All you need to become a bitcoiner is to have bitcoins, and that is what this article will teach you how to do. You have heard of Bitcoin. It’s all over the news. You are ready to take the plunge but have been intimidated by the learning curve. This article will explain how to get bitcoins and store them properly. I do not discuss the technology of Bitcoin, but once you go through the motions of using Bitcoin, that will be a great starting point for learning it more deeply.
The Bitcoin world moves so fast that within months of this article coming out it is possible that some of the specific advice found here will be obsolete. For example, in this article I recommend Electrum or Armory, but it is possible something better than both of them could come out at any time. However, the general advice I give will remain valid for a long time.
Step 1: Set Up the Software
Time: 1 hour or 1 day, depending on whether you download the blockchain.
It is important to set up the software on your own computer so that you are ready to take possession the moment that you get some. You should never store any significant amount in Bitcoin with an institution like Coinbase or an exchange like Bitstamp.
Don’t be fooled into thinking that these institutions have better security than you. Basic security on your own computer is better than all the security that an institution can buy because you are not a target and the institution is. It will attract hackers and you won’t because it is known to hold millions of dollars in Bitcoin within. The reason that everyone with a MtGox account lost their money was not that they were a terrible business—which they were—trusted third parties like exchanges are inherently a security hole, and any institution that stores bitcoins could be ruined by a hacker at any moment just like MtGox.
Furthermore, storing bitcoins with an institution pretty much defeats the whole purpose of Bitcoin. Bitcoin makes banks obsolete, and yet we have all these companies that are trying to act like Bitcoin banks now, which isn’t a good idea. So go ahead and …
Find some software. The two main considerations to look for in Bitcoin wallet software is proper address management and what is required to back up your wallet.
Proper address management means that the software doesn’t just give you one address as if it’s a bank account or something. The software should generate new addresses automatically every time you spend bitcoins. That’s a minimum, and not doing so is a good way to risk being identified. This is why you shouldn’t use Blockchain.info‘s MyWallet service. MyWallet is better than an ordinary web wallet because you store your own keys locally and Blockchain.info does not have them. However, it only generates one address for you automatically.
For this same reason, I cannot recommend any of the software now available for smart phones. There is more to proper address management than not reusing addresses, but right now no software does it quite right yet, so you have to take what you can get. I have however learned from a Mycelium developer that Mycelium will eventually be upgraded so as to avoid address reuse.
Two great pieces of software that do address management well are Electrum and Armory. Furthermore, they are both really easy to backup. The Bitcoin reference client is also good at address management, but you need to back it up every 100 transactions or so or else you lose everything when your hard drive fails.
So get Electrum or Armory. Armory requires you to download the entire block chain, which is better if you can spare the space. Right now the block chain is around 15 gigabytes and will only continue to expand, possibly quite rapidly.
Electrum will be a little bit easier for newbies, but the problem with Electrum is that you have to query a server to use it rather than engage with the Bitcoin network directly. If you decide to try Armory, skip ahead and begin step 2 while the block chain is downloading. You can also use Armory immediately in offline mode. You can create a wallet and set bitcoins to it. However, you will not be able to spend bitcoins or see your balance (except by searching for your addresses at Blockchain.info).
Backup your wallet. The first thing you need to do once you have the software running is to create a wallet and back it up. A nice thing about Electrum and Armory is that you have to back up each wallet only once. Even though you have no bitcoins now, you will be able to restore any bitcoins you get in the future from a backup you make today.
With Electrum this is very easy. Once you start running the software, you will get a wallet generation code consisting of around 12 English words. Write the code down and save it where no one will steal it. With Armory you can print out a paper back-up or save the wallet file on a back-up drive.
Encrypt your wallet. You also want to make sure your wallet is encrypted so that you have to give a password every time you spend. This will prevent anyone from stealing your bitcoins who accesses your computer. Both Electrum and Armory have the option of an encrypting your wallet.
You should definitely take the time to familiarize yourself with your software before you get bitcoins, and you should definitely be ready to posess bitcoins before you buy.
Step 2: Buy the Bitcoins
Time: 1 hour to a few days, depending on how you verify your bank account.
Everything about buying Bitcoin with dollars should be enough to convince anyone of the superiority of Bitcoin. It’s a hassle because once you get your bitcoins, there is nothing that a seller can do to get them back, whereas dollars are nebulous things that are difficult for anyone to really take control over.
The best way to get bitcoins is to earn them—sell something you make or do some work for them. Of course, to do that, you may have to engage with the Bitcoin community early on, which is step 4 of this article.
For the easiest and best way to buy bitcoins, I can’t recommend the Lamassu Bitcoin ATM enough. If there is one near to you, you may as well use that. You just insert cash into the machine, scan a QR code for your wallet, and you’re good to go! Other Bitcoin ATMs, such as the Robocoin, are not nearly as easy to work with and do not promote anonymity.
If there is no such machine nearby, Coinbase is probably the easiest place to get started with. They are a retail seller so you buy directly from them. You could also get an account at an exchange like Bitstamp and trade with whoever is selling there, but it will take longer to get all your account information set up there because they will ask for documents to verify your identity and take time to review them. You can also try localbitcoins.com if you want to buy from a local person rather than a company that will store your account information.
In order to buy at Coinbase, you need to verify your phone number and bank account. The phone number can be verified immediately. You will be asked to download the Authy app and use that if you have a smart phone, but if you don’t want to you don’t have to.
Bank account verification is more of a hassle. There are two options. Instant verification is fast, but you have to let Coinbase log into your bank account online. If you do this, you should change your password with the bank first and then change it back after Coinbase has verified it. You can also verify your bank account by having CoinBase deposit and withdraw tiny amounts, whose value you report back to them. This takes several days.
Step 3: Secure Your Coins
Time: 0-5 days, depending on the method.
Once your bank account is verified at Coinbase, then you can buy from CoinBase. You can show them more documents to get instant buy, but otherwise you can expect to have the bitcoins show up in your account a few days after you buy. As soon as they appear in your account, send them to an address in your own wallet on your own computer. If you used the Lamassu or Localbitcoins.com, you probably already have your coins by now.
Congratulations! You now have bitcoins and you have actually taken posession of them. That makes you more advanced than most of humanity, and even more advanced than much of the Bitcoin community.
Oops! Let me guess, you bought during a mania and now the price just crashed. That’s too bad! Well just sit tight, and wait until the next mania. You’ll be fine, and you’ll be a Bitcoin veteran. If you can keep your sang-froid, you might try buying some more now while the price is low.
Step 4: Engage with the Community
This step is optional. The problem with the Bitcoin community is that Bitcoin grows so quickly that most of the people you meet will be sophmoric newbies. You are liable to be get a lot of bad advice. You should try to learn as much as you can so that you can make your own judgements.
If you try meeting other bitcoiners, here’s a tip for finding good people to know: someone who advises you not to get into mining, trading, or altcoins is probably alright. All of these are potentially profitable, but they require a lot of knowledge to manage the risks. (In the case of altcoins, I don’t think there is any good way to manage the risks.) Look around for people who are interested in the long-term Bitcoin economy, not just looking to get rich quick. Don’t trust anyone, even someone who seems to know what he’s talking about.
From here, there are many directions you can go. Keep learning. There are always new ideas around, but most of them are bad. Don’t lose your head. Have fun with your new Bitcoin life