questions about Bitcoin and Cryptocurrency for the beginner
What is Cryptocurrency (Bitcoin)?
Cryptocurrency is a form of digital money with no country to call home and therefore is free of regulation by any one country. Instead, it exists on a peer-to-peer (P2P) network that can have users all over the world. It also relies on some of the principles of cryptography to make sure the transactions are valid and allows more currency to be mined.
How can I purchase Bitcoins?
You can get Bitcoin by purchasing an entire coin or very small parts of it on an open market website such as Mt. Gox. You have to make fiat currency deposits usually by bank wire transfer and can then purchase coins in a way very similar to buying a security online. Once you have purchased your coins, they are transferred to your digital wallet and they can be spent or used in any manner you wish.
What is a Bitcoin wallet?
A Bitcoin wallet is a digital place that holds your Bitcoins and allows you to take ownership of them. It also allows you to send and receive Bitcoins when conducting crypto-business. It is up to you to make sure that your wallet is secure because if someone steals your coins, there is no way to get them back.
How do you mine Bitcoins?
First of all, you need a computer that has a decent graphics card(s) or the process isn’t going to work. You then need to choose which type of Bitcoin wallet you want your coins to be deposited into. Next, go to Bitcoin.org and join the network downloading Bitcoin.qt for your operating system. This process can take an entire day and you should make sure that you have enough bandwidth and available storage for the full block chain. After you are a node in the network you can start to mine bitcoins by using your own computer and/or joining a pool mining site like BTC Guild where everyone contributes to the mining process.
Note : Do your research (see useful links below) before you begin mining so you have a realistic expectation about how many Bitcoins you can earn. Also remember that a computer doing mining 24 hours a day will use a good amount of electricity (which can get very expensive).
Will there be enough Bitcoin to go around for everyone?
The system will only produce a grand total of 21 million Bitcoins sometime around the year 2040. However, each Bitcoin can be subdivided to the 8th decimal place (the 8th decimal place is known as a Satoshi). This means if the price stays high, people could trade very small pieces of Bitcoin and there would be plenty to go around--but if the price goes back down to lower levels the very small pieces would be nearly worthless.
If the current price of Bitcoin is $1000 and you want to purchase a product or service for $25, the $25 amount is 1/40th of a Bitcoin.
If the current price of Bitcoin is $50 and you want to purchase a product or service for $25, the $25 amount is ½ of a Bitcoin.
Is it legal to possess and/or trade Bitcoin?
Bitcoin isn’t illegal in any jurisdiction to date, but that doesn’t mean that a government won’t outlaw it in the future. Additionally, it would be very difficult for any one government to shut down Bitcoin in their country because due to the fact it is decentralized.
How do you purchase Bitcoins?
The easiest way is to go to How to Buy Bitcions and enter your country name. The site gives several Bitcoin purchasing options based on where you live.
Where can I spend Bitcoins?
The amount of places that accept Bitcoins is limited, but growing almost daily. There are several sites that track the different places online and others that track brick and mortar businesses that accept them for physical goods. You can check the Coin Map or Use Bitcoins in the Real World sites to see if there are any places near you that will accept them. You can also add a place that you know accepts Bitcoins as well.
Are there other cryptocurrencies besides Bitcoin?
Yes, there is a growing list of cryptocurrencies to choose from. The market has been flooded with them as of late and there are even people selling the ability to create your own cryptocurrency on eBay. You can choose from coins such as Litecoin, Namecoin, Feathercoin or Terracoin well as many others. The main selling point of the currencies is that they are a decentralized (no country to call a home) P2P digital currency.
Is there a website that tells me the best coins to mine?
Yes, the Coin Choose website has a list of the different cryptocurrencies people are trading and the difficulty/profitability in mining them.
Please be aware that some of these lower rung coins could be here one day and gone the next. This means that you should always invest in these digital currencies with your eyes wide open and always make sound investment decisions.
Can you deposit Bitcoin or other cryptocurrencies into banks?
No. Due to the volatile nature of the price of cryptocurrencies there are no known banks that will allow you to deposit directly into your checking or savings account. However, there are money transfer sites such as Ok Pay that allow you to directly deposit your coins and convert them to a cash balance. You then have to pay a fee to have the cash transferred to your bank account.
Is there a service or website that allows Bitcoin purchases via an ACH withdrawal from a linked bank account?
Yes, If you are willing to purchase Bitcoins from a linked bank account you can utilize a service called Coin Base. The site allows you to purchase a set amount of Bitcoins by using your bank account (1% processing fee). You also have the ability to sell the Bitcoins whenever needed and have the proceeds deposited back into your bank account as a fiat currency. However, there is usually about a four business day delay from the time you purchase and when the bitcoins are deposited into your account. For that reason there is some price fluctuation risk involved.
They do give you the option of bypassing the waiting time and getting the Bitcoins instantly. Link a credit card (backup funding source only) and verify your identity though the same process as you would by checking a credit score. I think one of their big selling points is site security. They can give you a login pin (along with your password) which is linked to an app that changes the pin every 20 seconds. This gives your account some of the highest level of security out there. Just keep in mind the site has several restrictions and is in no way a trading platform such as Mt Gox.
Is Bitcoin infinite or finite?
Bitcoin is finite. When it was launched in 2009 on a P2P network it was predetermined how many coins would ever be released. There will never be more than 21 millions coins when they are all “mined” by 2040.
Is the price of Bitcoin stable or volatile?
The price of Bitcoin is very volatile and there really is no way of changing it. Since it has gained in popularity, the price fluctuations can be quite dramatic hour-to-hour or even minute-to-minute. In short, the value of your Bitcoin holdings could decrease or increase mere minutes after you purchase them. You should also note that if the price goes down it doesn’t have to go back up. Always follow sound investment advice before purchasing Bitcoin or any currency or security.
Are transactions anonymous?
Yes and No. All transactions that occur on Bitcoin are recorded on an online public ledger called blockchain. Anyone will be able to see the amount of bitcoins transacted and the wallet address of the transactions. However, if your wallet address is not public then nobody will know who you are.
Do you have to pay taxes on money you make with Bitcoin?
Every country’s laws are different, but generally any profits you make from the sale of Bitcoin are going to have to be reported on your income taxes as capital gains. As a general rule, you should always consult a tax adviser before filing your taxes if you have made money selling Bitcoin or any other currency or security.
How do I turn my Bitcoins into cash (fiat currency)?
If you have an account with a Bitcoin trading site such as Mt. Gox, you can withdraw your money a couple of different ways depending on where you live. Generally, you will have to initiate a wire transfer to your bank. There are several rules on how this is done so it is a good idea to make sure they are agreeable to you before investing.
Is Bitcoin here to stay?
It does seem that Bitcoin is here to stay, but who knows what the future holds. If It loses favor with users, its value could plummet overnight. I think one thing is for certain, though. If Bitcoin isn’t the main cryptocurrency of the future, another one will take it’s place after it is gone.
Bitcoin useful links
Bitcoin.org- A nice resource of everything that you need to know about Bitcoin as a beginner. It has a video that explains most about what you need to know about the currency in a very simplistic manner.
Bitcoin Average - Independent Bitcoin price.
Bit Billions - Bitcoin news and information channel on YouTube.
Bitcoin Bank - The possible future home of the first Bitcoin bank. You can currently see the trading patterns of several different cryptocurrencies.
Bit Dazzle - Marketplace where you can buy and sell items using Bitcoin.
Bit Pay - Allows you to accept Bitcoins for payments on your website.
Bitcoin exchange rates - Check and see what the value of Bitcoin is versus several of the worlds most popular fiat currencies.
Bitcoin Charts - Excellent site that gives you a visual graphical display of the up and down price of Bitcoin over a period of time.
Bitcoin Forum - If you have any questions about Bitcoin and/or how to get started mining them, chances are someone has already asked the question and was provided with answers.
Bitcoin Foundation - Standardizes, protects and promotes the use of Bitcoin money for users worldwide.
Bitcoin magazine - Physical magazine that can be delivered to your mailbox and online articles about Bitcoin.
Bitcoin Store - Buy electronics of all types online using Bitcoin as a payment method.
Bitcoin Talk - A very popular forum that discusses all things Bitcoin.
Bitcoin Ticker - Real time updates of Bitcoin transactions.
Bitcoin Wiki - Just about everything you need to know about Bitcoin in one convenient place.
Bitcoinx - Bitcoin mining profitability calculator.
Bitcoinity - Shows the total volume of Bitcoin and breaks down the percentages of which sites have performed them.
Block Chain - This site is the hub of the Bitcoin Network. You can view all transactions that have occurred in the network, the total amount of Bitcoins in circulation, market capitalization, number of transactions, total output volume along with several other helpful metrics.
BTC China - Very popular Bitcoin exchange in China that sometimes has more volume than Mt. Gox. It provides the population of China an avenue to invest in Bitcoin.
Casascius Bitcoins - A person who has made physical Bitcoins that can be used to trade for goods and services just as you would with standard fiat currency. You can view how they look on this Youtube video.
Coin Choose - Website dedicated to showing the difficulty/profitability of mining several different types of cryptocurrencies.
Coin Desk - The voice of digital currency.
Coin Forum.ca - Canada’s Bitcoin community.
CoinURL - Offers ways to monetize your website content using Bitcoins as payment.
Cryptoticker - Free app you can download that provides a continuously updated Bitcoin price from several different exchanges.
Cryptocurrency Con - Learn when the next conference about Bitcoin and/or cryptocurrency will take place.
Devcoin Faucet - Earn up to 5 free Devcoins just by entering your Devcoin wallet address.
Devtome - Earn free Devcoins that can be converted into Bitcoins for writing about whatever you like.
Khan Academy Bitcoin videos - Large collection of Bitcoin videos that are free to view. If you have a question about the currency, they probably have a video that will help.
Mining Bitcoins - Useful Wikipedia link about how to mine Bitcoins.
Mining equipment on eBay - Once you have learned how to mine Bitcoins, see what people are willing to pay for the mining rigs and other related equipment.
Mt. Gox - One of the first and most popular Bitcoin exchanges. They are known for their trading platform reliability and excellent customer service.
Reddit Bitcoin Subreddit - All things Bitcoin, all of the time.
Spend Bitcoins - Large list of places that accept Bitcoin as payment.
The Bitcoin News - Keep up with the latest news and information about Bitcoin.
The Daily Bitcoin - News from the brave new world of money.
The Bitcoin Channel - Your one stop shop for all Bitcoin news.
Use Bitcoins in the real world - Regularly updated map that shows brick and mortar businesses around the world that accept bitcoin. There is a similar page called Coin Map that is also regularly updated.
XE Currency - Shows Bitcoin exchange rates against several fiat currencies.
Bitcoin In The News
New York Time Dealbook (12/12/2013) - Bitcoin processor Coinbase gets $25 million dollar cash injection from venture capitalist firm.
Time Business & Money (12/10/2013) - Is JP Morgan going to create a payment system that will rival Bitcoin?
Business Wire (12/02/2013) - Bitpay is driving explosive growth in Bitcoin commerce.
Mail Online (12/02/2013) - A student that held up his Bitcoin wallet QR code on a sign at the Alabama vs Auburn game gets sent over $24,000 worth of Bitcoin to his wallet with help from people at Reddit. The student advised in a Reddit post that he is going to keep the money already donated to him but will donate any additional money to charity.
NBC News (11/29/2013) - Does the future growth of Bitcoin rest in China?
The New York Times (11/23/2013) - Bitcoin might gain in popularity but it will probably never be ready for popular consumption.
Wall Street Journal (11/23/2013) - Should you invest in Bitcoin?
USA Today (11/21/2013) - Is Bitcoin beginning to go mainstream.
CBC News (11/21/2013) - University of Cypress is accepting Bitcoin as payment for tuition.
Bloomberg (11/20/2013) - Bitcoin could still be doomed in the future.
CNN Money (11/20/2013) - Asks if Bitcoins will catch on with customers.
Global Times (11/20/2013) - Germany's Minister of Finance endorses Bitcoin as private money.
CNBC (11/20/2013) - CEO of BTC China talks about Bitcoin.
BBC News (11/19/2013) - Value of Bitcoin soars after U.S. Senate hearing.
United States Senate Committee on Banking, Housing and Urban Affairs (11/19/2013) - Minutes of the meeting discussing virtual currency.
Bloomberg (11/18/2013) - United States agencies to say that Bitcoin offers some legitimate benefits as a currency.
NY Times Dealbook (11/18/2013) - Regulators and investors see value in Bitcoin.
The Verge (11/16/2013) - New York State Department of Financial Services is considering licensing Bitcoin traders.
Tech Crunch (11/06/2013) - The Bitcoin bubble could burst at any time.
Coin Desk (10/24/2013) - How dumb mistakes can lead to some very costly losses of digital currency.
Wall Street Journal (09/19/2013) - Article that explains what it takes to become a Bitcoin miner.
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