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An Idiots Guide to BitCoin

Courtesy Mellisa Tolentino,  SiliconAngle

Now that we have an idea of how Bitcoin got started, the very next step for those looking to jump on this digital bandwagon is learning how and where to buy the currency, and where they can spend it.  With that in mind, SiliconANGLE presents a simple guide to help readers get started in this digital currency.

Definition of terms

Address – the only piece of information you need to provide so that someone can pay you Bitcoin, it’s like your home address or e-mail address.

Bitcoin/BTC – digital currency.

Blockchain –  a public record of all BTC transactions, this prevents reusing of BTC.

Double spend – the act of using BTC in two separate transactions at the same time.

Private key – a code that proves you have the right to spend BTC; think of it as an ATM PIN number, if someone gets a hold of it, someone gets to access your money…

Signature – this proves your ownership of the BTC in your possession.

Wallet – The place where you ‘keep’ your BTC, much like your real wallet where you keep wads of notes.

What you need to know

Here’s a few things you need to understand first before you go and create your own wallet:

First, Bitcoin is a high risk and volatile currency.  Its value may increase or decrease at any given time.  Never store money you cannot afford to lose in Bitcoin.

Second, Bitcoin payments are irreversible.  Because addresses are anonymous, unless you make it a point to announce that you personally own an address, once you make payment, you can’t get BTC back unless the receiver agrees to refund it.  So make sure you only transact with trustworthy people and organizations.

Third, Bitcoin it is still experimental.  Even though we’re seeing more people use BTC, helping it to become more stable, one cannot predict what the future holds.  It could go away in an instant.

How to get started

Create a Bitcoin Wallet –  this is the first step you need to accomplish before you can start buying BTC or trading BTC.  This is where you will store your digital currency.  You can get started by downloading a client like Bitcoin-QT, which works for Windows, Ubuntu, Linux and Mac, or else download Bitcoin Wallet on your Android device.

Bitcoin address – upon creating your wallet, your first Bitcoin address will be made so you can get started in buying BTC.  You can create more addresses as you go on.  It is recommended that you make different addresses for each transaction to maintain anonymity.

Buy BTC – this can be done in a number of ways, such as paying cash via Localbitcoins wherein you personally meet with people who are selling BTC; via BitInstant; via exchanges such as MtGox; via Blockchains; or finally, via bank transfer, but this method requires finding trustworthy that is willing to sell BTC. In such cases, the buyer transfers the amount required to the seller’s bank account and when received, the seller will then transfer BTC to the buyer’s wallet via the address provided;

Keeping things secured

Just like real money, you need to perform additional actions to keep your BTC safe.

The first step is to backup your wallet by either printing it or keeping it in thumb or external hard drive.  That way, when your computer crashes or your phone gets lost or stolen, you will still be able to access your wallet.

Second, encrypt your wallet so even if someone else gets a hold of your computer or phone, your BTC will be safe and cannot be used by others.  Also, this will help you keep hackers at bay.  Unfortunately, if you lose your password, your BTC will be permanently lost as there is no password recovery.

As for the other technical stuff like mining, you don’t really need to understand it in order to use BTC.  But here’s a simple explanation: “Mining” is done to generate more BTC.  A group of people who mine Bitcoin is called a “mining pool” and they solve complicated algorithms in order to generate new Bitcoins.  The more people crunching numbers, the faster mining is done.  If they achieve their goal they are rewarded with new BTC as a perk for performing the work necessary to generate them.  So if you want to earn more BTC without spending too much cash, then you can always get into mining to fatten up your Bitcoin wallet.


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