Bitcoin For Dummies
Overview
A primer on the currency alternative that's changing the world
Bitcoin can be a bit puzzling to the uninitiated. Ledger? Blockchain? Mining? These cryptocurrency concepts aren't going away, and there are tremendous opportunities for those with some know-how to get onboard with the crypto culture. Bitcoin For Dummies helps you get un-puzzled, learn the Bitcoin basics, and discover the possibilities in the new world of digital currencies.
With this 100% new edition, you can step into the fascinating culture of cryptocurrency and learn how to use Bitcoin as a currency or an investment vehicle. A little bit of knowledge will go a long way, and you’ll be ready to sail smoothly ahead as the crypto tsunami advances.
- Demystify Bitcoin and learn how to buy and sell cryptocurrency
- Create a digital wallet and make everyday purchases using Bitcoin
- Discover the ins and outs of investing in Bitcoin and other up-and-coming cryptocurrencies
- Participate in the cutting-edge culture of crypto
Bitcoin For Dummies is great for beginning Bitcoin users and investors who need to know the basics about getting started with Bitcoin and cryptocurrency.
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About The Author
Peter Kent (Boulder, CO) and Tyler Bain (Aurora, CO) are co-authors of Cryptocurrency Mining For Dummies. Tyler is an engineer specializing on the electrical grid and making sure all the cryptocurrency trading activity doesn't cause a blackout on the entire west coast. Peter is author of numerous technolgy titles of his own cryptocurrency video course, "Get Crypto Clear: Bitcoin and Cryptocurrency Made Simple."
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bitcoin for dummies
CHEAT SHEET
Bitcoin ― what an enigma! It seemingly came out of nowhere, and 13 years later is worth hundreds of billions of dollars, even though few people understand how it works.The information in this Cheat Sheet should help reduce some of the mystery and confusion so that you can begin your Bitcoin journey with confidence.
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Whether you want to use bitcoin as a form of virtual currency education, use it as an extra income, or look at it from an investment perspective, bitcoin allows you to do just about anything you can possibly imagine. Following are ten of the best ways to use bitcoin, even though there are many, many more options at your disposal.
Quite a few resources are available about bitcoin, the blockchain, and how the digital currency is evolving, all of which are aimed to bring you up-to-date information on the bitcoin ecosystem. Here are ten of the most common news sources for the most up-to-date bitcoin info.
The Bitcoin Wiki
Having an unbiased and independent source of bitcoin information is a valuable asset to the virtual currency community, because there are constant changes, updates, and new services popping up.
The world of digital currencies is teeming with eager developers who feel they can create the "next bitcoin." Over the years, a few thousand altcoins have been released, and most have disappeared into obscurity because they were nothing more than pump-and-dump schemes to make a quick profit.But there are a few altcoins besides bitcoin in existence that are of some importance, even though they will not dethrone bitcoin any time soon.
Bitcoin usage and popularity are on the rise, so here's a quick list of nine great ways to use it that can benefit you and, in some cases, others.
Get rid of your bank account
Go on — give it a go! Assuming you have online access (and who doesn't nowadays?), why not try using bitcoin and skipping your bank account?
Similar to the way e-mail addresses work, a bitcoin address can be used to both send and receive data — or in this case, bitcoins. That said, there is one major distinction to be made between bitcoin addresses and e-mail addresses. People can have multiple bitcoin addresses they can use to send and receive transactions.
Bitcoin is often referred to as an investment vehicle, even though that term is thrown around quite loosely by many people. In the early days of bitcoin, people would buy up cheap coins in the hopes of not only growing the network by giving out free BTC, but also because the price per coin would hopefully increase.
Bitcoin is an alternative type of payment system that is sometimes mentioned in the media. Is it "Internet" or "digital" money? Is it a way to conduct business outside the mainstream financial infrastructure? Is it a new way of life that could transform multiple aspects of society in the future? The answer is yes.
Bitcoin exchange rates to and from a country's physical currency may vary quite a lot. Not only do rates depend on the time of day during which you're looking to make a trade, but there's a massive difference between various exchange platforms.The bitcoin exchange business is very competitive in nature, and every platform is looking to attract as many customers as possible.
Bitcoin is often touted as a global payment network that includes no transaction fees. Up to a certain extent, that statement is true, but it doesn't tell the entire story. No transaction fee is involved for the recipient on any bitcoin transaction coming from another user on the network. But sometimes, there is a transaction fee involved, albeit very minimal.
Bitcoin ― what an enigma! It seemingly came out of nowhere, and 13 years later is worth hundreds of billions of dollars, even though few people understand how it works.The information in this Cheat Sheet should help reduce some of the mystery and confusion so that you can begin your Bitcoin journey with confidence.
Owning a bitcoin paper wallet means the address that holds the bitcoins has not yet been connected to the live blockchain, and so is not "active." Until the wallet is connected to the blockchain, it is considered to be in cold storage (bitcoin jargon for an account being offline).You can always check the balance of any bitcoin address by searching the blockchain, but to spend it you would need to associate the bitcoin address of the paper wallet to a wallet that is online.
There is more to a bitcoin wallet than just the address itself. It also contains the public and private key for each of your bitcoin addresses. Your bitcoin private key is a randomly generated string (numbers and letters), allowing bitcoins to be spent. A private key is always mathematically related to the bitcoin wallet address, but is impossible to reverse engineer thanks to a strong encryption code base.
A software wallet is a bitcoin application that sits on your computer's hard drive and allows you complete control and great security, because each bitcoin you hold is only accessible on your own computer. This software, called Bitcoin Core, is developed and supported by the Bitcoin Foundation.When your software wallet is installed, it creates the wallet.
Some companies offer bitcoin wallet services. They effectively act as a middleman to hold your bitcoins and allow you to spend and deposit as you want, taking responsibility for the administration and security of your account. It also means that the company will ask you for personal information, thus making this a non-anonymous environment.
Bitcoin is a decentralized currency — how does that square with the idea of central banks? Banks are one of the institutions that control global finances, just as elected governments control laws.
When the going gets tough, some governments bail themselves out by fiddling with interest rates and currency devaluations, each of which reduces the wealth of those who have earned that currency.
Both financial terms initial coin offerings (ICOs) and initial public offerings (IPOs) carry a slightly negative connotation in the world of bitcoin crowdfunding, because multiple false promises and scam projects have been associated with ICO and IPO promises.
ICO: Potential investors are given the chance to purchase a part of the altcoin's total supply before the mining process begins.
To use bitcoins, at some point you actually have to acquire some bitcoins. Unfortunately, doing so is not quite as easy as sticking a card into an ATM. The following are a few of the ways you can get your hands on some bitcoins.
Establish that the platform you are using or the person you are buying from is legitimate, as you would with any other online transaction.
With bitcoin, trust has to work on both sides. Even though you as the user are always in control of your own finances, you still have to trust the rest of the bitcoin network to not drop off the face of the earth tomorrow.
The chances of bitcoin disappearing are so slim that it isn't something you should worry about.
Bitcoin provides businesses and individuals with a powerful tool to raise funds for an upcoming or existing project. Rather than relying on one investor, or one major source of funding, a crowdfunding campaign allows you to decentralize the funding process by acquiring backers and supporters to provide money up front.
Altcoins are also known as alternative currencies. These are bitcoin clones, bitcoin rivals (boo, hiss!). There are well over 4,000 different altcoins in existence. If you do not like to trade or speculate on the bitcoin against fiat currency markets, you could trade against altcoins instead.Altcoins seek to improve on the ideas bitcoin represents.
Day trading is buying and selling financial instruments — such as bitcoin — within the same trading day. Fiat currency refers to a national government's legal tender.Using bitcoin allows you to trade in several different ways. The most obvious way of trading is exchanging bitcoins to and from any of the local currencies it can be traded against.
Bitcoin offers its users many advantages, but perhaps the most important one is an unprecedented level of freedom. And that freedom comes in many different ways: financial freedom from not having to rely on existing infrastructure, for sure, but also the mental freedom of being in control of your own funds and technology.
Bitcoin mining is a slightly misleading name. No one swings a pickaxe into rough stones in order to find additional bitcoins. Bitcoin mining actually means adding more bitcoins to the digital currency ecosystem.
There will be a total of 21 million bitcoin in circulation by 2140.
So, how do new bitcoins come into existence?
At its simplest, a bitcoin transaction works by you giving someone else a designated amount of the BTC you own. In order for a bitcoin transaction to be deemed "valid," there has to be at least one input, although multiple inputs are possible as well. An input is a reference to an output from a previous transaction.
Bitcoin is changing the way people think about money by planting a seed of doubt in people's minds — in a positive and thought-provoking way. Mind you, given the financial crises over the past decade, it's understandable that some people are trying to come up with new and creative solutions for a better economy.
One of the easiest ways of earning parts of a bitcoin comes in the form of so-called faucets. A faucet is a website that lets users claim a tiny amount of bitcoin in a certain time period, which can range anywhere from minutes to days.
Don't expect to get rich overnight by visiting various bitcoin faucets, because most of them will pay next to nothing.
Most online bitcoin discussions take place on the BitcoinTalk forums. And as this forum has grown in popularity over the years, opportunities to make money have arisen as well. Especially for new and established bitcoin companies, the BitcoinTalk forum is an interesting place to advertise their business.
Forum signatures (placed at the bottom of forum profiles and visible on every post a user makes) allow BitcoinTalk users to earn a small amount of bitcoins every time they make a constructive post or topic on the forum.
Several platforms exist where you can find a job that pays in bitcoin. Whether you want to make a career out of working for bitcoin is a different matter entirely, but completing micro tasks is a great way to build a reputation and earn some money on the side.Unfortunately, hardly any of these tasks pays a substantial amount, though some opportunities can lead to other doors being opened in the future.
Bitcoin Core developers enabled a feature inside the bitcoin client that lets you "encrypt" your wallet by protecting it with a passphrase. By using a passphrase, you "lock" your coins from being spent. Even if an attacker were to gain access to the device on which your bitcoin wallet is running, they would not be able to do anything with the funds unless they also had your passphrase.
Cryptocurrency
A bitcoin exchange is the currency's equivalent of the services offered by banks or other regulated institutions that allow currency exchange — commonly known as FOREX transactions.You may have an account at the bitcoin exchange where you hold funds in your local currency and you use that account to trade for bitcoins.
Cryptocurrency
A certain level of anonymity is tied to using bitcoin and digital currency in general. Whether you can label that as "anonymous enough" is a personal opinion. There are ways to protect your privacy when using bitcoin to move funds around, but these require some effort and planning:
You can generate a new address for every individual transaction.
One of the first things you should keep in mind when you consider storing your bitcoins on an exchange platform is that it involves quite a lot of security risks.
It goes against the very ideology of bitcoin to use middlemen and be dependent on centralized services and platforms. And even though these exchanges deal in decentralized digital currency, the platforms themselves, like banks, still represent central points of failure, which makes them incredibly vulnerable to attack.
In the same way that you wouldn't walk around with your real wallet hanging out of your back pocket, or keep your bank card PIN number on a piece of paper inside that wallet, you need to be security conscious about your bitcoin wallet, too.
Secure mobile bitcoin wallets
A mobile bitcoin wallet is convenient to use, because it can be installed on either a tablet or smartphone.
Rather than storing your bitcoins on a computer or mobile device, a third option is fairly common among digital currency users. Physical bitcoins — yes, they do exist — are not just great collector's items, they also let you store your digital currency on them. Or to be more precise, most of them do.
Different types of physical bitcoins exist, just as currencies have coins of different monetary values.
Bitcoin mining is accomplished with very fast computers solving complex equations, not with picks and shovels. It's how bitcoins are created. Without bitcoin miners, no transactions could be processed, and no confirmations could be given to validate your bitcoins were genuine. And of course no new coins could be brought into circulation, because no rewards would be given.
Two types of bitcoin exchanges are in use: peer-to-peer and regular. Regular bitcoin exchanges use an order book to match, buy, and sell orders between people. However, neither the buyer nor the seller has any idea who the other party is, and this provides all users with a certain level of anonymity and privacy protection.
Cryptocurrency
Even if you aren't planning to store bitcoins on an exchange for an extended period of time, you may want to look into ways to protect your account. Most (non-bitcoin) online services require users to authenticate with just a username and password, which is not exactly the most secure way of protecting your credentials and personal information.
Security is as paramount with bitcoin as it is with your personal bank account. The more secure you make access to your bitcoins, the less likely somebody will succeed in nabbing them. When asked to provide a password, for example, make sure it is unique. Don't use any password that you use on any other website, in case that website is compromised.
Don't use exchanges to store your bitcoins for any length of time. Exchange storage is only as secure as the exchange's security infrastructure, so although many people do use this option, the coins are still not within your control. Storing on an exchange should not be considered as anything other than a temporary option.
Cryptocurrency
In order to properly use a bitcoin exchange, you will need to complete a "Know-Your-Customer" (KYC) verification procedure. This process sounds a lot scarier than it really is, even though you are obligated to submit some very delicate information related to you as a person.
Step 1: Confirming your phone number
The first step is verifying your mobile phone number.
The most important aspect of bitcoin may be the concept behind it. Bitcoin was created by developer Satoshi Nakamoto. Rather than trying to design a completely new payment method to overthrow the way we all pay for things online, Satoshi saw certain problems with existing payment systems and wanted to address them.
Bitcoin is a financial tool that carries risks just like any other payment method or currency does. However, with bitcoin, those risks are slightly different from traditional currencies and payments. Part of that comes in the form of a rather volatile price, but then again, any local currency fluctuates on a daily basis.
The biggest advantage presented by bitcoin — or to be more precise, the underlying blockchain technology — comes in the form of creating a completely transparent trading system.For those individuals and businesses who may want to avoid transparency — such as, for instance, in the non-declaration of various taxes, the transparency of bitcoin may be an issue.
Cryptocurrency
When talking about bitcoin exchange platforms, two terms you will encounter along the way are cold storage and hot wallet. Both cold storage and the hot wallet are security measures put in place by exchange platforms to safeguard user funds from any mishap:
Cold storage refers to bitcoins kept offline. You could compare this principle to banks moving customer funds into a vault rather than keeping it at the bank teller desk.
Cryptocurrency
The blockchain is the innovative technology behind bitcoin. It is essentially an open-source public ledger: If you consider an accounting ledger system, the first page contains the original entry; with bitcoin, the first block in the blockchain is called its genesis block.
Now, what the blockchain does differently from a normal ledger system is that it keeps a record of what was previously written on the previous block in the next block — as if in the ledger system, each page contained a summary of all the previous pages.
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