Bitcoin For Dummies Cheat Sheet
Bitcoin has gotten a lot of press, and not all of it good. So is it Internet money, an alternative currency, a parallel financial system, a new way of life? The answer is yes, it’s all of those things and more. Start by finding out the basics of what it is, where it came from, what it does. You can buy bitcoins just like you can buy ice cream and concert tickets. But you can’t really keep them under your mattress or in your piggy bank — or your regular bank account, for that matter. In fact, you had better pay some extra attention to securing your bitcoins once you get some. Bitcoins don’t come from any gothic-columned mint, but from a complicated digital calculating process known colorfully as mining.
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.
Origins: Bitcoin was created by developer Satoshi Nakamoto in 2008.
Purpose: Bitcoin provides a viable decentralized alternative to the current mainstream financial infrastructure.
Method: Bitcoin enables spending with full transparency through a publicly available ledger known as the blockchain.
Security: A bitcoin transaction involves both a public key, which is generally known to everyone, and a private key known only to the bitcoin user. No coins can be spent without knowing the private key.
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.
Use an exchange such as Gemini to purchase. You register your details through this trusted exchange, deposit your local currency such as USD or GBP, and then purchase the bitcoin at the current rate of exchange.
Buy in person by purchasing directly in the same way.
Remember that once you have purchased your bitcoin, move them to a location that is in within your control. Don’t store them long-term on an exchange.
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.
Instead, use a software wallet (such as the Bitcoin QT client) to store your bitcoins. A software wallet allows you to secure your bitcoins on your own computer. Encrypt the wallet and make backups to ensure your bitcoins are safe. This option requires you to carry out virus checks and have a good understanding of Internet security. Alternatively, you can try a popular online wallet such as the one offered at Blockchain.info while you become familiar with the workings of a wallet. This can simplify the process for you.
Another option is to use a paper wallet to send your coins to a bitcoin address that is not connected to any online exchange nor to software that is on your computer. This bitcoin can only be spent when you decide to manually redeem it through using your private key.
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.
When using any online service, look out for additional security such as 2FA, which stands for two-factor authentication. With 2FA, even if somebody else discovers your password, they would also need to gain access to the second-level password which normally is reset every 20–30 seconds using a device such as a smartphone. Always immediately enable this additional security feature if offered.
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.
The bitcoin network is only as strong and secure as the people and companies who are supporting it, either by running a bitcoin node or by dedicating computational power to the mining process, which is what miners do.
You have the option of setting up your own “rig” by buying your own hardware (very expensive) or alternatively using a third-party cloud-mining service such as Genesis Mining, which allows you to mine bitcoin without the hassles of maintaining your own hardware.