Tonight I was repairing a friends computer and somehow we got on to the topic of Bitcoins.
Bitcoins are a currency, like the US Dollar, or Sterling, but not like them at all, let me explain..
I explained how fractional reserve banking works and how his money didn’t really completely exist in the bank. I explained how with bitcoins you physically hold (or your wallet) physically holds the data of your own coins. When you own Bitcoin you actually hold it. Unlike your money in the bank, or even the notes or coins you physically hold, that is called fiat currency.
So, let’s start with the basics, in your bank account you have a balance, instead of having a central bank each person who has a bitcoin wallet (I have 3), actually holds the bitcoin data that IS the bitcoin on their personal computer storage (or in the cloud), or on an online wallet like “Blockchain“. On my computer I use MultiBIT HD. The actual bitcoins I hold on my computer are physically there on my drive. My friend told me of someone who threw away a computer with bitcoins on it and then spent weeks searching through a dump to try and find it.
Luckily these days we have cloud drives where we can store our bitcoins (or copies of them).
So back to basics again, Bitcoins do not have a central bank. There is no central authority. The data is simply held in your wallet, when you spend bitcoins using an app on your phone, a transaction is created in something called the blockchain. Really you don’t have to worry about how the block chain actually works, but as a programmer let me tell you it is incredible, so the blockchain is like your bank’s ledger. But it is verified and managed by computers all around the world on the internet, this is called “Bitcoin Mining”, anyone can do bitcoin mining where you are basically paid a small amount for processing transactions, this processing also generates new bitcoin.
So – you don’t HAVE to mine, you can just have a wallet with some bitcoins in.
So, when (not if) your currency crashes (due to excessive QE and government deficits), if you hold bitcoin, you hold a universal, unstoppable currency. You have an alternative. Incidentally Bitcoins are increasing in value (not all the time, just like other currencies). Also there is only a finite limit to the amount of bitcoins produced, eventually there will be no more bitcoins produced. But miners will still be paid for transactions, but from those transactions not from the blockchain generation process.
Simple Guide to getting started
- Set up 2 Bitcoin Wallets, you’ll need an online one for your day to day stuff
- Offline Wallet MultiBIT or Exodus, I prefer Exodus but I use both because it has multi-cryptocurrencies. Make sure it’s backed up and you have AntiVIRUS, store most of your Bitcoin here.
- Online Wallet BlockChain. Use for your daily transactions and spending money. Don’t store more than you need for your quick payments.
- Buy some bitcoins, note that if you are in the UK you cannot buy through blockchain’s exchange because your bank will not allow it, I use Bittylicious.com, although it looks a bit strange, it actually works very fast and well, although you have to verify your ID, this is to simply prevent money laundering.
- If you download the Blockchain app for your phone you can then send and request money – you can do it simply by hitting SEND, selecting the QR code and pointing it to my QR code on this web page, that simple, to send money to another person you either need their bitcoin ID (like the one above on the right) or you can send direct through the QR code that will give you the ID, I actually have a few different bitcoin ID’s set up (these are actually called hash codes technically), so that I can track where Bitcoins are coming from.
Mining
If you want to start mining you can start for FREE *BUT* you will have to pay towards the servers if you want to do any serious amount of mining. I am using 3 different mining websites, plus I have a small mining rig at home.
Other Money Making “Opportunities”
Please be aware that there a LOT of opportunities out there which promise big rewards for small investment, most of these, I’d say 95% are in fact scams, normally Ponzi Schemes, this means you must be VERY careful, even sites that say they are mining sites can be fake like Bitminer which is quite well known for giving small payouts, but when you pay just taking your money.
If you have questions?
Please use the comment box below and I’ll answer as best I can.
Recommended Books
The future of Money
Mastering Bitcoin
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