A Beginner's Guide to Owning Bitcoin
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By now you know enough about Bitcoin to want in, but you’re not sure how to get some of your own.
Step One: Zip over to your friendly neighborhood cryptocurrency corner store. Step Two: Ask the dude behind the counter to swap your greenbacks for bitcoins and you’re golden. Done deal.
Yeah, right. If only it were that easy. Even though the world’s first digital moolah debuted five years ago, getting your hands on it relatively quickly and easily is still somewhat of a chore, one that we’ll break down to basics below.
First, get a digital wallet
Your first step (for real this time) is to acquire a digital wallet to stash your future bitcoins in. Bitcoin wallets allow you to store, send and receive bitcoins. You can get one from an Internet-based wallet service, like Coinbase or Blockchain.info (more on wallets in a minute).
Both online Bitcoin wallets are widely considered secure, though, just like any other company these days, neither can guarantee 100 percent protection against breaches. Each one also has a mobile app for Android users. Sorry, iOS users: you’re still out of luck for now.
Or, if you’d rather store your digital cash locally, on your computer’s hard drive, you can download a “desktop” wallet app, like MultiBit. It’s on you, though, to regularly back it up and not lose your computer (or accidentally chuck it in the trash).
With a wallet service, you can establish one or more Bitcoin addresses. Your address enables you to receive bitcoins from others. Bitcoin addresses tend to be long and convoluted. For example, mine is 182atsti1S7A2FGw6uaabfExqVKSR9YCps. People don’t need to know anything more than your address to send you bitcoins. No real world addresses necessary.
Once you’re the proud, new owner of a digital wallet, there’s only one thing to do: fill it with bitcoins (or, because they're not cheap, fractions of a Bitcoin).
Word of caution: Before you buy your first bitcoins, be sure to read up on Bitcoin storage best practices and the potential pitfalls of dealing in cryptocash. And remember, we’re still pretty much in the Bitcoin Wild West here. Proceed carefully. If something goes wrong à la Mt. Gox meltdown, you might be up the creek without your coins.
Now for the fun part, how to land your very own bitcoins. Here are four ways:
1. Buy them from a Bitcoin exchange.
This is the most straightforward, yet generally least anonymous option. Bitcoin exchanges allow users to buy and sell bitcoins for local currency at the current market rate. These often require that you link an existing traditional bank account to your Bitcoin exchange account to transfer funds between the two, typically via traditional banking’s automated clearinghouse transfer (ACH) system.
Coinbase is currently the biggest, best known and overall most trusted exchange based out of the U.S. The San Francisco startup doesn’t charge a fee to accept payments from others using your Coinbase wallet. It does, however, charge a 1 percent fee (plus a 15-cent bank fee) to convert Bitcoin into your local currency based on volume, and vice versa. The company says sending or receiving bitcoins “between online wallets, friends, or merchants is free and will always be.”
Note that it sometimes takes two to four days or more for the *BTC to arrive in your Coinbase account due to the turnaround time for ACH bank transfers. (*BTC is the generally accepted notation for Bitcoin, though XBT is used as well.)
2. Buy them from a friend or a nearby trader.
There may be more people in your local area trading Bitcoin than you’d think. Find them by stopping by LocalBitcoins.com and entering your nearest city. The Helsinki, Finland-based service connects you with people in your neck of the woods who trade their bitcoins for USD and dozens of other traditional currencies.
You can meet the trader in-person, ideally at a public place. This can be sketchy if you’re not careful, just as rendezvousing with any stranger for any reason might be. We don’t recommend it, especially if you’re alone.
LocalBitcoins.com says you can also buy from exchangers online via bank transfer or a host of other electronic payment methods, including PayPal, Moneygram and Western Union. The company charges a small fee per transaction.
Related: Why Bitcoin's Future Is Bright
Or, if you know of any friends or colleagues holding bitcoins, ask them if they’ll spot you a fraction of Bitcoin. Or, if you want to go whole hog and spend the big bucks, ask if they’ll trade you a whole BTC or a bunch. If you can’t think of anyone who owns bitcoins, try looking for people across your social networks who might be open to giving you some.
3. Accept Bitcoins as payment for goods or services you provide.
Let’s say you own a donut shop. Simply let your customers know you accept Bitcoin as payment by chatting it up with them, putting up a sign or notifying them via email newsletter. But before you do, choose a merchant Bitcoin payment processing service, like BitPay, to facilitate your bitcoin payments and convert them to USD.
The Atlanta-based company, which recently raised a record $30 million in Series A funding, offers monthly pricing plans starting at $30 and charges no per-transaction fees.
Or, if you bill your customers via invoice, just add your Bitcoin address to your invoice. Hopefully they have some BTC. Be sure not to accidentally include your private key for your Bitcoin address. A private key acts as a password, the secret number that enables bitcoins to be spent. If you expose your private key, like this Bloomberg anchor infamously did on live TV last Christmas, you’re leaving your bitcoins ripe for hacking.
4. Mine them.
Mining bitcoins is incredibly complex and, honestly, probably isn’t something beginners should dabble in. The process involves using special software (and expensive mining computers that suck up tons of power) to solve mathematical algorithms in exchange for bitcoins. And it’s not nearly as lucrative as it once was.
Still, if you’re adventuring and technically savvy enough to try your hand at mining, there’s no shortage of how-to information available. Don’t say we didn’t warn you.
However you fatten up your first digital wallet, spending bitcoins from it is often an equally complicated can of worms, one that’s thankfully getting simpler every day.
If you think this is a lot to wrap your head around, just think — there are new digital currencies coming online every day, each with their own intricacies, purpose and fan base. Ah, but let’s just stick to Bitcoin for now, ok? One cryptocoin at a time.