A Gentle Introduction to Bitcoin
Recently, I announced my departure from a typical office job to join the wild and wacky world of Bitcoin and other Cryptocurrencies. To my surprise, many of my now former colleagues (even some I’ve never met in person!) reached out expressing their interest in getting started with Bitcoin. This post is my attempt to get people set up and ready to go. Please note, this post is not intended to be taken as financial advice.
Why should I care about Bitcoin?
How do you feel about the internet? It’s a pretty swell invention, right? It gives nearly everyone in the world access to almost all of the world’s information. However, one glaring omission from the internet prior to 2009 was a native payment protocol. Preventing the counterfeit of digital information was super difficult. This problem was solved through the invention of Bitcoin. Bitcoin is a scarce digital resource that is impossible to counterfeit. It’s a currency and a commodity that can be transmitted anywhere in the world nearly instantly with no possibility of censorship or counterfeiting, and with no need to trust a central authority. It is programmable money and it’s the internet’s native financial protocol.
Sounds cool. How do I get some?
- Download a mobile wallet from the app store.
I recommend Samourai wallet for Android or Edge wallet for iOS. These apps turn your phone into a Bitcoin bank. This means that you are solely responsible for the safety of your money, so it is crucially important for you to set up a pin code for your phone and to create backups of your wallet and store them in a safe spot. Backups generally take the form of a 12 or 24 word phrase that you can write down on a piece of paper (seems low-tech but paper can’t be hacked). If you accidentally send your Bitcoin to the wrong address or lose your passphrase and phone, nobody can help you recover your funds.
There are wallet options that will hold onto your coins for you, but then you will need to trust a company to keep your money safe. Many of the companies in the Bitcoin space are not fully certified like a bank, so it is important to do your research prior to trusting a company.
2. Buy some Bitcoin
Bitcoin is a highly valuable digital asset, so the price of a whole Bitcoin might be out of your price range. No worries! You can buy any fiat-based amount you want. For example, 1 millibit (.001 BTC), costs roughly $3.30. 1 millibit means that you would own 1/21,000,000,000 of the entire bitcoin network (there is a maximum number of 21 million BTC). If you are going to get some BTC, it’s best to buy a small amount first and see how you like it before diving in with large amounts.
Fastest way: Purchase from an ATM if there is one close to where you live. If you feel comfortable meeting someone in person, there is localbitcoins.com
Cheapest way: Use an exchange. For Americans (and some Europeans), coinbase.com is the largest and one of the safest exchanges. They also offer an online wallet if you don’t trust yourself to keep your own money safe. If you trust them to hold your money, you are at the discretion of their terms of service, which is why I recommend holding onto your own Bitcoins on a phone wallet. Gemini.com and uphold.com are also reputable places to buy Bitcoin. These sites will take a while to verify you before you can make large purchases due to the US government “Anti money laundering” and “know your customer” (AML/KYC) regulations.
If you’re Dutch, Bitonic.nl is the fastest and easiest service I’ve used (although they charge a bit of a premium). You will need to have your own wallet though as they do not have the option to keep bitcoin on their site.
3. Try using your small amount of Bitcoin as a test: Try sending a small amount of Bitcoin to a friend, or to another wallet application that you control, just to get the hang of it. Also, it is worthwhile to test using your recovery phrase. To test this, send a small amount of Bitcoin from one wallet to another, and then delete the wallet with a tiny amount on it, and regenerate it with your recovery phrase. If it works, you successfully tested recovering your wallet if your phone is stolen. If it doesn’t work, you don’t need to panic about losing your retirement fund.
I just invested a lot and I want to be even more secure
If you’ve purchased a substantial amount of bitcoin (this amount is different for everyone), I strongly recommend getting a hardware wallet to store your funds. The three most common hardware wallets are trezor, ledger, and keepkey. These devices hold your Bitcoins completely offline, so there is a smaller risk of being hacked. You are still totally responsible for your funds with this option.
I just got my first coins and I want to try sending them to someone!
Get a friend set up with a Bitcoin wallet and send them a small transaction. Learning about this technology is more fun with a good group of friends.