projects, tech stuff, musings

bitcoin basics

bitcoin cryptocurrency logo

Investing in Bitcoin is becoming increasingly popular. I’m no expert, so I am in no position to offer advice. I can, however, offer my opinion and share my experiences.
In the first section of this post I will briefly explain what Bitcoin and other cryptocurrencies are. I will then go on to give my opinion on ways to buy, store and use them.

what are cryptocurrencies?

In short, Bitcoin and other cryptocurrencies are simply money. They have all the same attributes as the currencies we’re more used to like US dollars, British pounds, gold, silver, etc. There are, however, some significant differences.
First and foremost, Bitcoin is not owned by anyone. The system is comprised of a network of computers distributed over the internet all running the same, open source software.
Another major difference with Bitcoin is that, unlike national fiat currencies (dollars, pounds, euros), it is deflationary in nature. So, unlike in the case of fiat currencies whereby governments and banks are free to literally print more money and cause inflation and the reduction of the value of your money year upon year, there will only ever be 21 million Bitcoin. So naturally, as the demand for Bitcoin increases, so will it’s value.

On a more practical level, a Bitcoin is simply a special number that satisfies a mathematical equation. These numbers are found by running high powered computers endlessly, trying different numbers to see if they satisfy the equation. This process is known as mining. Miners also have the job of verifying transactions, so when Bitcoin is transferred, a message is sent out on the network and miners use cryptography to verify and confirm the transaction.

how can I get them?

Depending on the country where you bank, there are a number of Bitcoin exchanges where Bitcoin (and other cryptocurrencies) can be bought for local (fiat) currency. Please use the links below to sign up. Some of them will give you and / or I a small referral fee, often paid in Bitcoin.
Note that due to AML (Anti Money Laundering) and KYC (Know Your Customer) laws, all exchanges require at least some sort of verification. Typically, you will need to send in a copy of your passport (and maybe a photo of you holding it), proof of your address and you will probably need to link your bank account. I am verified on all the sites listed below and have had no issues as a result.

buy bitcoin: international exchange

Coinbase seems to be regarded as one of the better options for buying cryptocurrencies in the UK and elsewhere in Europe and the US. If you sign up using this link and then purchase $100 USD of bitcoin or more, we will both get $10 USD of free bitcoin.

buy bitcoin: thai exchange

To purchase cryptocurrencies in Thailand directly with Thai Baht, offer a good service with a simple verification process. They don’t offer new customers much in terms of sign up rewards, but you can sign up by following this link.

international trading exchange

For trading between cryptocurrencies, I use Bitfinex. Bitfinex offer probably the most advanced market trading functionality, including margin funding. To sign up, use this link and get a 10% discount off of your trading and margin funding fees for the first month following registration.
I put up a post a while ago that goes further into detail about margin funding – see here.

how can I store them?

There are essentially three ways to store your Bitcoin and other cryptocurrencies. In this section I will describe them and give some advantages, disadvantages and differences.

store on an exchange

Probably the most common mistake new Bitcoiners make is storing their cryptocurrencies on an exchange, usually the exchange they bought them on. This is risky, because exchanges are centralised websites that can be hacked, leading to vast sums of money being stolen. Tens of millions of dollars worth of cryptocurrencies were stolen in the mtgox and bitfinex hacks. Exchanges are simply not the place to store cryptocurrencies – once you have bought them it is very important to store them somewhere safe.

warm / hot wallets

Safer than exchanges, but still not the most secure, warm / hot wallets offer a way to conveniently store cryptocurrencies. They also tend to make spending / transferring cryptocurrencies far easier than the safer ‘cold storage’ options. For smaller balances that are to be spent, warm / hot wallets may be the best solution. It should be noted however that warm / hot wallets can and have been hacked in the past.
There are many warm / hot wallets available. I have used both the wallet for storing Bitcoin and the Jaxx wallet for storing Bitcoin and other cryptocurrencies.

movie showing how to create a new bitcoin wallet using

cold storage

By far the safest way to store cryptocurrencies is by using a type of cold storage. There are essentially three methods; hardware wallet, paper wallet and offline usb sick / hard drive. The actual method of cold storage differs for each cryptocurrency, so there are too many different methods to list here, so you will need to google for your circumstances – e.g. make paper wallet for bitcoin, or which hardware wallets support monero.
The principle thing to remember is that a wallet contains a number of addresses, each holding a number of coins. Each wallet has a ‘key’. A wallet address and a key can be (more or less) thought of as a difficult to read username and password. When you receive a payment, you give out your wallet address for the payer to send money to. Your key you must keep securely, and it is the job of a cold storage solution to keep your keys safe. When you cold store your coins, you are simply storing your wallet addresses and their keys in a secure manner.
Warning! It is very important to note that paper wallets and usb stick / hard drive wallets, if lost, cannot be replaced. If they are lost / stolen / damaged then you will lose your coins, there is nothing you can do to retrieve them.

paper wallet
A paper wallet is simply a piece of paper listing your wallet addresses and keys. It is possible to create addresses and keys whilst your computer is not connected to the internet.
Litecoin paper wallet showing wallet address, QR code and hidden private key
Litecoin paper wallet showing wallet address, QR code and hidden private key

In general, to create a paper wallet, you will be instructed to do the following:

1) Download the ‘core’ software for the currency you wish to store and wait for it to sync (this can take days!)
2) Create one or more address / key pairs (this part is often done offline, for safety)
3) Print out the paper wallet
4) If offline, restart your computer and printer, then send your coins to your new wallet.

Many paper wallets include a QR code so you don’t need to type out the full address when you need to use it.

usb sick / hard drive
Making a usb stick / hard drive wallet is very similar to making a paper wallet. Many people opt to create both, so as to have a backup. The main difference is that instead of storing your address / key pairs on a piece of paper, you store them in a file on a hard drive or usb stick.

hardware wallet
Perhaps the best option is to use a hardware wallet. hardware wallets offer all the security of paper / usb stick / hard drive cold storage wallets, but are far easier to use. When you initialise your hardware wallet, you are given a list of words that act as your wallet ‘seed’. Your seed provides a second layer of backup over other cold storage solutions; if your hardware wallet is lost / stolen / broken, you can simply buy another hardware wallet and re-initialise it using your seed.
Trezor is one of the most popular hardware wallets. You can order one here.

how can I spend them?

spending bitcoins

sending coins to someone else

Depending on how your coins are stored, exactly how you spend them can vary, but in principle it is always a case of entering the recipient’s wallet address into your wallet’s ‘make a payment’ section (this can be done by copy pasting, using a QR code or by manually typing), then simply typing the amount of coins you want to send, and finally clicking the ‘send’ button. Always double check the recipient’s address – once the money is sent, there is no way to bet it back.

movie from showing how to send Bitcoin from the warm / hot wallet

cashing out your coins

Cashing out coins is usually done in the reverse of how your bought them. The coins are sent to an exchange where you already have a linked bank account. The coins are sold on the exchange, and the proceeds can be withdrawn to your bank.


Investing in cryptocurrencies is a risky business – Bitcoin itself is still technically just an experiment. The standard line we all hear is ‘never invest more than you can afford to lose’.
That said, many people have made good money by investing in the vision of a global system of money that doesn’t rely on banks and governments who continue to exhibit their incompetence and greed through events like the 2008 financial crash. We all live on the same planet, breathing the same air, drinking the same water and sharing the same global issues. It is hoped that by having a better functioning, safer and fairer system of global money we will all be better equipped to deal with the global problems we all face. National level thinking is never going to solve global problems.

The principle takeaways here are:
1) If you believe Bitcoin and other cryptocurrencies present us with a better future, you may want to consider investing.
2) Keep your coins safe – this means keeping your keys safe using one of the methods described above.

One Response to bitcoin basics

  1. Heath McKenzie says:

    Thanks mate, all a bit clearer now. Thanks for the link to your blog.

Leave a reply

There is no content to display.