Bitcoin 101: A Complete Guide for Newbies
Bitcoin was designed as a system for online payments which is entirely independent from any central authority. Since its beginnings in 2008, Bitcoin has grown into a digital currency, a great investment vehicle, and an entire ecosystem with over 10 million active users.
Bitcoin (BTC) isn’t printed like other currencies, and it doesn’t exist in a physical form like US dollars or euros. Instead, people all around the world produce it by running software that solves mathematical problems in a distributed network (so-called mining).
Main Bitcoin Characteristics
A lot of important features set apart Bitcoin from traditional government-backed currencies. For example:
- It’s Decentralized – This digital currency isn’t controlled by anyone. Every computer that mines Bitcoin and helps the network to process transactions makes up a part of the BTC ecosystem. And if a part of the network goes down for any reason, the money will keep on flowing.
- It’s Anonymous – Everybody can own multiple BTC addresses which are not linked to any names or other personal information. Total anonymity is not guaranteed by the network.
- It’s Transparent – Details of every BTC transaction ever made are stored in a ledger called the Blockchain. In case you own a public BTC address, anyone can see the amount of Bitcoins that are kept at that address. But nobody will know who owns it.
- Small Transaction Fees – Banks usually charge $15-$30 for international transfers. Bitcoin transfer is free, and you can only pay a small fee if you want to speed up your transfer.
- It’s Fast – Bitcoin can be sent anywhere on the planet, and it will arrive after a couple of minutes, as soon as the BTC network confirms the payment.
- It’s Easy to Use – Traditional banks make you sign tons of documents just to open a bank account. On the other hand, BTC address can be set up in seconds without any fees or any questions asked.
Getting Started with Bitcoin
The first thing you’ll need is a place (a bitcoin wallet) to keep your currency. That would be, just like with the fiat currency, a wallet. The Bitcoin wallet is a small application that can store, send and receive Bitcoins. There three types of wallets:
- Online wallets
- Mobile wallets
- Desktop wallets
Depending on the mobility level you’re looking for, different types of wallets will provide varying levels of mobility. Same goes for security.
Online wallets store your currency on the Web. The advantage of online wallets lies in availability. You can access your wallet from anywhere in the world. It takes just a couple of seconds to set up, and are very simple to use. The flaw of this type of wallet is security. If the database gets hacked, the btc in a wallet is at risk. Online wallets are simple to create; register and confirm your email and the wallet is ready for use.
Recommended online wallets for storing BTC:
- Blockchain.info – Good reputation, safe and is constantly working on security improvements.
- GreenAddress.it – Perfect for newbies, instant transaction confirmations, good security with 2-factor-authentication.
- Xapo – Super safe, all deposits are insured. Offers debit card that allows users to spend BTC anywhere.
Mobile wallets are very similar to online wallets, but are apps on a phone. A full BTC client can’t be run on the mobile device, so Simplified Payment Verification is utilized instead. This brings security on the funds in question. Of course, mobile wallets are extremely useful if you need to make payment on the go. In order to get one, just download it from the app store. The setup process is quick and easy.
Recommended mobile wallets for storing Bitcoins:
- Mycelium – Easy to use, has innovative (but effective) security techniques, offers the trading feature.
- Copay – Easy to use and relatively secure, but relies on a central server. In case that the server goes down, users wouldn’t be able to spend their Bitcoins.
- Schildback Bitcoin wallet – The oldest and most popular wallet for mobile devices. Excellent security, simple interface and can transfer BTC to other devices via Bluetooth or NFC.
Desktop wallets are installed on a computer. These wallets are full-featured BTC clients, with the highest level of security and a wide variety of features.
To get the desktop wallet, you need to download it from a website and run the app. You’ll need to store master key and other security details safely, and the best way to do so is to print a couple of copies and keep them somewhere safe.
Recommended desktop wallets for storing BTC:
- Bitcoin Core – The official Bitcoin network wallet. Offers a lot of security features, but it takes a lot of space for storing entire Blockchain locally. Relatively slow network synchronization.
- MultiBit – Fast, lightweight and easy to set up. Weak privacy features, good security and user-friendly.
- Electrum – Lightweight, fast, easy to set up. Not very user-friendly. Secure, but reliance on external servers could be a potential security threat.
Now that you have a wallet, you should buy some Bitcoins. You really only have 2 main options- Localbitcoins and Exchanges. The best/safest way to do that is to register on an exchange. Localbitcoins adds more privacy, but you lose a bit of safety.
Most Popular Bitcoin Exchanges
The following exchanges have some of the best reputations in the business. They are simple to use, newbie-friendly and have high trading volumes which allow an instant exchange between currency and bitcoins.
- Coinbase – Fast, reliable and easy to use. Registration is easy, but there are four levels of account verification which may have to be completed to to increase withdrawal limit. Their support is slow, but at least their entire website is very user-friendly. Very popular among US citizens.
- Gemini – Another giant exchange that is licensed and regulated in the US with low fees and user-friendly interface. Gemini takes their Security very seriously, with two-factor authentication and a question used to protect individual accounts.
- Bitstamp – Bitstamp is a really simple and easy-to-use platform. The interface is very straightforward, therefore it takes just a second or two to find your way around the website. Security is excellent, with obligatory changing of passwords every three months. The only drawback – they require scanned proof of residence in order to verify an individual account. Also they only offer bank wires to the US which has additional fees over the FREE ACH transfers you can get from Coinbase and Gemini.
Other Ways to Buy Bitcoin
In addition to Gemini/Coinbase, we frequently use Bitquick.co and Localbitcoins.com without any problems. Some similar services available that we have not used: GoCelery, Paxful
Sending and Receiving Bitcoin
The logical question that follows – how to send the Bitcoins to your wallet?
- Open your wallet and click on the request payment button. The wallet will grant you a unique bitcoin address with 26-35 alphanumeric characters.
- Copy the address.
- Log into your digital exchange account.
- Click on withdrawal.
- Choose Bitcoin. The exchange will ask for the recipient address.
- Paste the address and hit enter.
- Within minutes, your cryptocurrency should appear in your wallet.
Or you can check this video:
Selling Bitcoins (Converting BTC to real Cash)
You’ve just received a payment in BTC, and you’re looking to sell them. Basically it’s the opposite of purchasing bitcoins. The process is rather simple
- Just send the funds from your wallet to the exchange
- Sell it for US dollars, Euros or other supported currency
- Withdraw the money to your bank account.
Gemini and Coinbase offer free ACH which takes 1-2 days. Wire transfers are also available at all BTC exchanges. Localbitcoins and Bitquick are great alternatives to get cash deposited directly into your bank. Localbitcoins offers many other options like cash by mail and even paypal.
If you want to learn more about Bitcoin, check the materials below.
Research Library – books and papers about Bitcoin
Steemit – Innovative platform that pays users with a cryptocurrency called Steem
r/bitcoin – Bitcoin links and discussion on the Reddit
Bitcoin Charts – information about digital currencies.
Still having a hard time sailing into Bitcoin waters? Post your question in the comment secition and we’ll help you out.
Disclaimer: The third-party services mentioned in this article are utilized solely as examples and is not an endorsement from our company. We don’t accept responsibility for any loss, including financial losses, incurred as a result of using the services mentioned above. While we are confident about the legitimacy of these services, but please do diligent research and fully understand what these companies are doing.