Bitcoin for Dummies: The Ultimate Guide for a True Beginner [Part 1 of 3]

In fall 2013, I was handed a gig from my landlord to drive an Italian grindcore band around the West Coast. Five days into the tour, we drove to Phoenix, AZ. We arrived in the middle of the afternoon at a friends place to relax and grab a bite to eat. After getting comfortable, I decided to check Facebook and in my news feed somebody mentioned the word "bitcoin". Having a couple hours to kill, I decided to research this new topic, not realizing that this discovery will change my life forever.

What is Bitcoin?

Bitcoin is a digital asset, network and software that allows payments to be made around the globe at any time with no third party interference. Under the alias, Satoshi Nakamoto, it was intended to be a secure (by the use of modern cryptography) alternative to the current money system. It's open-source nature allows anybody to observe the code, as well as reuse it's unique design to invent other tools.

Fig. 1 Explaining Public and Private Keys.

Some New Vocabulary

When compared to traditional banking, bitcoin's terminology can be rather confusing if you don't understand computer cryptography. Some new words are required in order to make sure your bitcoins are safe and sound.

Public Keys or Bitcoin Addresses: You share these with friends or customers. It consists a series of random letters and numbers, starting with the number “1” [refer to Fig.1 above]. Think of it as being your checking account number that you would give to your employer.

Private Keys or Secret Keys: You NEVER give this out. Think of it as being a PIN number to your debit card. It grants access to the corresponding bitcoin address, letting the user spend the bitcoin.

QR Codes: Both of bitcoin's public and private keys can be found in the form of QR Codes. Their design makes scanning, sending, and receiving flawless.

How to Get Started

To start using bitcoin you need to download a wallet. A bitcoin wallet is similar to your personal banking applications allowing you to send and receive bitcoin. Similar to Internet browsers, like Chrome or Firefox, there are many different kinds of wallets to suit a user's needs. I will list some of my favorite wallets that I currently use. But if you would like to pick one for yourself you can visit here.

Mobile Wallets

Mycelium – Available for Android (Coming soon to iPhone)
https://wallet.mycelium.com/

Once I had purchased an Android I started using this application. It's development team is very passionate in making a quality product for it's users. One of the features I really like is the Local Trader. When bitcoin is hard to find, you can look there and meet with people in your area who are selling it, all within the app. Currently they making a huge upgrade which I recommend looking into.

Copay – Available for All Platforms
https://copay.io/

When I started, I had on my iPhone an app called Blockchain. At the time they were in the process of being pulled from the app store. It was a big deal, causing some people to break their iPhones as a means of protest. Since then I have looked at only a few and found this one to be the best. I have recommended it to my close friends and family and have not heard any complaints.

A Lightweight Desktop Wallet

Electrum – Available for Win, Mac, Linux
https://electrum.org/#home

Electrum has been around long before I got involved. It has a simple design, making usage a piece of cake. It has password protected spending, so make sure to have it near by when trying to purchase something online.

Paper Wallets

A Paper Wallet similar to Fig.1

Paper wallets are a way to store your bitcoins in an offline manner. I personally like this one because the possibility of hardware failure is zero. I recommend to not download one from the Internet because it is possible that malicious hackers could obtain your private key. Solving this problem, Mycelium created a product, called Entropy. It's a USB paper wallet generator that you plug into your printer creating a new bitcoin address with it appropriate secret key.

Hardware Wallets

A popular Hardware Wallet called Trezor.

Another way to store your bitcoins would be with a hardware wallet. I myself haven't had a chance to experiment with these yet, so I will provide a link to help you learn more.

https://en.bitcoin.it/wiki/Hardware_wallet

Important Tips

Tip #1 You are responsible to protect your money. Since bitcoin is not owned by one company or government, you are not protected by any laws or policies for losses.

Tip #2 When spending bitcoin, transactions can move only in one direction. What that means is once you sent your bitcoin to an address, you cannot get it back. Unless you have control of that address.

Tip #3 Make sure to back up your wallet. Majority of the wallets prompt you in the beginning (except Mycelium, it happens when your receive your first payment) to write down a mnemonic 12 word seed on a piece of paper. Afterwards, you will have to verify them. Make sure to keep this paper in a easy to find location. If for whatever reason you lose your phone or it breaks, you can recover your bitcoins by using that seed.

Tip #4 Only purchase as much as you are willing to lose. Since this currency is still relatively new it is recommended to start small. Once you feel confident with the mechanics of things, then start to acquire more.

[In the next section I will explain how to obtain bitcoin and how to use it in a real scenario.]

Pictures from: https://harbor.ly/blog/5-ways-to-protect-your-bitcoin/ ,
https://bitcoinhelp.net/know/more/send-from-paper-wallet ,
https://bitcoinpaperwallet.com/ ,
http://www.coindesk.com/trezor-hardware-wallet-ship-january/