopyAddress”.

Addresstosendto:

13QPmiJymZpuv2q2rhdgXWokdybit8cFZC

NowwecanprovidethataddresstoanotherpersontosendusBTC.

Whenanewtransactioncomesin,youwillseeamessageinthelowerright-handcorner(onwindows).

IfyouswitchtotheOverviewTab,youcanalsoseethetransaction:

Noticethatyouseeanunconfirmedamountandthatthereisstillazerobalance.Thetransactionneedstobeprocessed.Trustneedstobebuiltaroundthistransaction.Oncethatoccurs,youcanspendtheBTC.WhenwecoversendingBTC,youwillseethereisanoptiontopayatransactionfeeinordertospeedupthehandlingofthetransaction.

IfyougototheTransactionTab,youcanseethetransaction.

Doubleclickonthetransactiontoseethedetails.

Aboutnineminuteslater,thetransactionreceiveditsfirstconfirmation.

SwitchingtotheOverviewTab,wecanseethattheBTCisnowconfirmedandisinyourbalance:

SendingBTCInordertosendBTC,youfirstneedanaddresstosendto.Forthisdemonstration,wewillusetheeBookDemonstrationinmyotherwallet:

1P9scjVao6n9t9ihNUBGXiCSHYAghzhzY7

PleasefeelfreetosendBTCtoanyoftheaddresseslistedinthisbook.JDonationsarewelcomeevenifitisonly

0.01orless.

Tosend,clickonthe“SendCoins”button.

ThenentertheaddressandalabeltohelpyourememberwhyyousentmetheBTC.

Whentheconfirmmessageappears,click“Yes”.

Ifyoudonothaveenoughtofundthetransaction,youwillseesomethinglikethemessagebelow.Inthiscase,thewalletwasaddingatransactionfeeautomatically.Therewerenotenoughfundstocovertheamounttosendandthetransactionfee.

Youhavetheoptiontosetatransactionfee.Thetransactionfeeencourages

theminerstoprocessyourtransactionfaster.Thedefaultistheamountshowninthewindowabove.Thinkofthetransactionfeeasatipforgoodservice.WhenalltheBitcoinblocksarefound,itwillbethetransactionfeesthatkeepthenetworkgoing.Atthepresenttime,youarenotrequiredtosubmitatransactionfeeonsmalltransfers.However,itis

highlyrecommendedthatyougetinthehabitofaddingone.AtthepresenttimewithBTCaround$12,0.005,BTCisequaltosixcentsUSD.Thisisnothingifyouaresending$100USDor8.5BTCormore.Ifyouareonlysending1.5BTCasweare,considergiving0.001.Wewilladjustthetransactionfeeto0.005forthisexample.

Clickon“Settings”inthetoolbar.

Thenselect“Options”.

Usethearrowkeystomovethevalueby0.001upordowntozero.Thenclick

“Apply”.

Nowlet’senteranewvaluetosend.

Thistimeitwillgothroughandclearoutourbalance.

ConfirmedTransactionsIttakessixminerstoprocessthetransactionbeforeitisconsideredfullyconfirmed.WewereabletoresendtheBTCbeforeitwasfullyconfirmedbutnotuntilitwasconfirmedatleastonce.About30minutesafteritwasinitiallysent,itwasstillnotfullyconfirmed:

Aftersixconfirmations,itisconsideredfullyconfirmed.Thenetworkwillcontinueto

confirmthetransactions.Toviewthis,sendmyaddress0.01(Okay;youcanuseanyaddress.)andwatchtheconfirmationsbuildoverthedaysandweeks.Ihaveatransactionthatisafewdaysoldandithas500confirmations.Thechainofconfirmationwillcontinuetogrow.

Ittook41minutesforthe

transactiontoreachthesixconfirmations.

OtherTransactionTypes

EscrowYoumightbeaskingyourself,ifthismarketplaceisbuiltontrustandnon-revocabletransactions,thenhowcanIdobusinesswithsomeoneIdonottrust?Insomecases,trustwillhavetobeimplicitwiththefactthattheyaredoingbusinessinthemarketplaceandtheywould

notlastiftherewasnottrust.Forinstance,themarketwithhighvolumemakesmoremoneybyoperatingethicallythaniftheyweretostealfromanyoneperson.

Thisisnotthecasewithindividuals.IfsomeoneispromisingyousomethingforBTCandyoudonotknowwhotheyare,thensuggest

usinganescrowservice.Theseareservicesthatexistinordertobrokertrustbetweentwountrustedparties.

LetushaveAliceandBobperformanescrowedtransaction.Theescrowservicefacilitatestheexchangeforafee.Letustradesomethingsimplethatseemstobeacommon

untrustedexchange.AlicefindsBob,andAlicewantstobuy50BTCfromBobfor$600USD.Youmightask,“Whynotjustusetheexchange?”Aswenotedintheprevioussections,therearealotofmiddlemenintheprocesswhoalltakeatransactionfee.Thesefeescanmount.Thebuyerandsellerwillneedtodotheirownmathtodetermineifan

over-the-countertransactionisoneworththeireffort.

Bobwillsignintoanescrowsiteandsetupatransactionandsendthe50BTC.Oncethecoinsareconfirmed,thenAlicewillneedtopayforthecoins.Shedoesn’thavepossessionofthem,butneitherdoesBob.Theescrowservicehasthem.OnceAlicepaysBoband

providesamethodtoverifythetransactionhasoccurred,theescrowservicewillreleasethe50BTCminusthetransactionfee.TheabilitytoverifymightbeaPayPaltransactionnumberthatcanbeviewedbybothpartiesorsomeotheragreeduponverificationmethod.Iftheexchangeisgoods,thenthebuyermayhaveaninspectiontime.Oncethe

inspectiontimeexpires,thenthepaymentismade.Thesetransactionsaregenerallyslow,sousersbeware.However,theyarealotsaferthanthealternative.Therearemanyscammersoutthere.

Alistofescrowservicescanbefoundhere:

https://en.bitcoin.it/wiki/Bitcoin_Escrow_Service

https://en.bitcoin.it/wiki/Bitcoin_Escrow_Service

Thereismoreaboutsecuretradinghere:

https://en.bitcoin.it/wiki/Secure_Trading

https://en.bitcoin.it/wiki/Secure_Trading

OvertheCounterOver-the-counter(OTC)tradesareanotherwaytotradeBTCforgovernmentbackedcurrency.ThissystemallowsyoutobuyandsellBTC.TointeractwiththeOTC,youwillneedtodownloadandinstallanInternetRelayChatclient.IwillgooverhowtodothisonWindows,butthereareclientsforMacandLinuxas

well.

YoucanuseanyIRCClientyouwant,butIwilldemonstratetheuseofmIRCwhichcosts$20.Youcandownloaditfromhere:Http://www.mirc.com/get.html.TherewasatimewhentherewerefreeIRCclients.Ifyouhaveaccesstoone,feelfreetouseit.ThecommandsIwillbedemonstratingwill

Http://www.mirc.com/get.html

workinanyIRCClient.

Onceyouhaveitdownloaded,goaheadandinstallit.Justacceptallofthedefaults.Onceitisinstalled,weneedtosetupyourIRCAccount.IRCwillallowyoutologinandinteractunverified.Ihighlyrecommendthatyouloginandcreateanaccountwithapassword.Iwillreviewhow

todothis.

DoubleclickontheicononyourdesktopformIRC:

Youcanusethetoolforfreefor30days,orifyou’dlikeandwanttouseitlonger,youcanregisteritforabout$20.Sincethereisafree30daytrial,youcanuseitin

ordertofollowmyinstructionstocreateyourIRCUser(whichisdifferentthanregisteringtheIRCClient).Youcanalwaysfindadifferentfreeone,orregisterthisoneatalatertime.IamnotaffiliatedwithmIRC,butIdohavearegisteredcopy.

Whentheapplicationcomesup,itwillaskyoutoenteryourNickname,alsoknown

asanick.Thisisauniquenamethatyouwanttouseinthechannels.Thechannelsarethecommunitymessageareaswherechatcanoccur.I’llexplainthatmoreonceweareregistered.

Thenselectthe“Servers”itemandchangetoFreenode

>RandomServer.

Click,“OK”andthenhitthe“Connect”button(lookslikealightningbolt)intheupperright-handcornerofthescreen.

Youwillseeascreenthatlookslikethis:

ThearrowpointstotheCommandwindow.Thecommandsthatyouwillneed

totypeinwillneedtobetypedinhere.

Onceconnected,enter:

/msgnickservregister

Useyourownpasswordandemailaddress.AlsonotethatyourIPAddressappeared.Wewillfixthisaswell.Writedownyourpassword,anddonotuseasimplepassword,asitcanbestolen.YoudonotwantsomeonetotakeoverthisaccountifyouaregoingtoestablishitwiththeBitcoinOTCmarketplace.Youwillreceiveanemailwithacommandtoverify.You

mustdothisstepbeforeyoucancontinue.

/msgNickServVERIFYREGISTER

WhenyouneedtologintoIRCinthefuture,youwillneedtousethefollowingcommandtologin:

/nickservidentify

Thetokenisreplacedwithyourpassword.Youwillgenerallyhaveabout30secondstoenterit.Ifyoudonotenteritfastenough,theIRCserverwillbootyouthinkingyouarenotthenickowner.

AsImentionedbefore,theIRCismadeupofchannels.Youfirstneedtovisitthehelpchannelandaskfora

cloak.ThiswillhideyourIPAddressfrompryingeyes.Hackerswillbelookingforyou.IfyouleavetheIPvisibletothem,theywillbeabletolaunchanattackagainstyou.Iftheygetyourwallet,it’sgameoverforyourmoney.Soyouneedtoprotectyourself.

Tojointhehelpchannelusethefollowingcommand:

/join#help

Inthenewchannelwindow,asktheadminforacloak.Simplytype:

Admin,canIgetacloak?

Withoutthecloak,yourIPAddressisvisibletoeveryone.Withthecloak,yourIPAddressishiddenfromotherusers.Thisway

theycannotdetectwhatcomputeryouareonandtrytoattackit.Sonowwhenyoulogbackin,youwillbeautocloaked.Itisimportantthatyouobtainacloakbeforeyoubegintotrade.AllanattackerneedsinordertoattempttoattackyouisyourIPAddress.

TojointheBitcoinOTC,let’sjointhecorrectchannel.Use

thecommand:

/join#bitcoin-otc

Toauthenticatewiththeservice,youneedtointeractwiththechannelbot.Thebotisacomputerapplicationthatisloggedintothechannelasauser.Thebothereisnamedgribble.Sotostartaprivateconversationwithgribble,type:

/querygrible

Youwillseeanewchannelappear.Thisisgribble.

Let’squicklytrysomethingwithgribblebeforewe

authenticate.Enterthefollowingcommandandmakesuretousetheprecedingsemi-colons.Thattellsthebotyouareenteringacommandforittoconsume.

;;ticker

Youshouldseesomethinglikethis:

Bestbid:

12.1388,Bestask:12.19988,Bid-askspread:0.06108,Lasttrade:12.1388,24hourvolume:39840,24hourlow:11.6304,24hourhigh:12.27

Nowswitchovertoyourwalletandcreateanewreceiveaddress.Wearegoingtousethisinthe

authenticationprocesstofollow.Inamedmine,2012-09-23-Bitcoin-OTC.

Nowcopytheaddressandusethefollowingcommandtoauthenticate:

;;bcregister1CXnFLTUc1Z15uvhune6P1VtjcXnrsbzq

Youwillreceiveamessage

stating:

Requestsuccessfulforuser,hostmask!~@unaffiliated/.Yourchallengestringis:freenode:#bitcoin-otc:

Gotoyourwalletapplicationandselectthe“ReceiveCoins”button.

Selecttheaddressyoujustcreatedandpressthe“SignMessage”buttonatthebottomofthescreen.

Nowasignmessagescreenwillappear:

Copyjustthechallengestringintothewindowintheareamarked1whichwilllooklikethis:

freenode:#bitcoin-otc:2b5195d2442cbfc302a0b2f6d7b856cd04ecc0435d0e306827b94e9c

Youmustusetheoneprovidedinorderforthistoworkforyou.Thenpressthe“SignMessage”button.Thenamessagewillappearinthe

windowlabeled3.Tocopythisout,pressthe“CopytoClipboard”button.

NowintheIRCClient,issuethefollowingcommandtogribble:

;;bcverifyrandom-looking-gibberish-that-is-your-signed-message-goes-here=

Iftheprocessworked,thenyouareauthenticatedwiththisnick.Ifitdoesn’twork,reviewtheinstructionshereformoreinformation:

http://wiki.bitcoin-otc.com/wiki/Bitcoin_address_authentication

TheBitcoin-OTCwikihasalotmoredetailsabouthowtousetheservice.Youcanfindthewikihere:

http://wiki.bitcoin-otc.com/wiki/Bitcoin_address_authentication

http://wiki.bitcoin-otc.com/wiki/Main_Page

ThereisanimportantnoteabouttradingontheOTCthatIextractedfromthewiki:

“Therearenoautomaticsystemssetuptomatchbuyersandsellers.TheentiresystemisOTC,ifyouseeabid/askyoulike,contactthecounterpartydirectlyon

http://wiki.bitcoin-otc.com/wiki/Main_Page

channelorinprivatemessagetosetupthetransaction.Issuestodiscussmaybe:whobearsthetransactionfees?Whopaysfirst?Whatescrowagentdoweusethatismutuallytrusted?Remember,thisisadirectnegotiatedtransaction-soeverydetailisnegotiable.”(Anonymous,Usingbitcoin-otc,2012)

MoreInformationMoreinformationaboutBitcoin-OTC(OverTheCounter)canbefoundhere:

http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otc

YoucanseethelistofcurrentordersontheBTC-OTChere:

http://bitcoin-otc.com/vieworderbook.php

http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otchttp://bitcoin-otc.com/vieworderbook.php

ForamorecompleteguidetoIRC:

http://en.wikipedia.org/wiki/Internet_Relay_Chat

ListofIRCCommands:

http://en.wikipedia.org/wiki/List_of_Internet_Relay_Chat_commands

http://en.wikipedia.org/wiki/Internet_Relay_Chathttp://en.wikipedia.org/wiki/List_of_Internet_Relay_Chat_commands

BitcoinsinAction

SonowyouknowaboutBTC.Youhaveawalletandprobablyfundedyouraccount.YouknowthatthevalueoftheBTCisbasedonthefactthatthereisliquiditythroughthemarketssuchasMtGox.However,thesupplyanddemandisdrivenbythefactthatpeoplecanusetheBTCforsomethingreal.As

longasthereissomethingthatpeoplecanusetheBTCfor,therewillbeamarket.ForthenaysayerswhotellyouBTCarenotbackedbyanything,IwouldtellyouthataslongastheycanbeliquidatedtoUSDorothercurrenciesandaslongasBTCcanbuyyousomethinguseful,therewillbeamarketforthemandanassociatedvalue.Thisvaluewillbe

drivenbythenumberofpeoplebuyingupBTCversusthenumberofpeoplesellingBTC.

StayingInformed

Soifyouaregoingtojointhemarket,youwillwanttostayinformed.Therearemanyblogsoutthere.Hereareafewgoodonlineresources:

·

http://bitcoin.alltop.com/·https://twitter.com/bitcoinnews·http://www.btcnn.com/·http://www.bitcoinblogger.com/·http://www.thebitcointrader.com/·http://www.bitcoinnews.com/

Acurrentlistcanbefoundon

http://bitcoin.alltop.com/https://twitter.com/bitcoinnewshttp://www.btcnn.com/http://www.bitcoinblogger.com/http://www.thebitcointrader.com/http://www.bitcoinnews.com/

thewiki:https://en.bitcoin.it/wiki/Category:Blogs

https://en.bitcoin.it/wiki/Category:Blogs

WheretoSpendSolet’sinvestigatesomeofthethingsthatyoucanbuywithBTC.I’mnotgoingtogointomuchdetailaboutanyoneitem.Iwillprovidelinksbelowandyoucaninvestigateforyourself.Iamnotpersonallyendorsinganyoftheplaceshere.I’mjusttryingtoprovidealisttokickstartyourenjoyment.Mygoalistodemonstratethat

thereisahugemarketplaceoutthere.

EquityTradingThesestockfloorsarenotregulatedliketraditionaltrading,butsomegooddealscanbefound.Justbecarefulwhoyoudobusinesswith.

GLBSE:https://glbse.com/

BitFloor:https://bitfloor.com/

Atthetimeofthiswriting,GLBSEhadclosedduetothe

https://glbse.com/https://bitfloor.com/

lackofregulation.AccordingtoanarticlegiveninBitcoinMagazine,thegoalistoopenbackupinaregulatedmanner.Iftheycanpullthisoff,thiswouldbesomethingsignificant.Asauser,youshouldbecarefulinthisspace.Therecanbealotofscams.

Thewikisitemaintainsallsortsoftrainingsites(Thisis

amustseepage.):

https://en.bitcoin.it/wiki/Trade

Youcanalsotradeinthefollowing:

·Preciousmetal·Gift/Debitcard·Currencies·LocalInHandExchanges


MerchantsthatAcceptBitcoinsThereareanumberofplacesthatyoucangotomakepurchaseswithBitcoinsdirectly.

ThereareacoupleofplacesthatyoucanvisitinordertofindwhereyoucanspendtheBitcoins.Oneofthesitesis:https://www.spendbitcoins.com/places/

Thewikipagepreviously

https://www.spendbitcoins.com/places/

mentioned,https://en.bitcoin.it/wiki/TradealsolistssystemsyouneedinordertoenhanceyourabilitytoacceptBitcoins:

·BitcoineWallets·Paymentsystems·Escrow·Mobileservice

ThereisalistofVPNServicessothatyoucanmaintain


anonymousconnectivityfromareasthatmightimpedeonyourrighttodosomethingontheinternet.

ThereisalistofinternetrelatedservicesthatyoucanbuythatacceptBTC.(##)isthenumbercurrentlylisted.

·CreativeDesignServices(15)·WedDesignServices(50+)

·ArtDesignServices(6)·Webhosting(36)·Dedicated/VirtualServers(20+)·DomainNameHosting(16)·Email(2)·VoIP/SMS(13)·SecurityServices(7)·MobileAppDevelopment(3)·Productivity(1)

·Other(13)·SearchEngines(1)·CloudProviders(7)·Software(5)·EducationRelated(13)·Gambling(30+)·Games(20+)·GraphicDesign(5)·FileSharing(8)·Music(20+)·VirtualArt(2)

·DigitalDownloads(6)·EntertainmentBooks/Magazines(8)·SocialMedia(2)·CyberBegging(1)·InternetMarketing(1)

Solet’ssayyouarenotinterestedininternetrelatedservices.Youcangoshoppingforjustaboutanything.Ihadoriginallyplannedtoincludethelist

fromthewikisiteinthisbook;however,itconsumed25pages.Irealizeditwouldbebettertodirectyoutothewiki.ThisisavaluableresourceIhighlyrecommendthatyouvisit:

http://en.bitcoin.it/wiki/Trade

http://en.bitcoin.it/wiki/Trade

EarningBitcoins

Sonowyou’reexcitedabouteverythingyoucando.However,youdon’twanttopaythefeesassociatedwithmovingcurrencyintothesystem.Youwouldratherofferservices.Ifyouhaveaservice,I’msureyoucanfindaserviceouttherethatcanhelpyougetstarted.Youcertainlycanstartabusiness

andmakeitbigintheBitcoinworld.It’sbeyondthescopeofthisbooktotellyouhowtodothat.Withthenumberofservicesavailable,Ithinkyoucanfindsomeonethatcanhelpyou.Whenyoufigureitout,youcouldwriteaneBooktotellothershowtodoso.Ihavenotseenoneavailableyet.

IfyoulikeeBayandCraigslist,

checkoutthemarketplacesifyouhavesomethingtosell:

Marketplaces·TheBitcoinMarketplace-Bitcoinsclassifiedsiteandmarketplace.BuyandSellanythingwithBitcoins.

·BitcoinHarbor-UserscanbuyandsellforBitcoins--outofbusiness.

http://bitcoinmarketplace.net/http://www.bitcoinharbor.com/

·BitmitSecureBitcoinmarketplace.SellandbuygoodsforBitcoin.Worldwide!

·MokiMarketTheebay/craigslistofBitcoins!

·BitcoinshoppingShopwithyourBitcoins-Worldwideshipping

Auctionsites·CentBiz.com-Oneof

http://bitmit.nethttp://mokimarket.comhttp://www.xrwh.com/bitcoin/http://www.centbiz.com

theoldestPennyandCentAuctiononline,BitCoinsAcceptedforPayment.AvailableforPortugal,IrelandandUK.0,25euro/poundperBid.

·PennyAuctions-Barteringmarketplacewhereuserscanpurchasecreditstobidonitems,orearncreditsbyauctioningoffgoodsorservicesas

http://mokimarket.com

pennyauctionsforfree.Bitcoinisacceptedaspayment.

·BiddingPond(info)

·BidnappereBaysniper-PlacesbidsoneBayandotherauctionsitesinthefinalseconds,calledsniping.

·Bitmarket(info)

http://www.biddingpond.com/https://en.bitcoin.it/wiki/Bidding_Pondhttp://www.bidnapper.com/bitcoin.php3http://www.bitmarket.ca/https://en.bitcoin.it/wiki/Bitmarket

·Bitmit-BitCoinauctionhouse&shoppingportal(English&German)

·goSnipeeBaySniper-PlaceyourbidinthefinalsecondsofaneBayauction.LoadyouraccountwithBitcoins.

·MyibidderAuctionbidSniperforeBay-AuctionbidSniperfor

http://www.bitmit.net/http://www.gosnipe.com/http://www.myibidder.com/

eBay,bidonlastsecondsautomatically.TheWindowsclientapplicationcanbepurchasedwithBitcoins.

·HASTUschon?(info)AGermanauctionsite.

·BitBidBitcoinAuctionHouse.

http://www.hastuschon.de/?_BitCoin=1https://en.bitcoin.it/wiki/HASTUschonhttp://www.bitbid.net

MiningThebigserviceoutthereistheminingservice.AllI’mgoingtodohereisprovideyouwithsomelinksastohowtogetstartedmining.ThisistheonlywaytogetBTCforessentiallynothing.Youprovidethehardwareandtheelectricitytoruntheequipment,andyougetpaid.Aslongastheelectricitycostslessthanthe

BTCyouaremaking,youturnaprofit.

Beginnersguidetomining:http://startbitcoin.com/

MiningGuide:http://www.weusecoins.com/mining-guide.php

PooledMining:https://en.bitcoin.it/wiki/Pooled_mining

MiningHardware:https://en.bitcoin.it/wiki/Mining_hardware_comparison

http://startbitcoin.com/http://www.weusecoins.com/mining-guide.phphttps://en.bitcoin.it/wiki/Pooled_mininghttps://en.bitcoin.it/wiki/Mining_hardware_comparison

BitcoinUnderbelly

IwanttokeepthisbookpositiveandpromotethegoodabouttheBitcoininfrastructure.Thereishoweveranunderbelly.TherehavebeensomehighprofilecasesinjustthepastmonthorsothathaveshedabadlightontheBitcoins.Thatsaid,Bitcoinsarenottheproblem,thecriminalsare.

OnearticlerecentlyseemstoindicatethattheBTCtransactionsarenotasanonymousassomehavethoughtoraseasytohide.ThisisinconnectionwiththeBitFloorheist,where$250,000USDworthofBTCwerestolenfromvarioususers.

HackerStealsBitcoinsBitFloorbreached,hackermakesoffwith$250,000inBitcoins:

http://www.techspot.com/news/50043-bitfloor-breached-hacker-makes-off-with-250000-in-bitcoins.html

Bitcointhievesyettospendstolenhoard:

http://www.techspot.com/news/50043-bitfloor-breached-hacker-makes-off-with-250000-in-bitcoins.html

http://www.bbc.com/news/technology-19633980

Thisarticleindicatesthatthetransactionsofthestolenkeysarebeingwatched.Thisisinteresting.

http://www.bbc.com/news/technology-19633980

RansominBitcoinsInaseparatecase,USpresidentialcandidateMittRomney’staxreturnswerestolenandthehackerwantedtobepaidin$1,000,000USDpayabletooneoftwoBTCaddresses.Onewouldreleasethetaxreturns,andtheotherwouldkeepthetaxreturnshidden.

http://venturebeat.com/2012/09/05/romney-tax-returns-hacked/

http://venturebeat.com/2012/09/05/romney-tax-returns-hacked/

GamblingwithBitcoinsAlittleoverayearago,apokerwebsiteopenedupSealsWithClubswhichallowedpeopletobuyinwithBTC.IplacethisintheunderbellybecauseintheUSA,itisillegaltogambleonline.Forthoseofyouincountrieswheregamblingonlineislegal,thisentrymay

notseemsonegative.UsingBTCreducesthelikelihoodthatoffenderswillbecaught.

http://www.pokerscout.com/SiteDetail.aspx?site=SealswithClubs&ab=1337

http://www.pokerscout.com/SiteDetail.aspx?site=SealswithClubs&ab=1337

BuyingDrugswithBitcoinsSilkRoadissellingdrugsonlineinexchangeforBTC:

http://www.forbes.com/sites/andygreenberg/2012/08/06/black-market-drug-site-silk-road-booming-22-million-in-annual-mostly-illegal-sales/

Ithinkthisonespeaksforitself.

http://www.forbes.com/sites/andygreenberg/2012/08/06/black-market-drug-site-silk-road-booming-22-million-in-annual-mostly-illegal-sales/

AppendixA:OtherResources

NowthatyouknowwhataBitcoinis,howtosetupyourownwallet,fundyouraccount,earn,spendandtransferBTCtogovernmentcurrency,you’reallset.Thereshouldbenootherinformationyouneed.JNotso.Thereissomuchmoreouttherethanthe

scopeofthisbook.

ThefirstplaceIrecommendyoutakealookatisthewikisite:


LookattheTopicCentral:


Youcanseethetopicscover

muchmorethanthiseBookdid.

Forin-depthtechnicalinformationabouttheblocks:

http://blockchain.info/

Foralookatchartsthatshowthemarkettrendsasawhole:

http://blockchain.info/charts

http://blockchain.info/http://blockchain.info/charts

CurrencyExchangemarketwatchcanbefoundat:

http://bitcoinwatch.com/

Ifyouaregoingtogetintomining,beforeyoubuyanythingmakesureyouconsidertheproductsatButterflyLabs:

http://www.butterflylabs.com/products/

Theirnewsupercomputerlineofminingrigsisthetop

http://bitcoinwatch.com/http://www.butterflylabs.com/products/

ofthelineand50timesfasterforthepricethananyoftheircompetitors.Weonlytouchedonmining.Makesureyoudoyourhomeworkandplanfirst.Ifyourelectricitycostsaretoohigh,youwillnotbeturningaprofit.

Besidesthewiki,anothergreatplacetogetinformationabouttheBitcoin

worldisthroughBitcoinMagazine.ThisisanonlinepublicationwithprintversionsavailableinmanyBarnes&NobleBookstores.

http://bitcoinmagazine.net

Atthebottomofthelistofarticles,thereisapageselectorsothatyoucanscrolltomorearticles.Checkthelastpage,whichlistssomeofthefirststorieswrittenabout

http://bitcoinmagazine.net

walletswhicharegood.

AnIntroductiontoTerminology:

Part1http://bitcoinmagazine.net/introduction-to-bitcoin-terminology

Part2http://bitcoinmagazine.net/introduction-to-bitcoin-terminology-part-ii

Ihighlyrecommendthatyouvisitthemagazine.I’ma

http://bitcoinmagazine.net/introduction-to-bitcoin-terminologyhttp://bitcoinmagazine.net/introduction-to-bitcoin-terminology-part-ii

subscriberandenjoythearticles.

AppendixB:Bibliography

anonymous.(2012,9).Bitcoin.Retrieved921,2012,fromBitcoinwiki:https://en.bitcoin.it/wiki/Main_Page

Anonymous.(2012).Browser-basedwallet.Retrieved0918,2012,fromBitcoinWiki:https://en.bitcoin.it/wiki/Browser-based_wallet

Anonymous.(2012,09).Usingbitcoin-otc.Retrieved0923,2012,fromBitcoin-OTCWiki:http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otc#Trading

Kirk,J.(2012,Sep4).BitCoinexchangeloses$250,0000afterunencryptedkeysstolen.RetrievedSep

18,2012,fromPCWorld:http://www.pcworld.com/article/261894/bitcoin_exchange_loses_2500000_after_unencrypted_keys_stolen.html

CopyrightDedicationIntroductionWhat Is A Bitcoin?Bitcoin StorageBitcoin ExchangeFunding Your Market AccountExtracting Funds to Government Backed CurrencyBitcoin TransactionsOther Transaction TypesBitcoins in ActionEarning BitcoinsBitcoin UnderbellyAppendix A: Other ResourcesAppendix B: Bibliography

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