Beginners guide to Bitcoin Ecosystem

creationlayer (60)in #bitcoin • 10 years ago

Bitcoin Primer (original material)

The Bitcoin wiki is a great resource for anything from basic to highly technical questions. If you find yourself confused with a term in the guide or want more clarification start by checking here, as the accuracy is of a much higher standard than community resources like reddit, or Bitcointalk. There’s a lot of noise out there, but the community has taken care to preserve the accuracy on this wiki.

Bitcoin Wiki: https://en.bitcoin.it/wiki/Main_Page

Introduction to Bitcoin

Bitcoin is an electronic peer-to-peer cash system. Electronic meaning it only exists on the internet, and peer-to-peer meaning you can send Bitcoins to anyone on the network with an address. There is no traditional oversight or censorship of transfers, so if you want to send $10,000 worth of Bitcoin to someone across the globe you can in a matter of minutes, with almost no fee. Like cash you can spend it anywhere it’s accepted and it can not be censored. However, it shares another property of cash, it needs to be protected securely. Just like if someone gets your wallet from your back pocket if someone gets access to the keys to your Bitcoin, they can take the value. In the past years security has drastically improved, and service providers have taken advanced security measures with some holding insurance for the value of all the assets they hold. We’ll make sure to only suggest products and companies we personally would trust with our Bitcoin.

Bitcoin was invented by a pseudonym, or alias called Satoshi Nakamoto. It was likely a group of programmers, that collaborated and released the system anonymously. There have been many theories as to the identity and rationale of releasing the system anonymously. For instance, the creator(s) could have feared government censorship or simply did not want recognition and preferred to leave the upkeep of the network to the community. Whoever it was, the code base has significantly changed under the leadership of Gavin Andreesen who currently coordinates changes to Bitcoins code. Major changes are few and far between, giving Bitcoin amazing stability, and security, but there are consistently minor improvements and rewriting of code by collaborators.

Why does Bitcoin have value?

It comes down to what people describe as the network effect. Bitcoin is accepted at a large number of locations on and off-line, and has the most active users, and developers of any of the new payment systems. While you may hear the argument that Bitcoin has limitations which could keep it from maintaining dominance, keep in mind that new developments are planned that can extend Bitcoin to reach a broader audience. Rather than limitations Bitcoin has technical hurdles. Currently the core development is backed by MIT, Massachusetts Institute of Technology, and the startup community has been growing more rapid than the beginning of the internet boom. These factors show long-term positive growth for the technology, and underlying value of the asset.

Why Trade Bitcoin?

Well by now you’ve already at least committed the effort to get to know Bitcoin. We consider Bitcoin closest to an asset class, like Gold. There’s a finite supply of 21 million total, and only so many can be produced daily. However, the market is volatile, and can shift quickly in either direction. We think that volatility is one of the great attributes for a Bitcoin trader. A knowledgeable trader, can make profit in a down or up market. While many large players have taken the stance of buying large chunks of Bitcoin and holding them, we see room for profit, regardless of the valuation of the asset. You can either trust the market to go where you want, hold and wait, or become more active and knowledgeable and grow your portfolio. That’s why we’re here to guide you along the path of growing your portfolio.

How does it work?

To simplify what bitcoin is in a sentence. Bitcoin funds are under the complete control of the owner, and any amount can be sent at little or no cost to anyone on the network globally, and irreversibly, with minimal wait time as long as there is an internet connection.

Brief Technical Overview

Bitcoin is made up of a network of nodes and miners. Nodes are like servers, that connect together to broadcast when someone has sent Bitcoin. Miners are machines whose purpose is to compute a specific problem which secures the network. Keys are like a passphrase that unlock an address and it’s funds. Some transactions may cost a small fee, which eventually goes to miners. The amount is minute, and many platforms cover them complimentary. Transactions are irreversible eliminating the need and possibility of individual oversight once funds are sent. The private key(s) of an address give full access to exchange value on the network, like a key to a safe. Once a transaction is broadcasted to the network, or sent to nodes, miners work to confirm the legitimacy of the transaction. Miners compete to find the solution to a complex problem, that comes from the SHA-256 algorithm. This algorithm, is a secure hashing algorithm, that can not be reverse engineered, and secures the value of each users funds. The miner that solves the problem is rewarded with Bitcoin. This process secures the network, by creating a decentralized network of computers which compete to earn a reward.

By finding the answer the transaction is proven valid and secure. This allows Bitcoin to operate freely without censorship or a central group which verifies transactions. Sometimes when depositing or sending Bitcoin you will have to wait for confirmations. Generally 3 confirmations, averaging about 10 minutes a piece, meaning miners have solved the problem and proven transactions valid are required to deposit funds. Transactions are actually sent near instantly and some services, like BitPay, do not wait for confirmations. Bitcoins are actually values in what’s called the Blockchain. Instead of thinking of them as singular coins, or units, think of it as a database similar to what a bank has with it’s accounting system. Your addresses are like the account numbers you have at a bank, and your specific balance is securely stored in the global network. This Blockchain database or ledger is distributed all across the network, and allows anyone to verify the amount of funds for a specific address. One simple way to do this is with a block explorer, like http://blockchain.info. Here you can specify an address or transaction number and see what took place on the network. The Blockchain itself does not store personal details about addresses, but when using exchanges or services to buy coins it’s likely your transactions will be tracked on their platform separate from the Blockchain. We’ll go into more depth about the technology in another guide but this is a quick recap of the technology.

Here’s a helpful visual explanation of how Bitcoin works:

Buying Coins

Choosing where to buy:

First and foremost, you’re looking for a trustworthy entity to purchase from. The bigger companies, like coinbase and circle are well known, and have great track records. The one drawback is the more established company you select likely the more information you will need to provide. Feel free to ask us any questions about companies, and you can generally contact their support at any time beforehand to clear up any confusion.

coinbase - http://coinbase.com

Is a U.S. based company, that has a great track record. Coins can be purchased via Bank Wire and if you link a credit card, funds can be deposited instantly.

circle - http://circle.com

Circle is a U.S. based company that allows purchase of Bitcoins with credit card and Bank Wire. It has a good track record, but has not been around as long as coinbase.

localbitcoins.com - http://localbitcoins.com

LocalBitcoins allows you to find vendors in your local area to purchase Bitcoin in person or other payment options. You should proceed with caution, as many scams have happened at the site, and when doing in person deals pick comfortable, public spaces like cafe’s. It’s best to check feedback for a user, and ensure those giving feedback are also trusted accounts.

atm - http://coinatmradar.com

You may find it convenient to buy coins from an ATM. You may still have to provide information, but the process is generally quick, and even large amounts can be handled.

Here’s a good resource for finding an ATM: http://coinatmradar.com/

On exchange

Most exchanges allow you to make a bank transfer to the exchange to purchase coins once you have submitted identity documentation.

Other places to buy Bitcoin - http://howtobuybitcoins.info/

Exchanges

Choosing an exchange

When choosing an exchange there are multiple important factors. One is trading instrument. Some offer leverage, lending and options style contracts and other have standard 1 to 1 or spot trading. Other factors include cost of fees, liquidity, security and quality of customer service. In our expert trading guides, we’ll expand on these points but we’ve highlighted key aspects in the exchange summaries below.

bitfinex - http://bitfinex.com

Bitfinex is a Hong Kong based exchange that caters to the english speaking world. It is the largest exchange used by United States customers. It offers spot trading, 3 to 1 leverage, and the ability to lend Bitcoins at interest. This is a good option if you have excess funds and want to earn small interest. Funds can be deposited via Bank Wire and identification only needs to be given for depositing or withdrawing funds. It also has pretty good liquidity. There are trading fees.

coinbase - http://coinbase.com

Is a U.S. based company, that has a great track record. Coins can be purchased via Bank Wire and if you link a credit card, funds can be deposited instantly. Coinbase has expanded to adding an exchange which currently only allows spot trading. Users are required to complete identification before using coinbase. There are trading fees.

okcoin - http://okcoin.com

okcoin.com is the international version of their chinese site. They offer spot trading, peer-to-peer lending, similar to the lending on Bitfinex, and futures trading. Futures are like options that expire after a set amount of time, one-week, two-weeks, or quarterly. Futures have to be traded at either ten and twenty times leverage. There are trading fees.

okcoin.cn - http://okcoin.cn

The chinese version of okcoin. It’s one of if not the largest Bitcoin exchange meaning there is a lot of liquidity for traders. There is also zero fees permanently. Even if you don’t plan to deposit or withdraw, Chinese Yuan, you may consider it as a platform for trade, because of the liquidity and zero fees, and withdraw your funds later for conversion back to desired currency..

bitstamp - http://bitstamp.net

Bitsamp used to be the leading Bitcoin exchange. They offer spot trade. They suffered a security breach, and lost a large amount of money, however all funds were covered and users did not suffer any loss. After that event, and temporary downtime users started switching platforms. Also their lack of alternate trading methods or lending makes it less desirable. There are trading fees.

bitmex - http://bitmex.com

Bitmex is a smaller exchange, but we mention it because it has what are called volatility contracts. You can trade against the volatility of Bitcoin not the specific price. There are trading fees.

bitreserve - http://bitreserve.org

Bitreserve is not exactly an exchange, but more a storage for funds. It allows instant conversion from Bitcoin, to gold, other assets and fiat currencies generally for zero fees. For those interested in hedging against gold, or converting funds back and forth and holding various currencies it’s a great option. Here’s a list of their current offerings: https://bitreserve.org/en/status

kraken - http://kraken.com

Offers trading between cryptocurrencies, FIAT and margin trading, after verification. It’s a long-term established exchange, but has low liquidity.

Choosing a Wallet

There are many options for wallets. We’ve taken the time to select what we consider the most functional and secure solutions. Each has a trade off, as their individual implementations have advantages and disadvantages. The main difference is in order to make a wallet convenient and easy to use, there is some exchange in security. In some cases that means trusting the company that hosts the wallet, in others it’s more technical in nature. In any case, for funds you’re not actively trading or loaning on an exchange, it’s a good idea to find a convenient and secure way to manage and store funds.

In this section the term multi-signature is used. This means instead of one key or password there are multiples. These can be distributed so that one key is held on the server of the company, and one key is controlled by you for instance. For more information on multi-signature visit: https://en.bitcoin.it/wiki/Multisignature

Recommended All around, iOS/Android/Desktop/Web wallets

While these are not our favorite wallets, what they do have in common is they work on all your devices. This is great if you commonly switch between devices, and want to always have access to funds. For larger amounts we recommends using secure multisig storage on Bitgo or Coinbase, or using a fully featured desktop wallet like Electrum or Armory, although Green Address and Hive do have some native multi-signature support.

Green Address -https://greenaddress.it/en/

GreenAddress is a multi-signature multiplatform wallet. It’s easy to use but not as advanced or configurable as some of the wallets specific to one platform, like electrum, or Breadwallet.

Hive Wallet - https://www.hivewallet.com/

Hive is a fast multiplatform wallet. It has social components where you can easily send to other users on the platform.

Recommended Web Wallets

Bitgo - http://bitgo.com

Bitgo is a highly customizable web wallet, with support for multi-signature and other security options. It’s typically used as a secure service provider for exchanges and platforms, but can also be used by individual users.

Circle - http://circle.com

Circle is an easy to use web wallet, but doesn’t provide additional security like coinbase vault.

Coinbase - http://coinbase.com

Coinbase has a web wallet, and also offers multi-signature secure storage in what they call the coinbase vault.

Recommended Desktop Wallets

Armory Wallet - https://bitcoinarmory.com/

Armory is considered the most advanced full featured Bitcoin Wallet for Desktop. You will need to sync the Blockchain, but if you want the most extensive feature set and security Armory is a great option.

Electrum Wallet - https://electrum.org/#home

Electrum is a great desktop wallet, with many security features. It’s an SPV client meaning it doesn’t need to sync the blockchain and is ready to go right away. It encrypts keys and is an HD-Wallet, meaning Hierarchical Deterministic so with one passphrase and seed you can have many addresses.

Recommended Mobile Wallets

These wallets are specifically focused on mobile devices. That means they offer better security, and more options over wallets that share multiple services like green address, and Hive.

iOS Only

breadwallet - http://breadwallet.com/

Breadwallet is an easy to use, full Bitcoin client iOS wallet. You control fully your funds, and don’t have to trust any third party to store credentials. It also utilizes the underlying security architecture of iOS.

Android Only

Mycelium - https://mycelium.com/bitcoinwallet

Mycelium is an open-source android wallet, that is fast and has options for offline storage/management of keys. It’s not a full client so waiting for the blockchain to synchronize is not necessary.

Hardware Wallets

Trezor - https://www.bitcointrezor.com/

rezor is a hardware device similar to a USB stick, that allows you to store funds in an encrypted manner. This can be useful for securely storing funds offline.

Paper Wallets

Both Armory and electrum support mnemonic codes, essentially a set of regular words, that can be easily written down to recover a wallet. You could utilize encryption to store the phrases in an encrypted fashion even on paper. With these phrases you can recover every address in your electrum or armory desktop wallet, except those that were imported. The seed itself can recover all addresses, as both employ technology called HD, or Hierarchical Deterministic Wallets. To make the paper wallet more secure you can split it into parts, or use a BIP-38 encrypted key both of which are options in Armory and Electrum when generating. More information can be found here: https://en.bitcoin.it/wiki/Paper_wallet

Offline Wallets

A wallet address can be generated while not connected to the internet. For secure storage of large funds it may be a good idea to create addresses offline. This way the information about the address has never touched the internet, and you can be certain the only threat is physical access. Remember to securely delete the generated files, before connecting or use a fresh operating system, or live operating system.

Encrypted Storage

https://bitcoin.org/en/secure-your-wallet

Encryption basically makes the contents of something unreadable without a password or key. It’s the same technology Bitcoin uses to secure transactions and we recommend you use it yourself to protect your important documents. Remember if you lose access to the password, or key for an encrypted file, just like Bitcoin is near impossible to recover.

Veracrypt - https://veracrypt.codeplex.com/

Veracrypt is a secure solution to encrypting a single file, creating an encrypted directory or encrypting a volume. This is important because when you store Bitcoin private keys or other private information, you may wish to encrypt it. Armory and Electrum already use password encryption for stored files, but if you wish to export a plain text key, or have an extra level of security, you can use veracrypt to create an encrypted storage environment.

Keepassx - https://www.keepassx.org/downloads/

Keepassx is a handy password wallet, which you can use to backup login credentials, private key and other text information in a database that is encrypted.

Charting

tradingview http://tradingview.com

comprehensive online charting tool, with community features. This site will be essential to follow along with our analysis.

cryptowatch - http://cryptowat.ch

Fast, real-time price charting, with technical indicator overlays

bitcoinwisdom - http://bitcoinwisdom.com

Fast, real-time price charting, with technical indicator overlays

News Resources

http://news.bitcoin.com

http://coindesk.com

http://cointelegraph.com

Spending Bitcoins

http://usebitcoins.info/

usebitcoins is a comprehensive list of places to spend Bitcoins online

Educational Resources

The Bitcoin wiki is probably the best place to dig deeper and learn about Bitcoin. https://en.bitcoin.it/wiki/Main_Pag

Recommended Books

If you prefer to learn in a book form, we definitely recommend these two books. Digital Gold is from a journalistic perspective, and more accessible whereas Mastering Bitcoin is an in-depth technical perspective. For the trader, Digital Gold is probably a better fit.

Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money

Description: Bitcoin, the landmark digital money and financial technology, has spawned a global social movement with utopian ambitions. The notion of a new currency, maintained by the computers of users around the world, has been the butt of many jokes, but that has not stopped it from growing into a technology worth billions of dollars, supported by the hordes of followers who have come to view it as the most important new idea since the creation of the internet. Believers from Beijing to Buenos Aires see the potential for a financial system free from banks and governments, and a new global money for the digital age. An unusual tale of group invention, Digital Gold tells the story of the colorful characters who have built Bitcoin, including a Finnish college student, an Argentinian millionaire, a Chinese entrepreneur, Tyler and Cameron Winklevoss, Bitcoin's elusive creator, Satoshi Nakamoto, and the founder of the Silk Road online drug market, Ross Ulbricht. With Digital Gold, New York Times reporter Nathaniel Popper offers a brilliant and engrossing account of this new technology—one filled with dramatic booms and busts that have led to untold riches for some and prison terms for others. But at each step of the way, Bitcoin has provided one of the most fascinating tests of how money works, who benefits from it, and what it might look like in the future..

Mastering Bitcoin: Unlocking Digital Cryptocurrencies

Description: Want to join the technological revolution that’s taking the world of finance by storm? Mastering Bitcoin is your guide through the seemingly complex world of bitcoin, providing the requisite knowledge to help you participate in the internet of money. Whether you’re building the next killer app, investing in a startup, or simply curious about the technology, this practical book is essential reading. Bitcoin, the first successful decentralized digital currency, is still in its infancy and it’s already spawned a multi-billion dollar global economy. This economy is open to anyone with the knowledge and passion to participate. Mastering Bitcoin provides you with the knowledge you need (passion not included). This book includes: A broad introduction to bitcoin—ideal for non-technical users, investors, and business executives An explanation of the technical foundations of bitcoin and cryptographic currencies for developers, engineers, and software and systems architects Details of the bitcoin decentralized network, peer-to-peer architecture, transaction lifecycle, and security principles Offshoots of the bitcoin and blockchain inventions, including alternative chains, currencies, and applications User stories, analogies, examples, and code snippets illustrating key technical concepts

Bitcoin Whitepaper: Bitcoin: A Peer-to-Peer Electronic Cash System

For Advanced Users it’s worth checking out the white paper. https://bitcoin.org/bitcoin.pdf

Nakamoto Institute - http://nakamotoinstitute.org/

Also for advanced Users this is a background of literature that led to Bitcoin http://nakamotoinstitute.org/literature/

Community

bitcointalk - http://bitcointalk.org

the official forum of Bitcoin. News, announcements, and discussion of alternative cryptocurrencies.

/r/bitcoin - http://reddit.com/r/bitcoin

Great hub of popular articles, news and random facts about Bitcoin

/r/btc - http://reddit.com/r/btc

alternative to /r/bitcoin, less filtered discussion

/r/bitcoinmarkets - http://reddit.com/r/bitcoinmarkets