How to Store Bitcoins

How to Store Bitcoins

You probably use a wallet to store your US Dollars.
You probably keep some credit cards in there as well.
And, you may even keep some personal identification in there too.
Wallets make it easy to access and use your US Dollars.
You will use a digital wallet to help you access and use your Bitcoins.
If you are using an exchange, your coins are in their wallet!
Having your own wallet reduces your risk of losing your coins to a hack.

What is a Digital Wallet?

A Digital Wallet is:

– Your personally controlled interface to the Bitcoin network

– equivalent to a bank account or leather wallet

– generates your private keys and public coin addresses.

– stores your private keys and addresses, not your actual coins

– allows you to spend your coins privately

– allows you to provide a public address so you can receive coins

– optionally, keeps track of your spending and depositing

– has a secure backup that can recreate your wallet on almost any other Bitcoin wallet software

Why Do I Need a Digital Wallet?

You need a digital wallet to safely store your Bitcoins.

Here’s why:

– You control your keys and coins – nobody else!
– Must have a wallet to spend (not trade) coins
– Must have an address to receive coins
– Gives you backup recovery in case your wallet is lost.

What Kinds Of Digital Wallets Are There?

Hot/Software Wallet

– Available for Desktop, Web-based, or Mobile Phone
– A Full Node Wallet contains a Bitcoin Node so you can help secure the network
– SPV Wallet runs and synchronizes quickly but does not contain a Bitcoin Node
– Open source wallets are considered more secure than closed source or proprietary wallets because they have been (theoretically) peer-reviewed

Cold/Hardware Wallet

– A hardware wallet is a physical device like a dongle
– Its sole purpose is to secure your keys
– It must be connected to your computer to use
– It generates your Private Key offline to prevent theft
– It has a simple interface included for sending/receiving coins and also interfaces with most desktop wallets and some exchanges
– It also protected from computer-based malware, viruses and phishing attacks
– It is considered most secure because it is not internet connected

Paper Wallet

– Paper wallets are printed out secretly and then loaded with Bitcoin
– They are considered very safe from online theft but at risk due to physical damage in some cases
– Paper wallets are generally for single use long-term storage

Where to Get a Digital Wallet?

There are almost too many digital wallets out there to list.

bitcoin.org has a long list of digital wallets

These are the digital wallets I use and trust.

Electrum is my desktop wallet. Electrum is an open source wallet and has been peer-reviewed many time. It is also an SPV wallet and does not contribute to Bitcoin network security nor does it validate my own transactions like a Bitcoin Full Node would

I do have a Full Node Wallet to improve Bitcoin Network security but I don’t send and receive many Bitcoins from that wallet.

I use a Ledger Nano S for my hardware wallet.

I encourage you to DYOR and select the digital wallet that best meets your needs.

OK, Now What?

You don’t really need a wallet for small amounts of Bitcoin that you purchase and keep on a reputable exchange.

What is a small amount? I don’t know – that’s up to you. If an exchange were hacked, how much would you be OK losing? Are you willing to pay the fees to move your Bitcoins from the exchange to your digital wallet?

You do need a digital wallet if you want to spend your Bitcoins privately. Spending your Bitcoins directly from an exchange leaves a KYC/AML trail. Spending you Bitcoins directly from your digital wallet does not leave this trail. Your Bitcoins transaction will still be publicly visible on the blockchain but requires a great deal of computational power to backtrack Bitcoin transactions. Even then, relating a Bitcoin address to your location or personal identity is not guaranteed unless you’ve published your wallet address.

You do need a digital wallet when you start to worry about your Bitcoins on an exchange.

You need a hardware wallet when you start to worry about your Bitcoins on your computer.

The Extras

The Rules of Bitcoin

  1. Always talk about Bitcoin.
  2. Never talk about Your Bitcoins.

Buying Bitcoin

Coinbase Referral Link
Coinbase

Digital Wallets

Electrum Wallet
Bitcoin Core Wallet & Others
Ledger Nano S Hardware Wallet

Links

Why Bitcoin Works by Jimmy Song
A Guide To Bitcoin’s Technical Brilliance (For Non-Programmers)
Shelling Out | The Origin of Money by Nick Szabo

Podcasts

Unchained | Laura Shin – Blockchain 101 with Andreas Antonopoulos: How Bitcoin Makes Each of Us as Powerful as a Bank

PermaLinks

Mastering Bitcoin – Andreas Antonopolous
Curated Bitcoin Resources by Jameson Lopp
Subscribe to Boomers, Blockchains, Bitcoins & Cryptocurrencies
BBBC #0 – How I Got Started
BBBC #1 – What’s a Blockchain?
BBBC #2 – What’s a Bitcoin?
BBBC #3 – What Do You Believe?

 

How to Get Bitcoins

How to Get Bitcoins

Getting Bitcoins can be a challenge. But, it will become easier once you understand how the process works.

I hope this simple guide gives you all the information you need.

Convenience and Safety

US Dollars (USD) are safe and easy.

US Dollars also have Security Features – but those are not what I’m talking about.

With Bitcoins and other cryptocurrencies, you have a choice that you didn’t have before.

But, that comes at a cost – and only you can decide if the cost is worth the benefit.

Convenience (easy) requires reducing Security. You see this with passwords every day. One of the most common easy passwords in use is “password”. Sure, it’s easy. But how secure is that? You’ve just traded security for convenience – and it’s a trade we all make every single day.

<RANT>
BTW, if you’re not using a password manager, you’re making a huge mistake. They are really good, incredibly safe and very easy to use.  My favorite is 1Password. If you’re *not* using a password manager, you might need to think twice about how ready you are to get into Bitcoins and Cryptocurrencies.  Seriously.
</RANT>

In most cases involving currencies, adding convenience to transactions usually requires a trusted third party.

You could use only USD cash. If you kept it in a safe and only carried exactly what you need, that would be relatively secure. But, how would you pay all of your bills? You’d need to visit a payment location with cash in hand for your mortgage, rent, utilities and other shopping.

That’s not very convenient.

So, you write a check or use a credit card instead. This requires a bank.

Banks are trusted third parties for your US Dollars (USD). In fact, they are *very* trusted because they are not actually required to keep a real USD for every USD that customers have on deposit.  Most banks are Fractional Reserve Banks. This allows them to loan more USD than they actually have on reserve. This property of USD makes it “easy” for you to get and spend USD.

These trusted third parties and USD also provide a “safety feature” that is not available in Bitcoins. There are legal and illegal ways to acquire and spend US Dollars and the banks are required to help enforce these laws. As a result of this safety feature, a bank may withhold some or all of your funds for various periods of time. Your funds in a bank can also be legally taken away from you by others without your permission. Your transactions of acquiring and spending USD via trusted third parties are recorded and reported to you as well as a variety of other government agencies. All this helps keep you and your USD “safe”.

Bitcoins are designed to be trustless and do not require trusted third parties.

This feature increases the security and decreases the convenience of Bitcoins.

DYOR – Do Your Own Research

Nothing I tell you is true.

I am not a financial advisor.

Everything here is my opinion. I hope it is informative and helpful to you.

But, it is imperative that you Do Your Own Research.

I highly recommend that you at least Google the heck out of what I say – some of it will be wrong – not intentionally, but as a result of simplifying a complex set of topics to the point of incorrectness. If that happens, please let me know because I want to correct it.

Your understanding of the facts may differ from my understanding of the facts.

We’re dealing with real money here so be smart and DYOR.

Also, never invest more than you can afford to lose – seriously. Bitcoin is still a frontier and there are many places where you can easily be cheated or scammed. It hasn’t happened to me (yet) but I take a lot of precautions. One of those precautions is limiting my BBBC investments to money that I can afford to lose.

DO NOT BET THE FARM!

Converting USD to Bitcoin

Since Bitcoin is a cryptocurrency, you will need to buy or exchange your USD for Bitcoins.

There are generally two options for buying Bitcoins.
1 – in-person or person-to-person transaction
2 – an exchange that accepts USD

I DO NOT recommend in-person or person-to-person purchases of Bitcoin. Since you are exchanging USD for BTC, there are some laws that can easily be broken by purchasing BTC from a person that you don’t know. There is also a very real risk of physical threats and danger. I’ve done this myself and it is sketchy at best – especially for the newcomer.

An exchange is a business that can legally accept USD for BTC. They are licensed by the US Government to perform this service. This is part of the safety features of USD. You must use this type of exchange to purchase BTC with USD.

Make No Mistake, this type of exchange is a trusted third party for BOTH USD and BTC. This is a safety feature of the USD and a necessary and temporary annoyance for BTC.

There are also exchanges that do not accept USD. They may or may not be licensed by the US Govt and are not concerned with the safety features of USD. You can use this type of exchange to purchase other cryptocurrencies with your BTC or vice versa.

KYC/AML

As part of the safety features of USD, an exchange that is licensed to convert USD to BTC will require some information from you. This information is generally called KYC/AML which stands for Know Your Customer / Anti Money Laundering. This information allows the exchange to help enforce the laws that make the USD safe.

There are subtly different processes to comply with KYC/AML requirements but essentially, you will be required to provide a sufficient amount of information to convince the exchange that you are who you say you are and that you are not a “bad actor”. This can include sharing your name, address, driver license, passport and bank account information. See, you’re feeling safer already!

This process may also take a few minutes or several weeks – depending on how many other people are in the queue in front of you. Be prepared to wait for approval from the exchange to purchase BTC with your USD. This is sort of like renewing your driver license.

Wire Your USD or Connect Your Bank Account

You’ll need a way to move your USD from your pocket or bank account to the exchange in order to purchase BTC. There are a variety of ways and each exchange will have different choices.

The most common way to move USD from your bank to the exchange is by using Direct Deposit/ACH/Debit Card or Bank Wires. Direct Deposit is easiest but has a security risk. Bank wires tend to be expensive and slow but offer a level of security that ACH does not have. There’s that trade-off between convenience and security again.

There was a time when credit cards could be used to deposit USD into exchanges but since credit cards have a convenience feature that allows chargebacks and BTC does not have that feature, some folks figured out they could use credit cards to buy BTC and then charge back the USD so that they got BTC for free. That got shut down early in 2018.

In most cases, your first step will be to move some of your USD from your bank to the exchange. This will typically require you to wait for a few days for the USD to move from your bank to the exchange. Then, you can purchase your BTC with the USD you have on the exchange.

Some exchanges do not keep a USD balance and will pull the USD directly from your bank at the time of your BTC purchase. I prefer this approach.

In any case, be prepared to wait a bit more as your USD move around to the proper location.

BTC or BCH?

You will probably find that the exchange you chose offers both BTC and BCH.

BTC refers to Bitcoin and is the original and ongoing Bitcoin.

BCH refers to Bitcoin Cash or Bcash, which was a fork of the BTC chain in August of 2017.

Some folks in crypto-land who are fanboys of BCH will call BCH Bitcoin and call BTC Bitcoin Core.

Yeah, I’m sorry it’s confusing.

Look for the Ticker Symbol BTC.

If you make a mistake and accidentally purchase BCH instead of BTC, that’s OK. You haven’t lost anything, you’ve just purchased a different crypto and it is easy enough to exchange it for BTC. Email me if you’re confused and I’ll help you get it sorted out.

Make Your Trade or Buy Your BTC

Since you’re purchasing BTC for USD on an exchange, you’re actually making a trade in a market – just like you’d purchase a share of stock from the stock market.

You’ll have to decide on the price in USD that you are willing to pay for BTC.

In a market, you’ll see the current price and you’ll also see other offers to buy and sell BTC for USD.

A market consists of people offering to buy BTC in exchange for USD at a certain price and people offering to sell BTC for USD at a certain price.

A trade only occurs when a buyer and a seller agree on a price.

The current price or market price is simply the most recent price for a successful trade.

The easiest purchase of BTC is at the market price. This trade will happen almost instantly.

If you want to purchase BTC at a certain price, you will place a LIMIT ORDER at that price and your offer will join the list of all the other offers. If another seller likes your price, they will accept it and your trade will be complete at that time.

I recommend purchasing BTC at the market price unless you have a specific reason for placing a limit order.

Pay Your Fees

Exchanges are somewhat like banks in that they are commercial enterprises and expect to earn a profit for the work and value they provide to you. You do this by paying fees. You’ve seen those from your bank already, right?

Exchanges charge small(ish) fees for a variety of activities. It is very worthwhile to know the fee structure of the exchange you use so that you can be clear about your choice for safety Vs convenience.

Some exchanges offer free(ish) trading while on the exchange but charge fees when you move your BTC off the exchange (more on that later).

Some exchanges just charge a flat or percentage fee for each trade.

Some exchanges do both.

DYOR – Do Your Own Research.

Owning Your First Bitcoin!

Congratulations.

You now own some Bitcoin!

Well…..not really.

You have the exchange’s (trusted third party, remember) promise that they have exchanged your USD for BTC. You also have an account on the exchange that shows you have BTC, just like your account at your bank shows that you have USD.

But, you really don’t own Bitcoin until you have them in your own wallet and your keys are stored in that wallet.

Not to worry, if the exchange you chose is licensed to trade USD for BTC, then it’s probably as safe and secure as a bank.

Your BTC will be fine there until you’re ready to get your own wallet.

I’ll cover setting up a wallet next time.

How To Get Started

I recommend Coinbase as your first exchange.

Coinbase is like almost any other financial services business – they have pros and cons and fans and haters. DYOR.

The reason I like Coinbase for newcomers is that they make it really easy to buy BTC with USD.

Really Easy!

And, that’s about all I need them for.

I use other exchanges for trading cryptocurrencies because they provide better services and value for trading.

I use Coinbase to purchase Bitcoins because it is very easy to do.

A Shameless Plug

If you’d like to get an account on Coinbase, you can use the referral link below and we will both get $10 USD in BTC when your investment reaches $100 USD. This is entirely anonymous to me and I never see your name or your amounts. I just get a notice that a person that used my referral link and I have earned a reward in BTC.

Coinbase with Referral Link

Coinbase WITHOUT Referral Link

Thank you very much if you use this approach and link.

The Extras

The Rules of Bitcoin

  1. Always talk about Bitcoin.
  2. Never talk about Your Bitcoins.

Buying Bitcoin

Coinbase Referral Link
Coinbase

Links

Why Bitcoin Works by Jimmy Song

A Guide To Bitcoin’s Technical Brilliance (For Non-Programmers)

Shelling Out | The Origin of Money by Nick Szabo

Podcasts

Unchained | Laura Shin – Blockchain 101 with Andreas Antonopoulos: How Bitcoin Makes Each of Us as Powerful as a Bank

PermaLinks

Mastering Bitcoin – Andreas Antonopolous
Curated Bitcoin Resources by Jameson Lopp
Subscribe to Boomers, Blockchains, Bitcoins & Cryptocurrencies
BBBC #0 – How I Got Started
BBBC #1 – What’s a Blockchain?
BBBC #2 – What’s a Bitcoin?
BBBC #3 – What Do You Believe?

 

What’s a Bitcoin?

Bitcoin is a cryptocurrency that is stored on a blockchain and secured by cryptography. It is designed to allow people to store, send & receive money between themselves without any intermediaries.

What is Money?

Money is an item or verifiable record that is generally accepted as payment for goods and services. It has three functions.

It is a Medium of Exchange in that it is used to intermediate in the exchange of other goods and services. This function solves the barter problem where you have chickens and want a haircut but the barber wants beans. Without a money, you’d need to trade your chickens for beans so that the barber would cut your hair. This is known as “The Barter Problem” or “Coincidence of Wants“.

It is a Unit of Account in that it is a standard measure of value in a marketplace. This function allows money to work in complex or commercial transactions that may need debt. It also facilities easy pricing and comparison within a marketplace.

It is a Store of Value in that it is stable over time. This allows it to be used with the same impact today as well as in the future. Inflation, or the creation of additional money, erodes this function in most fiat currencies.

Nearly all modern money systems are fiat money systems. Fiat money has no actual commodity value but is backed by a government. The government gives fiat money value by declaring it legal tender and requiring that it be accepted as a form of payment.

Money must have 5 properties to successfully fulfill its three functions.

Money must be fungible. Each unit must be exactly equal to every other unit. There can be no “special” units nor can there be any “dirty” units.

Money must be durable over time.

Money must be portable.

Money must be recognizable and its value easily identified.

Money must be stable in its value and not fluctuate over time.

What is a Currency?

A currency is a type of money that is in circulation and being actively used.

What is a Cryptocurrency?

A cryptocurrency is a form of digital money, used in circulation and secured by cryptography.

What is Cryptography?

Cryptography is the science of encrypting and decrypting information so that it can not be read or understood by anyone without the cryptographic keys.

What is a Cryptographic Key?

A cryptographic key is one of two or more unique alphanumeric “string” (a list of characters) used to encode and decode information that has been secured with a cryptographic algorithm.

Where did Bitcoin Come From?

Bitcoin was “designed/created/invented” by Satoshi Nakamoto in 2009. Satoshi mysteriously disappeared in mid-2010 after turning over administrative control to the code that was being used to develop the only Bitcoin client at that time. Those developers and others continue the work to improve and secure the Bitcoin protocol. Nobody knows who Satoshi Nakamoto is and this is considered a “good thing”. Bitcoin was the first of many digital currencies that effectively solved the “double-spend” problem that prevents counterfeiting digital money and eliminates the need for trusted third parties in any transaction.

Who Controls Bitcoin?

Nobody controls Bitcoin. An open group of software developers controls the privilege of adding and changing the software functionality which creates and distribute Bitcoin. Miners control the hash power which contributes to the overall security of all Bitcoins. They do this by making it extremely difficult and expensive for anyone to attempt to change the blockchain. People who run “nodes” help maintain the integrity of the system by verifying the integrity of the blockchain. Users have the ultimate control via their adoption and usage (or lack thereof) of Bitcoin. Generally speaking, a consensus is required for any change to Bitcoin.

It’s worth noting that there are multiple Bitcoin implementations by different groups of developers and none of them can force anyone to run the code they write.

What’s special about Bitcoin?

Bitcoin has a number of properties or characteristics that make it useful and valuable.

Bitcoin is digital peer to peer cryptocurrency that has global reach and usage.

Bitcoin eliminates the need for a trusted third party or middleman in a digital transaction.

Bitcoin is decentralized across thousands of computers and cannot be subverted.

Bitcoin is protected from counterfeiting and double spending by cryptography.

Bitcoin has a finite supply of 21 million coins.

Bitcoins are divisible to 8 decimal places and the smallest unit is called a satoshi.

What does a Bitcoin Look Like?

A Bitcoin is digital so the only thing you’ll really see is numbers/letters in a ledger.

These numbers/letters in a ledger are transactions.

A transaction consists of an Address, Inputs, and Outputs.

The Address is actually derived from one of two cryptographic keys.

The second cryptographic key is your secret key and is required to process any Outputs.

Inputs add “coins” to the Address and do not require a secret key – anyone can add coins to any Address.

Outputs send “coins” to another address and require your secret key.

Each time “coins” are added or removed (Input or Output) a new transaction on the Address is required and mined into the next block.

New Bitcoins are automatically created as the first transaction each new block as a reward to the winning miner. The miner also collects all of the transaction fees for all of the transactions mined into the most recent block.

Yeah, it’s complex but luckily, a wide variety of software applications makes this very simple and easy.

How Do I Get and Use Bitcoins?

There are 2 primary challenges to getting and using Bitcoins. The first challenge is purchasing Bitcoins with US Dollars or other fiat currency. The second challenge is learning to control Bitcoins without getting scammed, making a mistake with an Address or losing your secret keys.

Numerous exchanges provide the ability to purchase Bitcoins with US Dollars. You should be aware that the US Govt requires exchanges that sell Bitcoins for US Dollars comply with KYC/AML (Know Your Customer/Anti Money Laundering) regulations. Be prepared to share your Drivers License and some other relevant information so that the exchange can verify you and comply with the laws. This is typically done very easily while you are online by snapping a picture of your driver license and submitting it as part of your account creation. I recommend setting up your account on a mobile device where this step is very easy.

Spending Bitcoins is equally easy. All you need is the Address of where you want to send Bitcoins and your secret key to release them from your Address and send them onward. All of this is accomplished with a Wallet. If you keep your coins on an exchange, they will keep them in their wallet for you and allow you to spend them directly from that wallet. You can also keep your coins in your own wallet on your mobile device, desktop computer or specific hardware device. Keeping your coins in your own wallet is always safer than keeping your coins in an exchange’s wallet for you.

My next newsletter will have a lot more details about how and where to get Bitcoins and how to keep and spend them safely.

If you’re in a rush and want your’s now, please reply to this email and I can walk you through it over the phone.

My Personal Take on Bitcoins

I’m a big fan of Bitcoins. The first thing that caught my attention was the finite supply of 21,000,000 coins – I like that a lot. I started buying Bitcoins in 2012 and it was a challenge to get them at that time. Since then, the on-ramps where you can convert fiat to crypto like Coinbase have made it much easier. I have a very long-term perspective on Bitcoins and am using them to hedge my US Dollars for retirement beyond 2030. I really enjoy watching how Bitcoin matures. The price volatility doesn’t bother me and following the process and thought leaders in the Bitcoin community is very entertaining and educational.

Thinking Questions

What else do you need to know to decide if Bitcoin would be something valuable to you?

Why wouldn’t or haven’t you gotten Bitcoins prior to now?

If you did decide to get some Bitcoins, why would you do that?

Links

Why Bitcoin Works by Jimmy Song
A Guide To Bitcoin’s Technical Brilliance (For Non-Programmers)
Shelling Out | The Origin of Money by Nick Szabo

Podcasts

Unchained | Laura ShinBlockchain 101 with Andreas Antonopoulos: How Bitcoin Makes Each of Us as Powerful as a Bank

PermaLinks

Curated Bitcoin Resources by Jameson Lopp – https://lopp.net/bitcoin.html
BBBC Subscribe! – Subscribe to Boomers, Blockchains, Bitcoins & Cryptocurrencies
BBBC #1 – How I Got Started
BBBC #2 – What’s a Blockchain?