Getting Started With Bitcoin
- Bitcoin is still experimental so start small.
- Try multiple types of services to distribute risk and have alternatives should technical issues arise.
- Bitcoins may be bought at exchanges.
- This often requires confirming personal information, bank accounts, etc. and may take several days.
- Bitcoins may be bought in person using Bitcoin meetup sites.
- This may have security issues.
- Bitcoin is abbreviated BTC or sometimes the international code is used at exchanges: XBT
- mBTC is 0.001 Bitcoin which is worth 50 cents if Bitcoin is trading at $500
- BITS is 0.000001 or a microBitcoin. 1000 BITS is 1 mBTC.
Work for Bitcoins
- Several places are offering payment in Bitcoin.
- Mining has become complicated and is often done in large data centers in areas that offer cheap electricity or by hobbyists.
- Investing in mining equipment can be is high risk.
- Mining “contracts,” “cloud mining,” and “hosted mining” means you pay for mining conducted by some company far away.
- The transaction fee system is still in flux.
- Some Bitcoin clients show fees that are higher than required.
- Some online wallets charge fees that are higher than required.
- Bitcoin miners process the transactions and decide which transactions to process so low fees could cause a delay in “confirmation” of the transaction.
- The fee depends on the amount of data so many small amounts may cost more to send than the transaction is worth, this is called “Bitcoin dust.”
- Bitcoin “nodes” may not relay Bitcoin transactions if the amount and/or fee is too small as a spam prevention measure.
Buying stuff, donating, and tipping with Bitcoin
- Several large retailers and small businesses accept Bitcoin.
- Several companies sell gift cards for Bitcoin.
- Several charities accept Bitcoin for donations.
- Tipping services are popping up but transaction fees may hinder very small payments if a service is not used.
- Services can use “off-Blockchain” transactions and users can “cash in” or “cash out” to limit the fees.
- Services are being offered that permit web content or downloads for small Bitcoin payments.
Use offline “cold wallets” for large sums
- A “cold wallet” means your wallet is on a computer that is never connected to the Internet and a USB drive is used for transactions.
- An old laptop works great.
Considerations for investing
- Bitcoin is experimental so the number one rule is don’t invest more than you can lose completely.
- Bitcoin risks are substantially different than other types of investments.
- Bitcoin depends on incentives for Bitcoin miners to secure the system by using large amounts of computer power and electricity and large numbers of users to run the Bitcoin Core software and operate “Full Nodes.”
- A wealthy entity could try to take over the system using computer power.
- Bitcoin exchange rate is volatile and subject to manipulation and is traded continuously with no breaks.
- Other digital coin systems are “competing” with Bitcoin.
- Investment information may be difficult or impossible to verify since there is no central authority.
- Complicated software glitches could cause a substantial exchange rate drop in a very short period of time.
- Published exchange rates may not be valid if it is not possible to transfer funds in or out.
- Regulation is unclear, inconstant, and changes all the time.
- Complicated arbitrage opportunities may be available but may require significant knowledge and often involve high risk.
- Governments are struggling to develop rules for taxation.
- The US recommends treating Bitcoin as property for now.
- Keep track of the fair market value of Bitcoin transactions that could affect taxes.
References and Links