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The value of cryptocurrency as a means of financial transaction

Nowadays, the world economy is just moving towards a complete digital ecosystem, and so everything from money transfers to investments goes without paper. And cryptocurrency is the newest as well as the most capable application in the field of digital payments. Cryptocurrency is basically a medium of exchange, like ordinary currencies such as USD, but is mainly designed to exchange digital information. And here are a few reasons why cryptocurrency has become so popular in the recent past.

  1. Transfer of assets: Financial analysts often define cryptocurrency as a method that at some level can be used to execute and execute bilateral contracts for commodities such as real estate and cars. In addition, the cryptocurrency ecosystem is also used to facilitate some methods of transferring professionals.
  2. Transactions: In conventional business relationships, legal representatives, agents, and brokers can add large costs and complicate even a direct transaction. In addition, there are brokerage fees, commissions, paperwork and some other special conditions that may also apply. On the other hand, transactions with cryptocurrency are individual cases that mainly occur in a certain peer-to-peer network structure. This leads to better clarity in setting up audit trails, more accountability, and less confusion when making payments.
  3. cryptocurrency prices live
    Transaction fee: Transaction fees often pull out quite a lot of a person’s assets, especially if the person performs a lot of financial transactions monthly. But because data miners do number shredding, which basically generates different types of cryptocurrencies, they receive compensation from the network involved, and so here the transaction fee is never applied. However, you may have to pay a certain amount of external fees for engaging the services of any third-party management services to maintain the cryptocurrency wallet.
  4. litecoin
    More confidential transaction method: Under the monetary system, a complete transaction history can become a reference document for a participating credit agency or bank, each time a transaction is made. At the simplest level, this may include checking account balances to make sure you have the proper funds. But in the case of cryptocurrency, any transaction concluded between two parties is considered as a unique exchange where it is possible to agree and agree on terms. In addition, here the exchange of information is carried out by “push”, where you can send the recipient exactly what he likes. This fully protects the privacy of financial history as well as the threat of theft of personal data or accounts.
  5. The simplest global trading system: Although cryptocurrencies are largely recognized as legal tenders at the national level, they do not depend on interest rates, exchange rates, transaction fees or any other fees set by any particular country. And using the peer-to-peer technology, blockchain transactions and cross-border transactions can be executed without any complications.
  6. Greater access to credit: The Internet and digital data transmission are media that facilitate the exchange of cryptocurrencies. Thus, these services are available to people who know cryptocurrency networks, work data connections and act instantly on relevant portals and websites. The cryptocurrency ecosystem is capable of making transaction processing and asset transfers available to anyone who wishes, once the necessary infrastructure is in place.
  7. Strong security: Once the cryptocurrency transfer is authorized it cannot be undone as the transaction “circulation” of different credit card companies. This can be fraud hedging, which requires agreements between sellers and buyers to return a refund policy or an error in the transaction.
  8. Adaptability: In the modern world there are about 1,200 types of altcoins or cryptocurrencies. Some of them are a bit ephemeral, but for specific cases an adequate proportion is used, which reflects the flexibility of this phenomenon.
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Is the bull market early or a bear market trap?

For virtual currency investors, the more important question is whether this round of rising currency prices is a reset of the bull market or a bear market trap.
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Last night bitcoin experienced a high price in just one hour. The price has risen from a violence of about $ 6,800 to a maximum of $ 8,100. During the day it grew by almost 20%. Under the leadership of bitcoin, other virtual currencies have also started a strong rebound, profits in one currency even exceeded 50%. Faced with the collective warming of the virtual currency market, many investors have shouted that the “bull market is back”.
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According to CoinMarketCap, the market value of bitcoin has increased by almost $ 20 billion a day, and the entire virtual currency market has also experienced overall market growth. There was no “search” effect. According to the daily volume of bitcoin transactions, which exceeds 9 billion US dollars, billions of additional funds should enter the market yesterday, not stock funds.
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In fact, during the bitcoin boom Bitfinex, a platform for digital currency trading, also recorded a number of major purchases. With the growth of bitcoin purchases, many shorts have been forced to close their positions, further expanding the market growth trend. In connection with this phenomenon, Nick Kirk, director of data according to “Cypher Capital”, also expressed his approval. At the same time, he also believes that this sharp rebound is likely to be a response to the release of early regulatory pressure.

Pantera Capital Management, one of the world’s largest hedge funds in the field of digital currencies, said bitcoin has bottomed out. $ 6,500 is the minimum copper for the bearish bitcoin market. Most of this year’s bitcoins will be above that price and may even surpass the record of $ 20,000 last year.

Fundstrat founder Tom Lee also expressed confidence in bitcoins. He believes that the current Bitcoin P / B ratio and other indicators are almost the same as the bear market in late 2014, and has formed an important technical correction. Based on that, he said the value of bitcoin this year could more than triple and by the end of this year had risen to $ 25,000.

Historical data show that bitcoin did grow in the second quarter of the calendar year. In the second quarter of 2011, bitcoins grew by 1964%, by 36.25% in 2012 … 61.98% in 2016 and 131% in 2017.

Of course, the volume of OTC bitcoins is also showing signs of market recovery. Since March, bitcoin trading volumes in Canada, Europe, Vietnam, Mexico and Vietnam have grown to record highs.

With the consistent admission of major financial institutions such as hedge fund giant Soros and Rockefeller’s major financial group, the financial size of the virtual money market will be further expanded.

However, it should be noted that despite the fact that bitcoin is currently growing strongly, it is still in the downstream channel and has not yet been effectively disrupted. It remains to be seen whether the virtual currency market has really changed. Investors should always be vigilant and pay attention to position management.

More importantly, the world’s major bitcoin markets, including the US, have sought to create a regulatory framework. Uncertainty of regulation will inevitably have a greater impact on the short-term development of the virtual currency market. In the long run an orderly, healthy market can go even further.

Where will bitcoin go next?

Bitcoin is a virtual currency that does not rely on the central body of accounting, but is a completely open, peer-to-peer network for money that has no equal in the history of the human economy. But are people, their representatives and businesses ready for this new form of currency?

In some places and countries, bitcoin may take off earlier than expected, depending on the political climate. If the government destroys and lands its currency, it will definitely increase. This is what happened in Argentina when the government converted bonds denominated in local currency into bonds denominated in US dollars, at the exchange rate set by the government. After that, the use of bitcoins in the country has made its way through the roof, and it is still accelerating (measured in terms of wallet load per month).

Cyprus was another good example – when the government tried to seize people’s money, bitcoin soared in the country, as it is much more fluid worldwide and can be instantly sent to another person anywhere in the world without government intervention. It also means that in reality the government cannot control the supply and demand of bitcoins within its borders.

Of course, bad management is only one side of the equation. The economy dictates otherwise. Bitcoin takes off in places that thrive on entrepreneurship and where politics are favorable. Business owners find the use of bitcoins incredibly more efficient than the world’s existing credit card-based payment system because merchants have to pay credit card companies 2 to 4%. If all transactions were exclusively in bitcoins, without any conversion to fiat, then the transaction fee for the business is zero. Literally zero. You can send and receive money for free through the Bitcoin network. This is what makes the economy of using bitcoin so powerful.

Some cities that are ahead of this innovation include familiar names such as San Francisco and New York, but also lesser-known business cities such as Berlin, which has a huge thriving bitcoin market.

If residents of a city or country view bitcoin as a stock of value and at the same time view it as a payment system that reduces the current burden on traders, bitcoin can take off. This has happened in the past, and it is likely to happen in the future. Sure, you always need the entrepreneurial spirit and risk to deprive the power of decades that exist, but the good news is that it’s happening simultaneously around the world.

Crypto TREND – the fifth edition

As we expected, since the publication of Crypto TREND we have received many questions from readers. In this edition we will answer the most common.

What are the changes that could change the game in the cryptocurrency sector?

One of the biggest changes that will affect the world of cryptocurrencies is an alternative method of checking blocks called Proof of Stake (PoS). We will try to maintain this explanation at a fairly high level, but it is important to have a conceptual understanding of what the difference is and why it is an important factor.

Remember that the basic technology of digital currencies is called blockchain, and most modern digital currencies use a validation protocol called Proof of Work (PoW).

With traditional payment methods, you need to trust third parties such as Visa, Interact, a bank or a cash center to pay for your transaction. These trusted structures are “centralized,” meaning they keep their own private ledger that stores the transaction history and balance of each account. They will show you the transaction and you have to agree to the correctness or start a dispute. It is seen only by the parties to the transaction.

In the case of bitcoins and most other digital currencies, books are “decentralized,” meaning everyone on the network gets a copy, so no one should trust third parties, such as banks, because anyone can directly verify the information. This verification process is called “distributed consensus”.

PoW requires “work” to verify a new transaction to log in to the blockchain. In cryptocurrencies, the test is performed by “miners” who have to solve complex algorithmic problems. As algorithmic tasks become more complex, these “miners” need more expensive and powerful computers to solve problems that are ahead of all others. Computers for mining often specialize, typically using ASIC chips (integrated circuits dedicated to applications) that are more knowledgeable and faster at solving these complex puzzles.

Here is the process:

  • Transactions are combined into a “block”.
  • The miners argue that the transactions in each block are legal by solving a hashing algorithm puzzle known as the “proof of work problem”.
  • Miner, who solved the “problem of proof of work” block, is rewarded with a small amount of cryptocurrency.
  • After verification, transactions are stored in a public blockchain throughout the network.
  • As the number of transactions increases and so does the complexity of solving hashing problems.

Although PoW has helped take down blockchain and decentralized, distrustful digital currencies, it has some real drawbacks, especially in how much energy these miners consume, trying to solve “evidence of work problems” as quickly as possible. According to the Digiconomist Bitcoin Energy Consumption Index, bitcoin miners use more energy than 159 countries, including Ireland. As the value of each bitcoin grows more and more miners are trying to solve problems by consuming even more energy.

All of this power consumption just for checking trades has forced many people in the digital currency space to look for an alternative way to check blocks, and the main candidate is a method called “Proof of Bid” (PoS).

PoS is still an algorithm, and its purpose is the same as in job validation, but the process of achieving the goal is quite different. There are no PoS miners, but instead we have “validators”. PoS is based on trust and knowledge that all people who check transactions have skin in the game.

Thus, instead of using energy to respond to PoW puzzles, the PoS validator is limited to checking the transaction percentage that reflects its ownership share. For example, a validator that owns 3% of the available airtime could theoretically check only 3% of the blocks.

In PoW, the chances of solving a proof of work problem depend on how much computing power you have. With PoS it depends on how much cryptocurrency you have on the “bet”. The higher your bet, the more likely you are to decide a block. Instead of winning crypto-coins, the winning validator receives a commission for the transaction.

Validators enter their bet by “closing” part of their fund tokens. If they try to do anything harmful against the network, such as creating an “invalid block,” their bet or deposit will be forfeited. If they do their job and do not break the network but do not win the right to check the unit, they will get their share or deposit back.

If you understand the basic difference between PoW and PoS, this is all you need to know. Only those who plan to be miners or validators should understand all the intricacies of these two verification methods. Most people who want to own cryptocurrencies will simply buy them through an exchange rather than engage in actual mining or verification of blocked transactions.

Most of the crypto sector believes that in order for digital currencies to survive long, digital tokens need to move to the PoS model. At the time of writing, Ethereum is the second largest digital currency after bitcoin, and their development team has been working on its PoS algorithm called Casper for the past few years. We are expected to see how Casper will be implemented in 2018, putting Ethereum ahead of all other major cryptocurrencies.

As we have seen in this sector, major developments such as the successful implementation of Casper can significantly raise Ethereum prices. We will keep you informed in future issues of Crypto TREND.

Stay tuned!

Collect bitcoins for use in transactions

The big question is how to get bitcoin.

After gaining a basic knowledge of what bitcoin is and how a wallet actually works, you may want to get into the world of digital currency and get some bitcoins for yourself. So you have a big question: how do I get bitcoin?

It’s getting hard.

Once you gain knowledge about the origins of each bitcoin that is based on the mining process, you will believe that the best way to get them is to join this mining process. The fact is that it has become very difficult because of the rapid growth in popularity of cryptocurrencies.

Sell ​​goods or services.

Each bitcoin comes as a result of a previous transaction. So, the way to get them if you don’t have them is to get a transaction from someone else, buy them using cash, or get new bitcoins.

If you know a person who uses bitcoin, you can ask him to get bitcoin. In case you don’t know anyone who owns them, you can get bitcoin by offering a different type of transaction only with another bitcoin user, resulting in you getting money in bitcoins. An alternative is to extract them yourself.

Mining.

In case you can’t purchase bitcoin from someone else, you can get them by extracting them. The term mining here means: the solution of a complex mathematical problem, the purpose of which is to verify the transactions of others. In return you are rewarded with bitcoins. Receiving bitcoins is sometimes free, but a fee may be included for sending them, depending on the online platform you use. Before you engage in bitcoin mining, you need to understand that this is not an easy way to get bitcoin, it requires certain technical knowledge that may not be practical for you.

Buy.

In case you don’t know anyone who owns bitcoins, you have nothing to sell to exchange for bitcoin, there is a way to buy bitcoin. There are several online platforms, they sell bitcoin through a process called trading / exchange. Here are some ways to buy bitcoins:

Buy bitcoin from a person.

On the Internet there are trading platforms where you can buy bitcoin on a “person to person” basis. You can pay these individuals in cash or otherwise. A good idea is that you and the seller can arrange a payment method: cash, cash on deposit, bank transfer, PayPal, etc. The main element is to find someone you can trust. Good advice – use an online deposit service, so you can protect yourself from any scams. The good thing about this online deposit platform is that everyone has to upload their scanned ID, which ensures security during transactions.

Buy bitcoin on the exchange and in the outlet.

Bitcoin exchanges or outlets are mainly online services that make it easier for buyers and sellers to trade with bitcoins. To become part of one of them, you just need to create an account and get an identity card before you can buy or sell bitcoin.

Buy bitcoin through an ATM.

Some cities around the world offer physical bitcoin ATMs. You just get your bitcoins through them using local fiat currency. Governments regulate the use of these ATMs for security purposes. Sometimes finding a bitcoin ATM near your location can be difficult, as even where they are installed is regulated.

How does cryptocurrency gain value?

Cryptocurrencies are the last “big thing” in the digital world that is now recognized as part of the monetary system. In fact, enthusiasts called it a “money revolution”.

Clearly, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created using special computational methods called “mining”.

The adoption of currencies such as the US dollar, the British pound and the euro as legal tender is due to the fact that they were issued by the central bank; However, digital currencies, such as cryptocurrencies, do not depend on public confidence and trust in the issuer. Thus, several factors determine its significance.

Factors determining the value of cryptocurrencies

Principles of a free market economy (mainly supply and demand)

Demand and supply are the main factor that determines the value of something valuable, including cryptocurrencies. This is because when more people are willing to buy a cryptocurrency and others are willing to sell, the price of that cryptocurrency will increase, and vice versa.

Mass adoption

Mass adoption of any cryptocurrency can raise its value to the moon. This is due to the fact that the number of cryptocurrencies is limited to a certain limit, and, according to economic principles, an increase in demand without a corresponding increase in supply will lead to higher prices for this particular product.

Several cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the suitability of their cryptocurrencies for pressing personal issues as well as important day-to-day occasions in order to make them indispensable in everyday life.

Fiat inflation

When a fiat currency, such as the U.S. dollar or GBP, becomes overvalued, its value rises and purchasing power falls. Then cryptocurrencies (let’s use bitcoin as an example) increase against that fiat. As a result, you will be able to get most of this funding with each bitcoin. In fact, this situation has become one of the main reasons for the rise in bitcoin prices.

History of fraud and cyberattacks

Fraud and hacking are also major factors affecting the value of cryptocurrencies, as they are known to cause wild fluctuations in valuations. In some cases, a team that supports cryptocurrency may be a fraud; they will pump up the value of the cryptocurrency to attract unsuspecting people, and when they invest their money with difficulty, the price is reduced by fraudsters who then disappear without a trace.

It is therefore very important to be careful with cryptocurrency fraud before investing.

Some other factors to consider that affect the value of cryptocurrencies include:

  • The manner of storage of cryptocurrency, as well as its usefulness, security, ease of acquisition and borderline visibility

  • The strength of a community that supports cryptocurrency (this includes funding, innovation, and member loyalty)

  • The associated associated cryptocurrency risks are perceived by investors and users

  • News

  • Market liquidity and cryptocurrency volatility

  • Country rules (this includes banning cryptocurrencies and ICOs in China and accepting them as legal tender in Japan)

Bitcoin cryptocurrency – Understanding the basics

More than a decade has passed since cryptocurrency began to captivate people through social media and especially through the Internet. To date, bitcoin has been among the best cryptocurrencies, no one knows the exact origin of the currency, but it appeared in mid-2008 due to the Japanese pseudonym “Satoshi Nakamoto”.

So what is this bitcoin currency and why has it been able to maintain its place in the financial markets. Well, the following reasons can give you an idea of ​​its popularity and evidence of its continued safe existence in the future.

  • Bitcoin is the first decentralized digital currency.

  • Bitcoin is an independent free-floating currency that is not owned by any government or linked to any other currency so that it can affect the value of economic indicators that govern the value of traditional currencies.

  • With the growing popularity among the masses it now enjoys an increased level of acceptance at all levels, for example, you can now buy things with the cryptocurrency Bitcoin directly and also trade them on various platforms such as CoinBase, Bitfinex, Bitstamp, Kraken and many more. .

  • All you need is a wallet and an internet connection to make the Bitcoin transfer peer.

  • In most cases, transmissions occur instantly.

  • Convenience to make transactions via the Internet or mobile phone in a couple of clicks.

  • Your privacy is secure compared to other online payment methods, where your vital information can be traced and misused.

  • When transferring money in the usual ways you have to pay a commission depending on the volume of your transactions and further, these transfers are governed by your regional and state rules. While transactions in Bitcoin cryptocurrencies do not require you to fall under any government regulations, moreover, you will not pay for large transaction fees.

  • Since you are the only one who has access to your e-wallet, your coins are always safe and no one can steal your money. The process and transactions are transparent thanks to a shared public book, and anyone can verify a transaction anytime from anywhere using the Internet.

  • Another advantage of having a Bitcoin cryptocurrency wallet is that your account cannot be frozen.

Given the growing popularity and acceptability of the cryptocurrency Bitcoin, we can safely assume that the future of Bitcoin is not only secure but also quite bright, and this innovative payment method will remain here.

Decentralized Finance (DeFi) at Ethereum: The Future of Finance?

Decentralized finance, or “DeFi” for short, has taken over the world of crypto and blockchain. However, its recent renaissance masks its roots in the bubble era of 2017. While everyone and their dog were doing the “Initial Coin Offer” or ICO, few saw the potential of the blockchain far beyond the rapid rise in value. These pioneers envisioned a world in which financial supplements from trade to savings, banking and insurance would be possible just on the blockchain without intermediaries.

To understand the potential of this revolution, imagine if you had access to a savings account that gives 10% in dollars a year, but without a bank and virtually risk-free funds. Imagine you can sell crop insurance to a farmer in Ghana who sits in your office in Tokyo. Imagine being able to be a marketer and earn a percentage of the fees that each Citadel would like. Sounds too good to be true? This is not the case. This future is already here.

DeFi building blocks

There are a few basic DeFi building blocks that you need to know before moving forward:

  • Automated manufacture or exchange of one asset for another without trust without an intermediary and clearing house.

  • Lending with excessive collateral or the ability to “use your assets” for traders, speculators and long-term owners.

  • Stablecoil or algorithmic assets that track the price of the underlying balance without centralization or provisioning with physical assets.

Understanding how DeFi is done

Machine guns are often used in DeFi because they mimic traditional fiat currencies such as USD. This is an important event because the history of the crypt shows how changeable things are. Staibcoins, such as DAI, are designed to track the value of the USD with small deviations even during strong bear markets, that is, even if the value of the crypt collapses like the bear market of 2018-2020.

Lending protocols are an interesting development that is usually built on the basis of stable coins. Imagine if you could close your assets for a million dollars and then borrow from them in stable coins. The protocol will automatically sell your assets if you do not repay the loan, if your collateral is no longer enough.

Automated market makers form the basis of the entire DeFi ecosystem. Without this you are stuck with the old financial system where you need to trust your broker, clearing exchange or exchange. Automated market makers, or AMM for short, allow you to trade one asset for another based on the reserve of both assets in its pools. Price detection occurs through external arbitrators. Liquidity is pooled based on other people’s assets and they gain access to trading fees.

You can now get a wide range of assets in the Ethereum ecosystem, without having to interact with the traditional financial world. You can make money by borrowing assets or being a market maker.

For developing countries, this is a surprising innovation, as they now have access to a full set of financial systems in the developed world without barriers to entry.

What is an ICO in cryptocurrency?

ICO is short for Initial Coin Offering. When launching a new cryptocurrency or crypto-token, developers offer investors a limited number of units in exchange for other major cryptocurrencies such as Bitcoin or Ethereum.

ICOs are amazing tools for rapid rain from development funds to support new cryptocurrencies. The tokens offered during the ICO can be sold and traded on cryptocurrency exchanges, assuming that there is sufficient demand for them.

ICO Ethereum is one of the most notable successes, and the popularity of the initial coin offerings is growing as we speak.

A brief history of the ICO

Ripple is probably the first cryptocurrency to be distributed through an ICO. In early 2013, Ripple Labs began developing the Ripple payment system and generated about 100 billion XRP tokens. They were sold through the ICO to fund the development of the Ripple platform.

Mastercoin is another cryptocurrency that sold several million tokens for bitcoin during the ICO, also in 2013. Mastercoin aims to tokenize bitcoin transactions and execute smart contracts by creating a new layer on top of existing Bitcoin code.

Of course, there are other cryptocurrencies that are successfully funded through ICOs. Back in 2016, Lisk raised about $ 5 million during the initial coin offering.

Yet ICO Ethereum, which took place in 2014, is probably the most famous to date. During their time, the Ethereum ICO fund sold ETH for 0.0005 bitcoins each, raising nearly $ 20 million. Ethereum, using the power of reasonable contracts, paved the way for the next generation of primary coin offerings.

ICO Ethereum, a recipe for success

The Ethereum smart contract system has implemented the ERC20 standard, which sets out the basic rules for creating other compatible tokens that can be traded on the Ethereum blockchain. This allowed others to create their own ERC20-compliant tokens that could be traded on ETH directly on the Ethereum network.

DAO is a prime example of the successful use of Ethereum smart contracts. The investment company raised $ 100 million from ETH, and investors received DAO tokens in return, which allow them to participate in the management of the platform. Unfortunately, DAO failed after the hack.

ICO Ethereum and their ERC20 protocol have outlined the latest generation of blockchain-based crowdfunding projects through Initial Coin Offerings.

It also made it very easy to invest in other ERC20 tokens. You simply transfer ETH, insert the contract into your wallet, and the new tokens will be displayed in your account so you can use them as you wish.

Obviously, not all cryptocurrencies have ERC20 tokens living in the Ethereum network, but virtually any new blockchain-based project can start the initial coin offering.

The rule of law is ICO

When it comes to the legitimacy of the ICO, it’s a bit of a jungle. In theory, tokens are sold as digital goods, not as financial assets. Most jurisdictions do not yet regulate the ICO, so assuming the founders have an experienced attorney, the whole process should be paperless.

Despite this, some jurisdictions have learned about ICOs and are already working to regulate them similarly to the sale of stocks and securities.

Back in December 2017, the U.S. Securities and Exchange Commission (SEC) classified ICO tokens as securities. In other words, the SEC was preparing to stop ICOs, which they believe are misleading investors.

There are some cases where the token is just a utility token. This means that the owner can simply use it to access a specific network or protocol, in which case they may not be defined as financial security. However, equity tokens, the purpose of which is to estimate in price, are very close to the concept of security. Truth be told, most character purchases are made specifically for investment purposes.

Despite the efforts of regulators, ICOs are still lingering in the gray legal zone, and until a clearer set of rules is introduced, entrepreneurs will try to benefit from initial coin offerings.

It should also be noted that once regulations reach their final form, the costs and effort required to implement them may make ICOs less attractive than conventional funding options.

Concluding remarks

At the moment ICOs remain an amazing way to fund new projects related to cryptography, and there are several successful ones, many more in the future.

However, keep in mind that today everyone is running an ICO, and many of these projects are scams or do not have a solid foundation to succeed and make it worth the investment. For this reason, you should definitely do a thorough research and study the team and history of any crypto project in which you might invest. There are several websites that list ICOs, just do a Google search and you will find several options.

How to Buy Bitcoin – Step One

The best way to learn about bitcoin, is to jump in and get a few in your “pocket” to get a feel for how they work.

Despite the hype about how difficult and dangerous it can be, getting bitcoins is a lot easier and safer than you might think. In a lot of ways, it is probably easier than opening an account at a traditional bank. And, given what has been happening in the banking system, it is probably safer too.

There are a few things to learn: getting and using a software wallet, learning how to send and receive money, learning how to buy bitcoin from a person or an exchange.

Preparation

Before getting started, you will need to get yourself a wallet. You can do this easily enough by registering with one of the exchanges which will host wallet for you. And, although I think you are going to want to have one or more exchange wallets eventually, you should start with one on your own computer both to get a better feel for bitcoin and because the exchanges are still experimental themselves. When we get to that stage of the discussion, I will be advising that you get in the habit of moving your money and coins off the exchanges or diversifying across exchanges to keep your money safe.

What is a wallet?

It is a way to store your bitcoins. Specifically, it is software that has been designed to store bitcoin. It can be run on your desktop computer, laptop, mobile device (except, as yet, Apple) and can also be made to store bitcoins on things like thumb drives. If you are concerned about being hacked, then that is a good option. Even the Winklevoss* twins, who have millions invested in bitcoin, put their investment on hard drives which they then put into a safety deposit box.

*The Winklevoss twins are the ones who originally had the idea for a social networking site that became Facebook. They hired Mark Zuckerberg who took their idea as his own and became immensely rich.

What do you need to know about having a bitcoin wallet on your computer?

Below you can download the original bitcoin wallet, or client, in Windows or Mac format. These are not just wallets, but are in fact part of the bitcoin network. They will receive, store, and send your bitcoins. You can create one or more addresses with a click (an address is a number that looks like this: 1LyFcQatbg4BvT9gGTz6VdqqHKpPn5QBuk). You will see a field where you can copy and paste a number like this from a person you want to send money to and off it will go directly into that person’s wallet. You can even create a QR code which will let someone take a picture with an app on their phone and send you some bitcoin. It is perfectly safe to give these out – the address and QR code are both for my donations page. Feel free to donate!

NOTE: This type of wallet acts both as a wallet for you and as part of the bitcoin system. The reason bitcoin works is that every transaction is broadcast and recorded as a number across the entire system (meaning that every transaction is confirmed and made irreversible by the network itself). Any computer with the right software can be part of that system, checking and supporting the network. This wallet serves as your personal wallet and also as a support for that system. Therefore, be aware that it will take up 8-9 gigabytes of your computer’s memory. After you install the wallet, it will take as much as a day for the wallet to sync with the network. This is normal, does not harm your computer, and makes the system as a whole more secure, so it’s a good idea.

Bitcoin Qt

  • The original wallet.
  • This is a full-featured wallet: create multiple addresses to receive bitcoins, send bitcoins easily, track transactions, and back up your wallet.
  • Outside of the time it takes to sync, this is a very easy to use option.
  • Search for Bitcoin Qt wallet download to find their site.

Armory

  • Runs on top of Bitcoi Qt, so it has all of the same syncing requirements.
  • Armory allows you to back up, encrypt, and the ability to store your bitcoins off line.
  • Search for Bitcoin Armory Wallet to find their site.

If you don’t want to have that much memory used or don’t want to wait for your wallet to sync, there are good wallets that do not make you sync the entire history of bitcocin:

Multibit

  • A lightweight wallet that syncs quickly. This is very good for new users.
  • Search for Bitcoin Multibit Wallet to find their site.

Electum

  • In addition to being quick and light, this wallet allows you to recover lost data using a passcode.
  • Search for Bitcoin Electum Wallet to find their site.

After you get the wallet set up, take a few minutes clicking around. Things to look for:

o There will be a page that shows you how many bitcoins are currently in your wallet. Keep in mind that bitcoins can be broken up into smaller pieces, so you may see a decimal with a lot of zeros after it. (Interesting note, 0.00000001 is one Satoshi, named after the pseudonymous creator of bitcoin).

o There will be an area showing what your recent transactions are.

o There will be an area where you can create an address and a QR code (like the one I have above). You don’t need the QR code if you don’t want it, but if you run a business and you want to accept bitcoin, then all you’ll need to do to accept payment is to show someone the QR code, let them take a picture of it, and they will be able to send you some money. You will also be able to create as many addresses as you like, so if you want to track where the money is coming from, you could have a separately labeled address from each one of your payees.

o There will be an area with a box for you to paste a code when you want to send money to someone or to yourself on an exchange or different wallet.

There will be other options and features, but to start out with, these are the items that you should know about.

Getting Your First Bitcoins

Now that you have a wallet, you will, of course, want to test them out.

The very first place to go is http://faucet.bitcoin.st/.

This is a website that gives out small amounts of bitcoin for the purpose of getting people used to using them. The original version of this was run by the lead developer of bitcoin, Gavin Andreson. That site has since closed and this site operates by sending out one or two advertisements a month. You agree to receive those messages by requesting the bitcoins. Copy and paste your new bitcoin address and enter a phone number to which you can receive an SMS. They send out an SMS to be sure that people are not continuously coming back for more since it costs nothing to create a bitcoin address. They will also send out once or twice a month advertisement to support their operation. The amount they send it trivial: 0.0015 BTC (or 1.5 mBTC). However, they process almost immediately and you can check to see that your address and wallet are working. It is also quite a feeling to get that portion of a bitcoin. (Non-disclaimer: I have no connection with this site and receive nothing if you use them. I simply think they are a good way to get your feet wet).

Congratulations! You have just entered the bitcoin economy.

To get your feet a little wetter, you can go panning for gold. There are a number of services and websites out there that will pay you in bitcoin to do things like go to certain websites, fill out online surveys, or watch sponsored videos. These are harmless, and you can earn a few extra bitcoins this way, but it is important to remember that these are businesses that get paid when people click on the links on their sites. They are essentially kicking back a portion of what they get paid to you. There is nothing illegal, or even immoral about this (you might like what you see and make a purchase!), but they are frequently flashy and may not be completely straightforward. All the ones that I have tried (particularly bitvisitor.com) have paid out as advertised. It is interesting to experiment with these, but even with the likely rise in the value of bitcoin, you won’t become a millionaire doing this. So, unless you are an advertisement junkie, I would recommend you move on. If you would like to try, simply Google “free bitcoins” or something along those lines and you will find numerous sites.

Buying Bitcoin Hand-to-Hand

Finally, this is going to be the real test of bitcoin. Can people easily trade them back and forth? If this can’t happen, then there can’t really be a bitcoin economy because retailers won’t be able to use it. If retailers can’t use it, what earthly good is it? Fortunately, this is not really a problem. iPhone is a bit of a hold out, but many smartphones have apps (mobile wallets) that will read QR codes and allow you to send bitcoin to whomever you want. You can also display a QR code of your address, or even carry a card in your wallet with your QR code to let people send bitcoin to you. Depending on what kind of wallet you have, you can then check to see if the bitcoins have been received.

A couple of things to note:

  • When you set up your wallet, if you click around a bit, you will see an option to pay a fee to speed transactions. This money becomes available to a bitcoin miner as he/she/they process bitcoin information. The miners doing the work of creating blocks of information keeps the system up to date and secure. The fee is an incentive to the miner to be sure to include your information in the next information block and therefore “verify” it. In the short term, miners are making most of their money by mining new coins (check the section on What Are Bitcoins for more information about this). In the long term, as it gets harder to find new coins, and as the economy increases, the fees will be an incentive for miners to keep creating more blocks and keep the economy going. Your wallet should be set to pay 0 fees as a default, but if you want, you can add a fee to prioritize your transactions. You are under no obligation to pay a fee, and many organizations that process many small transactions (like the ones that pan for gold described above) produce enough fees to keep the miners happy.
  • In clicking around your wallet, on the transactions page or linked to specific transactions, you will see a note about confirmations. When you make a transaction, that information is sent out into the network and the network will send back a confirmation that there is no double entry for that bitcoin. It is smart to wait until you get several confirmations before walking away from someone who has paid you. It is actually not very easy to scam someone hand-to-hand like this, and it is not very cost-effective for the criminal, but it can be done.

Where can you buy bitcoin like this?

  • You may have a bitcoin Meetup in your area.
  • You can check out localbitcoins.com to find people near you who are interested in buying or selling.
  • Some are trying to start up local street exchanges across the world. These are called Buttonwoods after the first street exchange established on Wall Street in 1792 under a buttonwood tree. See if there is one, or start one, in your area.
  • See if you have any friends who would like to try bitcoins out. Actually, the more people who start using bitcoin, the larger and more successful it will be come. So please tell two friends!

Some people ask if it is possible to buy physical bitcoins. The answer to this is both a yes and a no. Bitcoin, by its very nature, is a digital currency and has no physical form. However, there are a couple of ways that you can practically hold a bitcoin in your hands:

  • Cascascius Coins: These are the brainchild of Mike Caldwell. He mints physical coins and then embeds the private keys for the bitcoins inside them. You can get the private key by peeling a hologram from the coin which will then clearly show that the coin has been tampered with. Mike has gone out of his way to ensure that he can be trusted. These are a good investment strategy as in the years to come it may be that these coins are huge collector’s items.
  • Paper Wallets: A paper wallet just means that rather than keeping the information for your bitcoin stored in a digital wallet, you print the key information off along with a private key and keep it safe in a safe, in a drawer, or in your mattress (if you like). This is highly recommended and cost effective system for keeping your bitcoin safe. Keep in mind, though, that someone could steal them or if your house burns, they will go with the house and there will be no way to get them back. Really, no different than cash. Also, as with Casascius Coins, they will not really be good for spending until you put them back into the computer.

* There is software to make printing your paper wallets easier. bitcoinpaperwallet.com is one of the best and includes a good tutorial about how to use them.

* The bitcoins are not actually in the wallet, they are still on the web. In fact, the outside of the wallet will have a QR code that will allow you ship coins to the wallet any time you like.

* The sealed part of the wallet will have the private key without which you cannot access the coins. Therefore, only put as many coins on the wallet as you want to be inaccessible. You will not be able to whip this thing out and take out a few coins to buy a cup of coffee. Rather, think of it as a piggy bank. To get the money, you have to smash it. It is possible to take out smaller amounts, but at this point the security of the wallet is compromised and it would be easier for someone to steal the coins. Better to have them all in or out.

* People who use paper wallets are usually security conscious, and there are a number of ways for the nefarious in the world to hack your computer. Bitcoinpaperwallet.com gives a lot of good advice about how to print your wallets securely.

Some people have also asked about buying bitcoins on eBay. Yes, it is possible, but they will be far overpriced. So, selling on eBay might seem to be a better option given the extreme markup over market value you might see. But, as with anything that is too good to be true, this is too good to be true. As I will explain in the next section, selling bitcoin this way is just way too risky.

How Not to Buy Bitcoin

In the next section, I am going to explain a couple of key points about buying from Bitcoin Exchanges. Before I do, let me give you a warning.

A short history lesson: When people first started setting up actual business based on bitcoin, they used all of the tools available to any merchant. They sold by credit card and PayPal. The problem with this business model was quickly spotted: bitcoin transactions are not reversible by anyone except the recipient of the money. Credit cards and PayPal have strong buyer protection policies that make it relatively easy for people to request a chargeback. So, nefarious individuals realized this and began making purchases of bitcoin and then sooner or later requesting a chargeback. And, since bitcoin is a non-physical product, sent by new and poorly understood technological means, the sellers were not able to contest this. Because of this, sellers stopped accepting credit cards and PayPal.

This was a big problem for the currency: How to move money between buyers and seller? Some business emerged that would credit you with bitcoin if you wired them money. Very often these businesses would give addresses in Albania, Poland, or Russia. The fact is that many of these did work and there are a lot of stories on the forums of people who bought bitcoins this way. But it took a lot of time and in the meantime the buyer just had to bite his or her fingernails wondering if they would get their bitcoins or kiss their investment goodbye.

I expect that as bitcoin becomes more acceptable and valuable, we are going to see a version of the Nigerian Prince scam. So the warning is this: we now have exchanges and other businesses that allow for moving money easily onto and off of exchanges. Never wire money for bitcoin. It was a short-lived, and well-forgotten, moment in the history of bitcoin.

Next, I will be talking about how to buy from a bitcoin exchange and give a review of the some of the best known exchanges.