Last Updated: 2018-04-09
What? You’re not familiar with Bitcoin!?
Not a lot of people are aware of its existence. Others know that one can buy stuff using Bitcoin, but nothing more. If you wanted to know more about the cryptocurrency but don’t know where to start, you are on the right page!
How Bitcoin Works
To simplify our discussion of how Bitcoin works, let’s start with how a physical exchange goes.
Let’s say I have a dollar in my hand. I can hold, feel, and see it.
Now, I gave the dollar to you. The money left my hand, and it’s now yours and yours alone. You can spend the dollar, add it to your savings, or give it to someone else. And I can’t spend it because the dollar is no longer in my possession.
The transaction was as easy as it could get. We didn’t need a 3rd party to prove that I gave you my dollar. But when you transact online, things aren’t as easy and clear-cut.
Double spending is a real problem when giving or receiving money digitally.
Double spending happens when someone conceals or misrepresents information about the recipient of digital cash. This loophole allows the culprit to spend the same money twice, and the chances of getting caught are low. And when a currency is spent twice or more times, it loses value.
What if the dollar sent to you online was copied?
What if it was sent to someone else first?
To solve the double spending problem, we have banks and payment processors in place.
The problem with this approach, however, is that it doesn’t bring us any closer to the ease and seamlessness of physical transactions.
Yes, banks and payment processors can verify transactions on your behalf.
But they’re also in control of your money. If you want to send or receive money from sanctioned countries, banks can refuse your transaction. The same goes if you want to buy goods and services that are frowned upon.
Banks and payment processors are 3rd parties. They’re not the recipient nor the receiver, but the middlemen who verify transactions and charge fees for it.
So how can we transact digitally, eliminate the risk of double spending, and do away with 3rd party verification?
Bitcoin (BTC) is the answer, or the proposed answer of digital currency enthusiasts at least.
Bitcoin is a virtual currency with real-world value, and it even reached an exchange rate of over $1,300 at one point. Transacting with BTC is similar to using online funds in, say, a PayPal account. You input how much you want to send, add the recipient’s details, and that’s it.
However, the way BTC works is better in more ways than one.
You don’t need a 3rd party to verify transactions. Instead, Bitcoin has an open-source code and ledger to keep track of everything. The digital ledger is maintained, secured, and improved by smart people around the world.
And the best part:
Everyone can download the ledger in its latest version.
The open-source setup brings many advantages. First, it eliminates the need for 3rd party verification transactions. And just as important, all transactions within the system are provable, solving the double-spending problem.
Yes, Bitcoin behaves like a physical currency while staying digital!
And if that sounds like a fun introduction, the following sections will teach you more about Bitcoin – the fun things you can do with it, the currency’s thriller-like history, and how you can get BTC on your own.
5 Fun And Outrageous Things You Can Do With Bitcoin
You’ve seen how Bitcoin works. But you’re probably wondering: “What can I do with BTC?”
A lot actually! In 2015 alone, over 100,000 merchants around the globe started accepting Bitcoin as payment. And the list is full of brand names that sound familiar – Overstock, Dell, Twitch, NewEgg, and even WIkipedia!
You can rest easy knowing you can use BTC to transact – whether you’re looking to order pizza and beer, upgrade to the latest gaming laptop, or subscribe to a streaming service.
In the list below, however, we look at some of the most fun and outrageous things you can do with the digital currency.
1. Get All Your Furry Friend’s Needs At Keystone Pet Place
Keystone Pet Place, based in Mount Joy, PA, has everything your dog or cat needs.
Grooming and nail trimming services? Check!
Vaccine to keep your pet disease-free? Check!
Tasty and healthy treats? Check!
The pet store has received raving reviews from many of its customers – and why not!? The staff are helpful and passionate about pet care. The supplies sold are from reputable brands. Plus, their grooming facilities and DIY pet wash station are A-grade.
And yes, Keystone Pet Place accepts BTC!
2. Gamble And Bet Online
To get things started:
You can split BTC into any amount.
Players can jump into the funwagon with as little or as big of an amount as they want. But the benefits of Bitcoin don’t stop there. Even more attractive are the following 4 advantages of betting and gambling with Bitcoin.
Better Winning Odds
You see, gambling sites have to pay a small transaction fee every time you top up your online betting wallet, withdraw winnings, or place bets. Yes, the individual amounts are miniscule. But when taken collectively, transaction fees take a huge chunk of money.
Well, the online casino isn’t going to handle the fees all by themselves – or they’ll go out of business. So who do they share the burden with? The player, of course!
With Bitcoin, however, gambling websites don’t have to deal with banks and payment services like PayPal, eliminating transaction fees and reducing operating costs. The benefits and savings are then passed on to the players in the form of better odds.
The anonymity and global reach of Bitcoin are other perks also worth nothing. Not all countries are in favor of internet gambling. And if you live in a place where betting on your favorite teams or backing up your poker skills with real money is illegal, Bitcoin can give you the anonymity you need to play and stay out of harm’s way.
More Secure Transactions
You won’t have to give private financial details over the internet. Sure, reputable online casinos have robust security measures in place. But Bitcoin lets you take online security further. Simply link a digital wallet to the casino’s payment system, and that’s it! No need to give your account number, bank name, address, and other sensitive information.
Fiat currencies make you wait for 3 to 5 days before your winnings make their way to your bank account. BTC winnings, on the other hand, are transferred to your wallet in an instant! If you want to give BTC online betting a try checkout our Bitcoin Betting Guide and some of the top sportsbooks that accept Bitcoin.
BetDSI has to be one of the most reliable online sportsbook with clients across 140+ countries while supporting over $100 million of transactions every month. It’s a sportsbook, racebook, online casino, and poker room in a neat package. And betting is ABC-easy whether you’re using your laptop, phone, or mobile device.
BookMaker has been delivering a stellar service to online bettors for over 2 decades and counting. It’s a popular site for seasoned betting vets and newcomers alike. And why not? BookMaker covers just about any sport – from basketball, MMA, rugby, tennis, to politics. And if you’re new, you can get a 50% welcome bonus!
5Dimes came to existence in 1998, and it has surpassed other betting websites since then. The Costa Rican sportsbook boasts a massive selection of lines, excellent odds, secure and reliable transactions, and ‘round-the-clock customer support. Skill games are par for the course. But 5Dimes also has a lottery section, offering Pick-3, Pick-4, Lotto 900, and Powerball.
WagerWeb is one of the most established online sportsbook around, with 20 years of operation under its belt. The website was founded in 1997, and it was one of the first offshore sportsbook which used the internet for betting. To date, WagerWeb has accepted over $100 million (and counting) in bets.
BetAnySports.com is an easy-to-use, one-stop online sportsbook. It’s been in the business since 2010 alongside industry names like 5Dimes and Vietbet. The betting site owe its stability to the experienced people running it. BetAnySports doesn’t have a lot of distracting bells and whistles, so players can go in and out of the site with ease.
3. Get Awesome Coffee From The Roast Station Coffee
The Roast Station Project is a project led by JB “The Java Nomad” Allen.
And his offer is simple:
Caffeine lovers get 250 grams of freshly roasted and locally sourced coffee in exchange for Bitcoins!
Allen got into the digital currency game a long time ago, back when Second Life’s Linden Dollars and e-gold were still popular. But when Bitcoin and its perks became known, he saw how the new virtual currency can make for a better coffee trade.
Allen knows that middlemen can be a frustrating wall between final consumers and coffee growers. Worse, the loans by middlemen force coffee farmers to sell their produce at high quantities and rock-bottom prices.
Sold coffee beans have low quality, leaving consumers dissatisfied while farmers are regretful because they know they can do better!
But eliminating middlemen is Bitcoin’s specialty! The Roast Station Project sources its premium Indonesian coffee beans from a farm and at a premium price. And the transactions are carried out without the middleman in the way.
“Bitcoin has opened the door to a whole new level of person to person exchange and individual freedom, which is one reason why I wanted to be involved,” said the Roast Station founder.
4. Travel Around The World
Yes! If you have enough Bitcoins, globe-trotting is definitely a possibility!
You see, the Universal Air Travel Plan (or UATP) is a payment network serves over 260 airlines. The list includes US Airways, JetBlue, Qantas, and United Airlines. And the good news? The network has partnered with Bitnet to accept payments in BTC!
And if you’re wondering if you can book hotels using BTC, the answer is yes!
In 2014, Expedia integrated BTC into their list of payment options at checkout, just alongside PayPal and Visa. Simply pick Bitcoin as your favorite method, follow the secure steps, and you’re all set.
Between UATP’s partnership with Bitnet and Expedia’s move, traveling the world using Bitcoins exclusively is on the menu!
5. Fly Into Outer Space With Virgin Galactic
“Only 558 people have been to space. Virgin Galactic is opening space to the rest of us,” reads one of Virgin Galactic’s pages.
Virgin Galactic is Virgin Group’s spaceflight company. And their mission of making space more accessible to people just got easier when they started accepting Bitcoins in 2013.
Celebrities have signed up for a tour out in space including Justin Bieber, Lady Gaga, and many more.
And on November 22, 2013, a flight attendant out of Hawaii paid for her flight using BTC. Now, a seat on one of Virgin Galactic’s private flights cost quite a fortune, about $250,000. So if you want to go into space, make sure you have a few hundred BTC around.
The Interesting History Of Bitcoin
Grabbing the attention of over 100,000 international businesses is no mean feat. And Bitcoin’s design has a lot to do with the growing popularity. If you’re wondering how the currency started, this section of the guide will walk you through the interesting history of Bitcoin.
Bitcoin: A timeline
||Satoshi Nakamoto starts working on the Bitcoin project.
||Application for a patent, followed by the registration of bitcoin.org.
||The genesis block was created.
||First Bitcoin transaction placed.
||First trade of BTC for fiat currency took place, Sirius (the second bitcoin developer) sold 5050 BTC to user for $5.02 via paypal.
||A programmer paid 10,000 BTC for 2 Papa Johns pizzas.
||Bitcoin reached market parity with the US dollar for the first time.
||A user named TheRealPlato travelled from Hartford with only 200 BTC, no physical currency.
||Bitcoin reached a value of $31 apiece, translating to a market capital of $206 million.
||First virtual heist, 25,000 bitcoins were stolen from a digital wallet valued at $500,000.
||Nakamoto ceased all forum and email activity.
||The online currency started trading at $13.50 each.
||An insider reports that Bloomberg was testing a bitcoin ticker.
||The US senate held its first hearing about bitcoin and the Washington post described the affair as a lovefest.
||Another crash. Taking the price of bitcoin from $1230 to $750 in mere days.
||Bitcoin trading was at around $900, it seemed the tremors had stopped.
||The exchange rate filed for bankruptcy protection, sending BTC’s exchange rate down to $260.
||Australian entrepreneur Craig Wright claims he created Bitcoin, some believe him but some are not so sure.
||A good spell for Bitcoin, it topped the price of a troy ounce of gold for the first time.
The Creation Of Bitcoin
Satoshi Nakamoto started working on the project in 2007, and the following year saw Bitcoin’s birth through a series of events.
First, Neal King, Vladimir Oksman, and Charles Bry filed a patent application for a technology that updates and distributes encryption keys securely. The encryption technology is related to Bitcoin, but all 3 denied any links to Satoshi Nakamoto.
The patent application on August 15,2008 was soon followed by the registration of Bitcoin.org. The currency’s online home was registered at AnonymousSpeech.com, a website that provides anonymous emails, domains, and hosting. In other words, a perfect match for the secretive creator of Bitcoin.
With the related technology and anonymous website in place, Nakamoto published a 9-page white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” In the paper’s abstract, he said:
“We propose a solution to the double-spending problem using a peer-to-peer network.”
And looking at the growing acceptance of Bitcoin and the enormous value the currency has gained, the project seems to have truly fixed the double-spending problem.
The Enigmatic Satoshi Nakamoto
We’ve mentioned Nakamoto throughout this guide.
But who is he?
Yes, we know he founded Bitcoin. He was also one of the first creators of the original Bitcoin client, known as the Satoshi Code. Nakamoto’s profile in a P2P foundation indicated he’s from Japan. But Benjamin Wallace of Wired.com doubts his claim of Asian origin, thanks to his flawless English.
Aside from these breadcrumbs, not much is known about the famous cryptocurrency’s creator.
Nakamoto keeps discussion technical, careful not to give out any personal information.
The man is like the leading actor in a thriller. He’s a genius living under the radar who developed an earth-shattering technology. His feats earned him a cult following and grew rich in the process.
In case you’re wondering:
Satoshi Nakamoto owns about 1 million Bitcoins. And with a Bitcoin valued over $1,000, he’s sitting on a fortune worth more than a billion dollars.
You’re not alone if Nakamoto sounds like a person you’d like to know. Many have tried to uncover his identity. Bitcoin community members even time stamped his posts, and they came to the conclusion that Nakamoto resides in a region with a UTC−05:00 or UTC−06:00 time offset.
Names were dropped and linked to virtual coin’s creator, including physicist and systems engineer Dorian Nakamoto, cryptocurrency pioneer Hal Finney, and decentralized currency enthusiast Nick Szabo.
In May 2016, Australian entrepreneur Craig Wright stepped up and claimed that he’s Bitcoin’s creator. Backed with technical proof, some experts supported Wright. But many took the announcement with strong skepticism.
Nakamoto has ceased all forum and email activity since 2011, and his real identity is yet to be uncovered. But does it matter?
Bitcoin is built in such a way that its creator is only relevant if studying the technology’s history..
“Identity and authority are distractions from a system of mathematical proof that does not require trust,” Bitcoin entrepreneur Andreas Antonopoulos said. “This is not a telenovela. Bitcoin is a neutral framework of trust that can bring financial empowerment to billions of people. It works because it doesn’t depend on any authority. Not even Satoshi’s.”
Why Did Nakamoto Create Bitcoin?
We don’t – and probably never will – know the true identity of Satoshi Nakamoto. But perhaps you’re more concerned with the “why.” Why did he create Bitcoin? For the LOLs? Or maybe he has foreseen the the massive fortune the digital currency will bring?
Conclusive answers are nowhere to be found, yet again.
However, the Genesis Block (more on this later) contained the following text, hinting that Satoshi is a maverick. A rebel. A bad boy!
“Yes, we will not find a solution to political problems in cryptography but we can win a major battle in the arms race and gain a new territory of freedom for several years.
Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”
The Genesis Block Is Generated
On January 3, 2009 at 18:15:05 GMT, the Genesis Block, or Block 0, was created. And the hex of the block contained normal data, plus the following text:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”
Some speculate that Nakamoto included the bit above as proof that the block was made on the said date. Others note that it may be a comment on fractional-reserve banking and the economic instability it causes.
But more than anything:
The snippet suggests that Nakamoto may have lived in the UK. It was taken from a headline in The Times UK. And since then, the original newspaper which contained the headline has become a collector’s item. One was even auctioned for 11 BTC, or more than $13,000!
The Many And Colorful Bitcoin “Firsts”
Only 9 days after the first block was made, the first Bitcoin transaction took place between Satoshi and Hal Finney in Block 170, with the former sending 10 BTC as a test. And after reading Finney’s account of the experience, receiving BTCs from the creator himself made Finney warm and fuzzy!
Now, that’s just one of the “firsts” in the digital currency’s history.
On October 12, 2009, the first trade of BTC for fiat currency took place. Martin Malmi – the second Bitcoin developer who also goes by the forum name Sirius – sold 5,050 BTC to user NewLibertyStandard for $5.02 via PayPal.
On the 22nd of May 2010, programmer Laszlo Hanyecz paid 10,000 BTC in exchange for 2 Papa John’s pizzas. The pizzas originally cost $25. But with today’s exchange rate, they are now valued at over $12 million!
But what about using Bitcoin exclusively to travel and survive?
Well, someone has thought of that, too!
On March 21, 2011, Bitcointalk.org user TheRealPlato traveled from Hartford without any money.
His plan? Survive with 200 BTC (plus donations from patrons) and document his journey with his laptop and 3G-tethered cellphone. According to one of his forum updates, TheRealPlato met up with other Bitcoin users in Vegas, San Diego, and Orange County.
If you want to read more about Bitcoin’s historic firsts, check out this page from the official Wiki of the community.
The Roller Coaster Journey So Far
Bitcoin’s value today is massive, crossing the $4,300-mark. However, the cryptocurrency’s journey since its adoption in 2009 is anything but linear. Instead, it looks more like a roller coaster, full of ‘highs’ as it is rife with ‘lows.’
Bitcoins were valued at next to nothing in its earliest days. But the year 2011 marked a milestone for the online-only money.
Reaching Parity With The US Dollar
On February 9, 2011, Bitcoin reached market parity with the US dollar for the first time. On the other hand, it’s economy reached a value of $5.5 million based on the existing number of virtual coins in circulation.
But things were just getting started!
June of the same year saw Bitcoin reach a value of $31 apiece, translating to a market cap of $206 million.
The increase in value resulted to a spurt in popularity. The preceding years saw more retailers join the Bitcoin movement, but vulnerabilities came back to bite the currency.
Theft Brings The Currency To Its Knees
The first major virtual heist rocked the world of Bitcoin in June 2011. Bitcoin Forum founder allinvain reported having 25,000 stolen from his digital wallet, valued at $500,000 during the incident.
The heist coupled with other major security breaches saw Bitcoin’s value cratered from $17.51 to $0.01 apiece.
The currency is back to where it started. But cryptocurrency enthusiasts and Bitcoin believers were not deterred, and life went on as usual.
The Year Bitcoin Took Off…
In 2013, the online-only currency started trading at around $13.50 each. April saw its value peak at over $200, only to drop back to roughly $70 midway through the month. Yes, the spike didn’t last for long. But Bitcoin has clearly recovered from the fiascos of the yesteryears.
August 2013 turned out to be a good month for Bitcoin when an insider reported that Bloomberg was testing a Bitcoin ticker.
The news was confirmed by Vera Newhouse, spokesperson for Bloomberg, who said:
“Bloomberg is testing Bitcoin data, but this is only accessible to internal users and not Bloomberg Professional service subscribers.”
At the time, many tickers for Bitcoin exist (and still do). However, having a financial software, data, and media giant such as Bloomberg test the currency gave it greater legitimacy.
But while August was a great month for Bitcoin, things got even better on November 18, 2013.
The US Senate held its first hearing about the digital currency, and the Washington Post described the affair as a lovefest!
“We are attuned to the criminal use,” said Justice Department’s Mythili Raman of Bitcoin. “But there are many legitimate uses. These virtual currencies are not in and of themselves illegal.”
Moreover, Ben Bernanke, chairman of the Federal Reserve at the time, gave a cautious blessing to the currency:
“While these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”
Bitcoin traded as high as $1,030!
Yet before the month ended, the currency reached another record high. New Bitcoin exchanges and miners from China entered the marketplace, propelling the currency’s value to $1,120 per coin.
Bitcoin users sure had pasted smiles on their faces back in those days. But how long can the ‘highs’ keep up? Not for long, apparently.
…And Crashed Again
The Tokyo-based exchange Mt. Gox was handling 70% of all Bitcoin transactions in 2013. However, rumors of security vulnerabilities and poor management at the exchange shook the market. Worse, people had trouble withdrawing their money from Mt. Gox.
The turmoil took Bitcoin’s price of $1,230 to $750 in mere days. Sure, the crash isn’t as hard as the 2011’s when the currency went down to almost nothing. However, the 39% drop in value was hard to ignore!
The tremors stopped when 2014 came, with Bitcoin trading at around $900 in January. But when it rains, it pours – especially in the world of virtual currencies. And Mt. Gox was at the front page once more!
The then-incumbent exchange filed for bankruptcy protection, sending BTC exchange rate crashing down to $260 in February.
The State Of Bitcoin Today
History repeats itself. And as you may have guessed, Bitcoin continues to scale new peaks, but only after falling flat on its face hard.
Just recently, the US Securities and Exchange Commission declined the Winklevoss brother’s application for BTC ETF. The currency’s worth dipped to $1,022.68, a 30% drop from BTC’s all-time high of $1,300. But Bitcoin has recovered and crossed the $1,100-mark since then.
Yes, Bitcoin is still one of the most volatile currencies around. And the situation doesn’t look like it will change soon.
The political landscape around BTC is just as uncertain. Some are spreading rumors of research about a government-backed digital currency. Others talk about the US government’s attempts to find users participating in exchanges.
However, uncertainty isn’t enough to stop supporters of Bitcoin, with over 300,000 transactions recorded every day.
The cryptocurrency is sitting in a good spot right now, and it just topped the price of a troy ounce of gold for the first time. A great start for 2017 and many are hoping that Bitcoin will reach more highs this year.
Earning BTC 101 – The Why’s And How’s Answered
So do you like what you’ve seen so far?
We’ve looked at the technical (but simplified) aspect of Bitcoin. We also discussed some of the fun uses of the digital currency, and even walked down memory lane in the last section. If you want to get on the Bitcoin train, let us show you how you can get or earn BTC, step by step.
“But why would I want to get BTC?” you may ask. Well, I’m glad you did because the answers are laid down right below.
Why Jump On The Bitcoin Bandwagon? 5 Unbeatable Advantages
The clearing process for cheques take a long while, about 3 to 5 business days or even longer. But wire transfers are even worse. This problem stems from the trust issue. Banks and clearinghouses can’t simply trust that the funds are available.
The very design of Bitcoin eliminates this problem.
Verifying a block of transactions only take 10 minutes on average, and the decentralized nature of the currency eliminates the need for 3rd party verification. If merchants accepts transactions without confirmation, sending and receiving money becomes instantaneous.
Even if a merchant demands confirmation, the process only takes 10 minutes, way faster than any bank transfer.
Anyone from anywhere in the world can send and receive Bitcoins, and the fees are rock-bottom. The financial freedom afforded by Bitcoin can be life-changing for people and businesses around the world.
Just take Mor Roghani, for example.
Roghani runs Persian Shoes, a 70-year old handmade footwear businesses started by his father. The shoemakers are ready to ship anywhere in the world. But people have trouble paying them.
You see, Roghani and Persian Shoes are located in Iran, a country riddled with trade sanctions by the United Nations, European Union, and many powerful countries. PayPal, Western Union, and credit card companies refuse to deal with businesses in Iran.
But Persian Shoes went international anyway, thanks to Bitcoin and a website set up by Roghani’s cousin from Australia.
Before using Bitcoin and launching the e-commerce site, Persian Shoes’ international customers are few and far in between. Thanks to the shoes’ quality, a few loyal clients were willing to go through a tedious process to pay them.
On the first week of the site going live, however, the business sold 10 pairs of shoes to international customers!
Fiat currency has a big flaw:
The government can print as much money as they like!
Let’s say $51 trillion are in circulation. But the government’s fund isn’t enough to pay off money they owe. The simplest solution is to print more money, and governments usually do!
If they print $51 trillion more and the economy didn’t grow enough to account for the increase, the value of the original dollars in circulation gets halved. The other half goes to the newly minted dollars.
And who owns the new monies?
Yes, the government! See what they did there? They took money and value from the people, without even breaking into a single house!
This process causes inflation, an increase in the prices of goods and services.
Here’s a quick illustration:
Originally, a pint of ice cream costs and is valued for a dollar. After printing new monies, the same pint of ice cream is still has the same value. But the value of a dollar has been halved, and the pint now costs $2.
Inflation impacts a country in many negative ways. For starters, the possibility of future inflation may scare away investors and businesses. It’s also a trigger for panic buying as consumers may hoard goods for fear of further price hikes.
Bitcoin will not suffer from inflation. The code behind it is built to generate a maximum number of coins – 21 million to be specific. After reaching this number, the creation of BTC will stop.
At first glance, the way Bitcoin works doesn’t sound private.
The blockchain is available for all to see. Explorers like Blockchain.info and Blockr.io make tracing transactions easy. Savvy users can search where transactions came from and even calculate the amount of BTC within an address.
However, no one can tell who holds a specific address. A big deal!
Unlike bank accounts linked to identities, knowing the transaction history and amount isn’t a big deal in Bitcoin. Not to mention you can create as many wallets and addresses as you want, yet another security benefit.
Other cash systems, from banks to digital wallets, control your money. Yes, they may not be able to spend it. But cases of frozen accounts and seized funds are not uncommon.
PayPal, for example, will limit an account without warning if it’s thought to have been hacked or misused. Creditors, on the other hand, can freeze an account in arrears and, sometimes, for twice the amount owed! Regaining access to your account can be tricky, too. Most cases involve email exchanges and correspondence which can last for weeks or even months.
Bitcoin puts control back to you.
You own and are in charge of the public and private keys. And you can do whatever you want with your coins. This freedom comes with responsibilities, of course. So backup your Bitcoin address and keep it away from prying eyes away.
How To Get Started
Bitcoin’s design and inner workings are complex. But the currency was built with user-friendliness in mind. Anyone from anywhere can get started, and the steps are easy as you will see.
Create A Wallet For Free
If banks have bank accounts, Bitcoin has wallets from which one can receive, store, and send BTC to other users.
The wallets are free for everyone and come in varieties, with cloud, desktop, mobile, and even hardware versions available. Now, whichever type suits you best, you want to keep a handful of security best practices in mind.
First of all:
You should control your private keys.
Take Coinbase, for example. Yes, the digital bank and exchange stores 98% of customer funds offline, uses AES-256 encryption, and even has paper backups! However, they are also in charge of your private keys.
Combine the above with an identifiable account and Bitcoin transactions via Coinbase are now traceable. And in November 2016, the IRS issued a broad order to pull data on the websites users from 2013 to 2015.
So if you don’t want the government snooping around your transaction details, go for a wallet that puts you in control of the private keys.
Safeguard your privacy.
If you are using online wallets, you can use Tor to protect your IP address. But keep in mind that Tor doesn’t encrypt your traffic outside of their network. Your best option is to use a wallet, or, if you are so inclined, create your own bitcoin wallet, that downloads the entire blockchain.
Bitcoin Core is a good, secure wallet without the frills. However, it is quite slow and lacks many handy features. If you want to shop around, check out Open Bitcoin Privacy Project’s Wallet Privacy Rating Report
Multiple secure backups are a must.
Again, you have many options for backups like laminated paper wallets. But whatever you do, don’t use cloud services to store your wallet data.
Dropbox, for example, stores your accounts encryption key and their 2-factor authentication is optional. Worse, the award-winning service has been criticized for login problems, ownership of user data, and even email spam.
Top Up Your Wallet With BTC
Your wallet is now up and running, and you can top it up with some shiny BTC.
Buying is in the cards, and so is mining. A growing number of business folks accept Bitcoins as payment. Some people go into financial ventures like P2P BTC lending, while others waste time on ad-filled faucets. We’ll look into all of these in later sections.
Now, the easiest way is, of course, buying.
And if you want to go down this route, don’t buy from random people you find online. Get your coins from an exchange instead, many of which are legitimate like Kraken, Poloniex, and Bitstamp.
On the other hand, Bitcoin services like exchanges aren’t known for high levels of regulation. One may still operate even if their security measures are lacking. Your best bet is to review the data protection methods of an exchange and read reviews about it.
Do your homework and stay safe!
And You’re All Set
Here’s an important reminder:
You will want to treat Bitcoin as an anonymous and secure digital payment option, not an investment.
Make no mistake. People have gotten rich thanks to Bitcoin. However, investments like stocks require time and attention. And even more so with the digital currency as its exchange rate is as volatile as it can get.
As a digital payment option, however, you won’t have to do anything else with BTC. Just keep your wallet secure, store backups, and you can use the virtual coins to buy goods and services.
More and more merchants are getting into the Bitcoin train. But remember, laws and regulations on how businesses accept BTC don’t exist yet. So only deal with product or service providers that use a secure payment processor.
BitPay, for example, ranks as the most secure BTC payment option around. Over 50,000 businesses use it, including WordPress and Microsoft.
Now, BitPay isn’t the only payment processor available, and you may want to use a different one. You can, but remember to do your research to make sure the processor is legit.
Getting Bitcoins And 3 Ways To Go About It
1. Buy BTC
The easiest way to get BTC is to buy from an exchange or a person. This method is pretty straightforward as long as your wallet is intact and safe. But we do have a couple of reminders for would-be buyers out there.
Buying Bitcoins With PayPal Is A No-No
Merchants will not let you buy Bitcoins via PayPal – and for many reasons.
For starters, using PayPal puts the seller at risk. The buyer can contest the transaction and do a chargeback. And since no one else knows the buyer’s private key aside from the buyer himself, the seller has no way of proving that BTC were sent and received.
And let’s not forget:
Bitcoin is PayPal’s direct competitor.
The latter lives off of steep transaction fees, and BTC eliminates that. PayPal doesn’t like the digital currency and will the balance of any account that buys or sells Bitcoins.
Should you insist buying BTC with your PayPal balance, you can find workarounds but you probably won’t like the transaction fees. So let’s take a look at other simpler options.
Buy With A Credit Card
Barring PayPal, credit cards provide the easiest way to transact offline and especially online. And you can find many exchanges to buy from.
We’ve already looked at some reliable exchanges. But if you want the added benefit of instant buying and selling, Cubits is a good choice. The exchange also supports 17 currencies and includes tools for merchants.
Deal With A Direct Seller
This method is a good workaround for the PayPal problem. You can find a Bitcoin user willing to sell their coins. Pay the seller however you want, and you get BTC. Simple, eh?
The downside is that scammers are around. So don’t jump the gun and buy from the first person you find. Have a look around. Ask if admins and trusted users if any are suspicious.
Most over-the-counter markets like Bitcoin OTC and Localbitcoins have profile pages for members. These pages contain the transaction history and ratings, handy for researching a prospective seller.
Buy From An Automated Teller
Many countries have Bitcoin ATMs – from the United States, Sweden, to the Philippines. Some countries only have one, but others have hundreds of locations. If getting BTC from an ATM sounds convenient, check out this online locator – and do watch out for the fees!
2. Mine Bitcoins
Mining is the way to go if you want to generate your own Bitcoins.
Yes, the digital currency is valued like a fiat currency but mined like gold. And if a digital treasure hunt sounds appealing to you, this portion of our Bitcoin guide will show you how it’s done.
Take note, however, that the process involves some hard-to-understand crypto stuff. But don’t worry, we did our best to simplify everything so read on!
8 Things To Know Before Getting Started
Before dipping our hands into Bitcoin mining and its profitability, you need to understand a few concepts and terminologies first. Understanding how mining works becomes so much easier if you know the following:
The block is a record of some or all of the recent Bitcoin transactions, which are yet to enter the the network of earlier blocks.
In essence, it’s a page in a ledger or record book and the only difference is that it’s 100% digital. Now, your job as a miner is to verify and complete the block, which brings us to the next point.
2. Proof Of Work Hashing
Proof of work (POW) hashing is the miner’s primary function.
To provide proof of work, you need to solve the hash, a cryptographic puzzle. Put the puzzle pieces together, unlock the block, and you will be rewarded with new Bitcoins.
Note, however, that shortcuts don’t exist here. To solve the block and provide proof of work, you need raw and immense computational power.
Miners don’t unlock blocks and invest thousands of dollars in hardware for the sake of it.
Sure, some genuinely want to help grow the currency. But the block reward is what keeps these guys going. Every time a block is verified, the successful miner is given newly-created Bitcoins. And with BTC valued as much as gold, mining has become a full-time business.
Now, the system has a quirk you should know:
The rewards halve as time goes.
During the project’s infancy, every successful hashing came with 50 BTC. The number dropped down to 25 in 2012. Today, the reward is down to 12.5 BTC, and it’s expected to halve again in June 2020.
4. Mining Hardware
Bitcoin uses a proof-of-work system. And boy, unlocking a block does take a ton of work!
Back in the day, you can mine with a desktop or laptop computer using the original Satoshi client. Today, however, try as you might but you may end up without a single BTC if you mine with a CPU.
The difficulty (more on this later) is on the rise and you need better and faster hardware to mine. People found that graphics cards were much more efficient than CPUs. Thanks to their parallel computing power, the best GPUs are 50 to 100 times more powerful miners.
Years have passed and the mining difficulty only increased. If you mine with CPUs and GPUs now, people will laugh at you.
Unlocking blocks and Bitcoin rewards now require ASIC or Application Specific Integrated Circuit. These microchips are built from the ground up to perform one function – and one function only.
You cannot repurpose ASICs to serve other purposes.
However, an ASIC built to mine Bitcoins brings immense processing power and efficiency to compensate for its inflexibility. It’s 100 times faster than previous mining technologies, while reducing energy consumption by 7 times.
If you are looking for hardward, check out this nice list of mining hardware from Coinfunda.
5. Mining Software
If you want to mine BTC using GPUs, you will need two things to get the job done.
First is the standard client, Bitcoin Core. The software connects the machine to the network, allowing you to interact, monitor the chain, and forward transactions.
The client is of fairly small size, with the 64-bit Windows version sitting at 23.8MB. But synchronization requires a lot of bandwidth and storage. The full blockchain size is already over 100GB, and it will only grow!
Next, you will need a Bitcoin mining software. While the hardware is the arms and limbs of a mining rig, the software will instruct the former how to do the heavy lifting and pass blocks for solving.
Now, if you want to skip the software downloads and installation, you should consider newer ASIC miners. These models have everything you need – the processing power, standard client, mining software, and even a Bitcoin address.
Hashrate (H/s) measures the processing power of a mining machine. A higher hashrate means a miner can unlock more solutions and BTC rewards than one with a lower hashrate.
The best ASIC miners have hashrates in the 13-digit territory. The Antminer S9, for example, has an advertised rate of 14,000,000,000,000H/s! The downside? The S9 costs over $2,000!
The hashrate of the latest miners have gone through the roof. And with faster and more efficient machines, solving blocks should be a piece of cake, right?
Not so fast.
You see, difficulty is hardcoded into Bitcoin and this addition makes sure that blocks are found every 10 minutes on average. If the network’s total hashrate rises (and it does), the hashing difficulty increases, too.
8. Exchange Rate
Knowing the cryptocurrency’s fiat value is not needed for mining. However, the exchange rate is essential to calculate profitability, especially if you want to treat BTC mining as a business.
You can have the cheapest source of electricity and the mining software and hardware available. But if Bitcoin’s exchange rate takes a dip, you will lose money.
And speaking of profitability, we will look at how exactly to calculate mining profitability at a later section, along with online tools that can do the math for you.
How BTC Mining Works
We’ve already discussed some of the essential components of Bitcoin mining. Let’s move on to the actual mining and how it works.
Bitcoin mining is like a guessing game on a worldwide scale with solo-miners, pools, and large companies competing. When a new block is released every 10 minutes, miners rush to verify all of the BTC transactions by guessing the hash needed to unlock the blockchains.
The hardware does the heavy lifting, while the software interfaces with the network.
Faster and better mining hardware can attempt more guesses per second, giving it better chances to win the newly-created Bitcoins.
The current number of attempts (the difficulty) needed to find the correct key hovers around 460 million! And you can find a way around this massive guessing game.
Yes, mining for Bitcoins is resource-intensive. This intentional uber-complex design maintains the number of blocks unlocked by miners at a steady rate. Every block and transaction should contain proof of work, which are then verified by other nodes when they receive a block.
Through this mechanism, BTC mining serves 2 purposes:
First, the system lets the nodes reach a secure consensus as the proof of work has been verified by everyone. And second, mining also introduces new BTC into the system.
Is Mining Profitable?
First things first:
Calculating profitability is not 100% reliable because of 2 important factors – the difficulty and BTC exchange rate.
However, doing the math is a must if you want to turn Bitcoin mining to a full-time business or a passive income generator.
To start, you need to take note of the specs of your mining rig – the cost, power consumption, hashrate, and other important details. Next, you need to take the Bitcoin reward, difficulty, and exchange rate in consideration.
Now, you want to put all of those details in a profitability calculator like this one from CoinWarz.
The difficulty and BTC exchange rate fluctuates. The former has an overall upward trend, while the latter is most volatile. And if the difficulty increases and BTC value dips, your profitability will only take a hit.
And let’s not forget about the halving BTC rewards!
So is mining profitable?
The general consensus is “no,” especially for small-time or hobby miners with a single rig.
The hardware and power requirements for successful Bitcoin mining has gone off the roof. And the upfront and ongoing cost will only eat the profits away, even leaving miners at a loss.
On the other hand, the value of Bitcoin can and may go up. It is volatile, for sure. But many speculate that the digital currency will see massive highs in the following years.
So if you want to invest in BTC mining, adopt a buy-and-hold strategy and be prepared to incur early losses for potential long-term gains.
3. Accept BTC As A Payment
If you are running a business, you can start accepting Bitcoins right away. All you need is a sign on your premises or website. A decal with “Bitcoins Accepted” should be enough to get started especially for brick-and-mortar businesses.
Online stores and providers, on the other hand, may want to leave a note to contact you or a trusted employee to process the transaction. However, this method is only good as a start. Eventually, you want to move to merchant solutions to provide better customer experience.
A merchant solution lets one process payments and handle the accounting with ease. Moreover, instant conversion of BTC to USD, GBP, or other currencies is possible, too.
Physical businesses, meanwhile, can get terminals and POS machines built for BTC, as well as brick-and-mortar apps to handle in-store transactions.
BONUS: Honorable Mentions
We’ve looked at buying, mining, and accepting Bitcoin payments. Those 3 are the most popular ways to earn some BTC. But other less known (and some less profitable) methods are worth mentioning. Let’s take a quick look at the honorable mentions:
Bitcoin faucets are websites that reward BTC in exchange for playing games or performing a simple task like clicking an ad, viewing webpages, or completing CAPTCHAs. But are faucets profitable?
The answer is no. The rewards are in the form of a Satoshi, a hundredth of a millionth BTC. You can play all you want and complete small tasks until your eyes drop. But faucets are worse than selling empty bottles as far as profitability is concerned.
However, the games can be fun and addictive. Not to mention the websites make for a great introduction to BTC. And who knows? The currency’s value may grow to epic proportions, and the time wasted in faucets may turn out to be well-spent!
Get A Job That Pays BTC
Yes, you can work like your normally would and get paid in BTC. More and more employers are starting to pay freelancers and even full-time employees with digital monies.
To get started, you want to check out Bitcoin job boards online. You can start with Reddit’s /r/Jobs4Bitcoins. Look for threads with “[HIRING]” to find job opportunities in the subreddit.
Another board worth considering is Coinality. The site holds the largest number of job listings around, while aggregating posts from other boards. The listings are a good mix of full-time and freelance positions.
If you want to stick to freelance work, XBT Freelance is a good starting point. It’s like the oDesk or Elance of the Bitcoin world. The site is 100% BTC and boasts a built-in escrow service.
We’ve looked at online betting with BTC earlier. But online casinos are also in the menu. Now, you want to choose carefully where you play. BTC gambling sites are not created equal. Some are legitimate, others have a ‘floating’ status, and many are outright scams.
You want to play in an online casino with provably fair games.
Provably fair is an algorithm that lets players analyze and verify every result, so they’re sure the operator plays fair and square. Many provably fair algorithms exist, and they’re often used in online casinos and gambling websites.
With a provably fair algo in place, you can rest easy knowing you have genuine chances to win BTC. On the operator’s part, it eliminates the need for auditing and 3rd party verification.
Bitcoin may have gone through a lot. But the currency is still young.
As of the moment, BTC is facing numerous challenges. But the BTC community has responded with exciting developments, including the introduction of SegWit to improve malleability and capacity.
No one knows where it’s headed. Perhaps Bitcoin will turn to a payments infrastructure. Others speculate it may be hijacked by a nation. But many think that the currency’s future is bright.
What about you? What do you think of Bitcoin’s future?
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