My name is Paul Clevett I am the founder of UKBitcoinblog.com. I have been involved in cryptocurrency for several years now, not only from an interest and investment perspective but from a technical perspective even setting up a small mining farm.
This guide has several purposes
- To teach people who Bitcoin works in a simple and easy to understand format
- To excite and enthuse about the Blockchain
- To encourage the use of Cryptocurrency for everyday things.
What is Bitcoin? and Why is it Different?
Forget everything you know about money.
The experiences you have already with money, sterling, dollars etc are not really that important. Bitcoin is very different. It is not owned by any government, it was invented by a mysterious figure or group Satoshi Nakamoto – only they know because he disappeared.
Banks use something called Fractional Reserve Banking. This basically means they are allowed to charge interest and lend out more money than they actually physically have. Money in our world as it is sadly is produced on demand. When the finances of a country are doing badly they simply print more. This is called quantitative easing. The problem with this practice is that it means the whole thing is based on politicians and banks opinions. It will only end in disaster (and every now and then the cracks shine through).
Bitcoin, however, is different because there is no interest, there is only so much Bitcoin and sometime in the future, no more Bitcoin will be produced.
So you see, the reason that Bitcoin constantly goes up in value is simple supply and demand. If you are selling apples, you make 50 apples a month, and you sell 50 apples one each to your 50 customers. Suddenly a new bunch of 50 people want apples, so you have 100 customers, but still only 50 apples, the price of the apples will double. That’s why Bitcoin’s price consistently increases.
So forget what you know. This is something new.
What is the Blockchain?
Recently I wanted to transfer money from one bank account (in the same bank) to another when I transferred it simply disappeared because the bank was having computer problems. That’s because banks are centralised.
The Blockchain is simply a ledger. But unlike a standard ledger at a bank held in one bank, the Blockchain is all over the internet. It is stored on thousands of computers. It uses unbreakable encryption to make sure it is secure, In fact, a million united states dollars was offered as a prize to anyone who could break it. No one has been able to yet.
Sure, people’s computers do get hacked and their Bitcoin stolen, but that’s easy to protect with proper firewalls and anti-virus, and keeping your Bitcoin on a hardware wallet. More about that in the next section.
The Blockchain is kept up to date by thousands of Bitcoin Miners, when a transaction is placed into the Blockchain, let’s say Bob sends 0.05 BTC to Mary, it then is verified by the Bitcoin Miners, whose job also is to generate Bitcoin by solving complex mathematical problems. For a transaction to be valid, a number of different miners must verify the coin moving between one wallet and another.
Miners get paid a small transaction fee for doing the job of mining. So everyone’s happy, the Blockchain’s transactions are verified and the coin is transferred.
There is no interest. No debt. It’s just the Blockchain.What is a Bitcoin Wallet?
You have to understand that although you can have Bitcoin in a paper form. It is really just numbers on a piece of paper.
Bitcoin is in fact made up of two parts, these are effectively very long and complex sequences of numbers and letters. A Private Key, and a Public Key. You can find more information on these on the internet, they are mathematically very interesting but not really necessary for you to understand. Just know that if you have your private keys. You do not ever print them out or give them to anyone.
Essentially your Bitcoins are just a value stored in codes in a VIRTUAL wallet. These codes, if lost, generally cannot be recovered, there’s a well-known story of someone who has about $100,000 worth of Bitcoin stored on a computer that he threw away.
You can use an online Wallet but in fact, I would not recommend storing large amounts of Bitcoin in them, here’s why. They are basically unregulated and all you are doing is re-centralising something that is supposed to be de-centralised.
The one I use the most is Spectrocoin as it as an attached Debit card. (Yes, I buy Pizza with Bitcoin).
An offline Wallet stores your Bitcoin either on your computer or on an external device. You normally get a 25-word passphrase which when entered into the wallet with your username will restore your wallet.
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I like Exodus Wallet as an offline wallet.
These are USB Keys that store your Bitcoin with a passcode and come with an accompanying piece of software.
I don’t currently use an offline Wallet.
Sending and Receiving Bitcoin
Remember that if you send Bitcoin to the wrong address, it’s gone. It is completely unregulated apart from by the Blockchain. So if you send someone Bitcoin then realise you made a mistake, that’s that.
This is true Financial Freedom. No one will check up on you. It’s like using cash. If you give someone a dollar bill and they run off with it there is nothing you can do.
- Get the recipients address
The recipients address will be a long string of letters and numbers or with some Mobile apps you can just point your phone at a QR Code (these two addresses are actually real!), you can send me some small amount of Bitcoin if you wish.
2. Enter the Amount
Check and double check the amount – if you get it wrong there’s no way back.
3. Click Send
Now the transaction will enter the Blockchain and you need to wait for it to complete. The higher the transaction fee paid the faster it will complete.
What about Buying/Selling Bitcoin?
Be careful, in some countries Buying Bitcoin with Fiat currency MAY be illegal. But here in the UK it’s fine and there are a number of ways of doing it.
You can go meet someone physically and give them cash and they can send you Bitcoin. But your online Wallet will normally allow you to buy Bitcoin. But Be careful remember there is Risk involved if you want to buy a large amount of Coin I would do it in smaller transactions maybe over different exchanges.
Again, I like Spectrocoin for selling Bitcoin as I can put the result on a debit card and use it for day to day items, but don’t forget that you may need to pay tax on earnings when you convert Bitcoin to a fiat currency.
Bitcoin Mining is great fun and can be quite profitable. But these days I would recommend holding Bitcoin as the best way to increase your wealth.
These days you generally can’t mine on your home computer without a LOT of mining hardware and this hardware is generally quite expensive and expensive to run unless you have cheap electricity so you must carefully weigh up the return on investment (ROI) before progressing down this path. It also requires some technical knowledge of how to set up software to talk to a mining pool.
Basically, mining Bitcoin is a matter of luck. You may mine the blockchain for ages on your own and never make any coin – however, if you join a mining pool then the profits are shared out amongst the miners. There are many pools available.
At present I recommend AntMiners but they are expensive and noisy and generate a lot of heat.
Joining an Online Mining Set up
You can join an online mining set up – there are quite a few out there HOWEVER again check your Return on Investment compared to just holding Bitcoin in a wallet.
There are also many scam sites that pretend to be genuine miners but are in fact Ponzi schemes ore even worse just flat scams that in a few months will disappear with all their investor’s money.
For further information on this check out http://ukbitcoinblog.com as it’s constantly updated with Mining sites and reviews of the scams and the good ones.
Here are some tried and tested online mines.
As I said before, you may make more money by just holding Bitcoin at the moment.
What about Other Cryptocurrencies?
Other cryptocurrencies often have exciting features not found in Bitcoin but Bitcoin is the biggest.
Etherium, for instance, is fantastic for projects involving contracts, it has ways of not only exchanging money but storing contract information.
Other smaller currencies are also a good investment, and in fact, I do spread my currency over different investments like Dogecoin, litecoin. But steer clear of the “latest greatest” currency. Sometimes people do an ICO (Initial Coin Offering) for something that in fact is not coin at all but a scam.
WARNING : read this!
There are MANY scams out there that promise the earth with Bitcoin because of it’s unregulated nature. Do NOT invest in something money you cannot afford to lose, and understand that just because it’s paying today doesn’t mean it’s a genuine opportunity.
Complex Matrixes and investment scams exist and they are like playing a fruit machine, you might win oqccaiosnally but on the whole they will take your money.
If you are not sure please check with me, email address below.
I’m sorry to say that 90% of the things offered in the Facebook Bitcoin groups are complete scams.