The world of bitcoin has intrigued me ever since I read an article in Wired magazine two years ago. The idea of a digital currency, built upon cryptography algorithms, and free of any centralized source, and the equally mysterious disappearance of its founder had me hooked. Its skyrocket in price (I almost bought a couple for $10 less than a year ago and now a recent spike has them at $600). Since then I've followed the stories, the trends, and even made a few "satoshis" along the way. It's still a complex and crazy place for somebody wanting to start out, or even participate for purely a "hobby" manner (like me). In that regard I offer up an introduction and some resources that I hope will have you intrigued like me.
What is it?!
If you have the time, I highly recommend the Wired article I referenced to earlier. Even though it is a couple years old, it provides a great insight into the origins, implementation, and early years of bitcoin.
If you don't have (or want) to read it, bitcoin is a digital currency. It exists purely through the network of computers that process the transactions involved with it. Since it uses highly encrypted algorithms and computations to process transactions, it prevents the system from being hacked. It also provides the method of how new bitcoins are created. Validating the transactions in the system results in additional bitcoins awarded to those that solve them. The system is setup so that only a fixed number of bitcoins will be released on a steady basis, so this creates value (due to scarcity) and regulation (there's no central bank) to everything.
While you can spend hours pouring over the details of the system itself, the main benefits to bitcoin is that it is:
- Decentralized - There is no central bank regulating bitcoin prices. The entire network is handled through the "blockchain" that everybody participating has access to. All transactions are public, so they can be verified by any system and released to other members too.
- Anonymous - This is probably the most controversial aspect of bitcoin. Transactions are processed through accounts that are simply large hash addresses. This also adds privacy and security to your transactions.
- International - No need to compare euros to dollars to yen, to pesos. Bitcoin has started out as available to all since it exists in cyberspace.
- Divisible - While 1 BTC is worth roughly $600 (at the time of this writing), each bitcoin can be divisible up to 8 decimal places (called a satoshi) which allows for more flexibility and use in the long run.
What can do I do with them?
Sounds great! But what do I do with a bunch of bits floating around on my computer? For starters, the bitcoin store has a large selection of electronics and other items available to purchase with bitcoin. Bitcoin Coffee and PizzaForCoins also take payments via bitcoin. Some bigger companies, such as WordPress, Etsy, Reddit are also accepting bitcoin payment options as well. You can find a large list of vendors accepting bitcoin here.
If you're feeling more adventurous, there are a plethora of online casinos out there that are solely bitcoin based. In addition, there are several major bitcoin exchanges that allow you to buy and sell bitcoin like the stock market. These exchanges are the ones that help determine the value of bitcoin currently. The major players are Mt. Gox, BTC-e, Bitstamp, and BTC China.
How do I get bitcoins?
To get bitcoins, you first need a wallet to store them in. The wallet is the large hash name that is used for the transactions and are arbitrary in name. One of the best places to get a wallet is Coinbase. They offer a secure wallet with two factor verification and the easiest way (in the US) to purchase bitcoins. If you're not in the US, or are looking for alternatives, blockchain.info is your next best bet.
Once you have a wallet, the next thing to do is fill it.
The easiest way is to simply buy bitcoins at the market rate. Coinbase (as mentioned above) provides the easiest way to purchase bitcoins, since you link your bank account right to your wallet. However, you're limited to only US accounts for this. Another popular way to buy bitcoins is through service called Local Bitcoins. It serves as a matching service between those that are buying and selling bitcoins in your local area. You make the final arrangements directly with the other person, wherever/whenever you want.
Another approach is to visit what is known as a "bitcoin faucet". These sites take your wallet Id and award you a small amount of satoshis after filling out a captcha or other code. A really great site I discovered recently is called "Land of Bitcoin". It keeps an archive of all of the faucets and provides you an easy way to navigate each site and get your satoshis. One thing to note is that the faucet sites provide a tiny amount of bitcoin, and often require you to accumulate a small amount before they will cash out to your wallet. Be prepared to spend a lot of time (or TV commercials at night) typing in your wallet address before you can work with it.
The traditional way to earn bitcoins is to mine them. Mining involves using your compeer to solve the complex cryptography equations that is used to verify transactions. There are lots of mining programs out there that will do this for you. With such a large amount of computers (and companies now) mining, doing solo mining will yield minimal profits. Instead, contributing your machine to a mining pool is the way to go. You participate in part of a group to solve the block chain and get a split of the profits. One particular site, bitminter, has their own mining program that will get you up and running easily. This was the only program I could quickly and easily get running on my MacBook Pro.
In the past, bitcoin mining was done by taking advantage of the graphics cards built into computers. A person could build a mining rig using a desktop computer that help multiple slots for video cards. As the race to be the first one to "win" the mining bonus gets ever tighter, the mining rigs have gotten bigger and more optimized. The recent release of "ASIC Miners" have rendered mining based on graphics cards pointless. ASIC mining rigs start at $300 and go up sky high from there and require a fair amount of power.
A cheaper approach is to do "cloud mining" by purchasing a share of the ASIC mining pools provided by CEX.io. You purchase some mining power and it is immediately tossed into the pool. You get a share of the profits (like a standard mining pool) and they take a little extra for maintenance fees. That way you don't have to have your computer running all the time and you can still make some bitcoin.
How do you make your bitcoins?
For me, I tried mining bitcoin on one of my extra computers that I had that were several years old. I soon realized that my video card was too old and the CPU was too slow. Similarly, running the mining software on my work computer didn't work because it wasn't a process that you could simply run in the background. So I turned to faucets. I've done a lot of digging to find faucets that allowed me to quickly add to my faucet during nights and free time. Two of my favorites are BitVisitor and DailyBitcoins. Outside of them, I frequently go through Land of Bitcoin since it keeps all of the faucets readily available. This took me a quite a while to amass some bitcoins (still far less than 1 8^D). Once I did, I purchased some "cloud mining" through CEX.io so that I could get some coins while I slept. I'm hoping to continue this process a bit more and eventually just stick with cloud mining and potentially a bit of exchange trading once I get enough bitcoin. I'll never be rich, but I'll get to participate in the economy, which is my ultimate goal.
Keep your money safe!
Now that you're starting to make some digital money, here are a few tips to keep your money safe.
- Keep multiple wallets - Having too much bitcoin in a single wallet can lead to disaster if a hacker gets into it, or you simply forget the wallet address (it is this really long hash code after all). Keep multiple wallets (even on multiple sites) each with a smaller amount of bitcoin so it all doesn't disappear.
- Keep an offline wallet - Yes, that's right! Since the bitcoin is essentially one huge ledger, you can keep a copy of your bitcoin offline so that hackers can't get to it. You can even create a "paper wallet" which isn't quite as secure, but it easier to maintain. Details can be found here.
- Keep your wallet addresses somewhere safe. Again, these cryptographic names are confusing and not easy to remember. Make sure you have a copy of the address itself somewhere you can access it, even if it's a piece of paper in your wallet. There are plenty of horror stories out there of those losing lots of money.
Now get out there!
Hopefully this has given you a good overview and some details on how you can get involved with bitcoin. Am I staking my life on it? No, not by far. Does it have potential? I think it has a LOT of potential. Ultimately though, I think it is an amazing experiment in what the future might hold and having a small piece of it makes for great conversation and a bit of fun. Hopefully you will get interested in it too.
Questions or comments? Leave them here and I'll do my best to answer. Like what you read? Consider leaving a small tip as a thank you, in bitcoin, naturally 8^D.