Being a techie guy I figured it was about time I looked into this whole Bitcoin thing. The concept of crypto currency can be tough to initially get your head around and I still do not completely understand it. Here is the overview as I know it.
- There is no central source to keep track of who has how much Bitcoin. Instead the whole system is run peer-to-peer.
- Bitcoins can be moved around cheaply and maintain a very high level of anonymity since no personal information is required.
- Bitcoins are mined by computers and as time goes on, mining get harder and harder and more processing is needed to mine less Bitcoin.
- There is only a finite amount of bitcoin that will ever be mined.
- You can keep your bitcoin in your wallet with a program on your PC or with a company like Coinbase that holds your bitcoin for you sort of like a bank.
You can think of Bitcoin just as another form of currency like a Canadian Dollar or Japanese Yen. Just like government backed money, Bitcoin is worth whatever people will give you for it, although Bitcoin is still highly volatile. Converting to US currency, right now one bitcoin is worth about $350. A few years ago you could get them for pennies. There are two ways I know of to obtain bitcoin for yourself. You can mine them using a specialized bitcoin miner that might take a year to break even at or you can just buy them through an exchange. I bought mine.
I registered an account with Coinbase and linked my bank account and credit card. The process took a few days to verify and then I made my first purchase. I bought $15 of bitcoin with my bank account and they charged me a $0.15 (1%) fee to do this. The conversion rate from USD to Bitcoin changes constantly, 24-7. The market never closes like Wall Street investments.
Did I say investments? I guess I did and didn’t even mean too. Honestly that is how a lot of people, including me, view this form of money. Like everyone else, I have seen the news about the early bitcoin adopters making millions of dollars by selling their bitcoins near the peak price of $1,240 back in 2013. Since then the price has fallen greatly but not back to a price many would ever call cheap. I will touch on this more in a later post. Let’s get back to the process of using Bitcoin.
So now I have about $15 worth of bitcoin and that came out to 0.04010804 BTC (Bitcoin). To me, this is just a number on a screen. What can I actually do with this newly acquired magic Internet money? You can sell it back for US dollars or you can send it as Bitcoin to another person or company. Let’s talk about how to transfer bitcoin out of Coinbase and over to another external entity. As I said, Coinbase acts like a bank, holding on to your bitcoin for you. They insure it (privately, not through FDIC), keep it safe from hackers, and let you move it around as you wish.
If you don’t want your bitcoin in a bank and would rather control it more directly you can setup your own bitcoin wallet on you computer. There are several options for holding your own bitcoin but I went with Bitcoin Core. It is what is known as a full node. The client must fully synchronize the complete history of Bitcoin transactions worldwide before you have access to quickly send and receive bitcoin. For me, the client took about a day to sync up.