Bitcoin: Getting Started

[Wesley]

Bitcoin: Getting Started

 

What is Bitcoin?

 

Bitcoin is a decentralized digital cryptocurrency. Please review this video:

 

http://www.youtube.com/watch?v=Um63OQz3bjo

 

For anyone looking for a more advanced overview, here is the Khan Academy Bitcoin Course Playlist:

 

https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bitcoin/v/bitcoin-what-is-it

 

Bitcoin Terms:

 

Address (Public Address): These are the parts of the Blockchain which denote where the bitcoins are. Anyone can generate an address and begin receiving bitcoins. The address can be made public in order to receive bitcoins.

 

Bitcoin, BTC: The Cryptographic bits of data that can be exchanged as a payment system. Bitcoins are divisible a theoretical infinite number of times. There are several names for these divisions including BitCents (BTC x 10^-2), mBTC (BTC x 10^-3), uBTC (BTC x 10^-6) and Satoshi (BTC x 10^-9).

 

Block Chain: This is the P2P transaction ledger for Bitcoin. All transactions are stored on the ledger and on every computer connected to the bitcoin network. Older transactions are compressed for efficiency, however it still can take some time to update when a computer has been off for a while.

 

Confirmation: It is possible that bitcoins could be sent fraudulently (through double spends, etc). However, the system is constantly being audited by miners. If a transaction is successful, then it will start acquiring confirmations. It is considered to be guaranteed correct if it has acquired 6 confirmations.  You may decide how many confirmations you wish to wait for. Increasing your fee will prioritize the transaction to the miners and will make transactions get confirmed faster. If you do not care how long the transaction takes, you can send the transaction fee free. A significant fee to make the transaction occur quickly is still very small.

 

Difficulty: Bitcions are mathematically released and the difficulty it is to get bitcions is constantly adjusted in order to regulate the release of coins. If coins are being released too fast (more people start mining as BTC price rises) then the difficulty will increase making mining less profitable.

Double Spend: A user will try to send bitcoins to 2 addresses simultaneously. The software thinks it has enough coin for both transactions when in reality it does not. Thus, the user is attempting to multiply his purchasing power. This is why miners are auditing the system in order to prevent such fraud.

 

Hash Rate: The rate at which a miner’s (or the bitcoin network) calculates problems for auditing and verifying the blockchain. At the time of writing this, the bitcion network’s hash rate is 4,000,000 Gh/s which means that it performs 4 million billion calculations a second.

 

Key (Private Key): This is what allows you to send the bitcoins in an address. If you lose your private key, you can look at bitcoins in a wallet but you will not be able to send them. Public Addresses can be generated from Private Keys, but Private Keys cannot be figured out from Public Addresses.

 

Mining/Miners: Miners use mining equipment to audit the bitcoin system. They are rewarded with bitcoins as they are being released into the network on a regular, planned basis. Once all bitcoins are released, mining will still continue but will survive on the transaction fees.

 

Mixing: There may be a time where you wish to send coins in a way that is anonymous. A mixing service will allow you to send coins into a pool where your coins get sent somewhere unrelated to the recipient of the coins. The recipient will then get coins from someone else who sent them to the pool. Current fees are around 1%

 

P2P: Peer-to-peer system where there is no central location where the data is stored. It is on everyone’s computer and is shared between users. This means there is no central system you have to go through and shutting down one node will change nothing about the system as a whole.

 

Signature: If one wishes to make known that an address belongs to them, they can transmit a digital signature to the network. This will cause you to lose anonymity.

 

Taint: If coins are sent from one address to another, the system “remembers” where the coins have been. This is called taint. Tainted coins can be mixed and sent to a new address if desired. Taint can potentially lead to linking addresses, but because of mixing it makes it impossible to trace.

 

Wallet: This is the collection of addresses that you own is said to be stored in a wallet. If you use the standard software, the file that stores your addresses is wallet.dat.

 

Can Bitcion be Hacked?

 

The Bitcoin Math itself cannot be hacked unless you took the power of the sun and converted it into computing power for a couple million years. This is theoretically possible, but practically impossible.

 

HOWEVER…

 

The weakness in bitcoin is not the math. There are a few ways in which bitcoin has vulnerabilities.

 

The 51% attack:

 

If there was a situation in which someone can get enough computing power in order to overcome the entire bitcoin system (own 51% of it) then their miners could approve the transactions they want to the detriment of actual valid transactions. The longer bitcoin goes on and the more popular it gets, the more impossible it is for this to happen. Currently, it would take a few super computers to overcome the system and is quickly becoming nearly impossible.

 

YOUR SECURITY!!!

 

The main thing you want to be concerned about is YOUR security. The weakness in bitcoin is not the math of bitcoin, but you not having good protection of your private keys. If you store your private keys in a wallet.dat file on your computer, then I will not try to hack bitcoin. I will hack your computer and copy that file. Thus, precautions must be taken.

 

How Can I Get an Address/Wallet?

 

Computer Client (Think Checking Account)

 

There are several ways to get an address/wallet. If you are just going to dip into the bitcoin network and want an easy way to send small amounts of coin, then the best method is to use one of the many programs available for bitcoin wallets.

 

http://bitcoin.org/en/choose-your-wallet

 

The Bitcoin-Qt is the backbone of the network and the main base client if you want to start.

 

Armory Client is a feature-rich client that I currently use. It allows paper back-ups and many other things.

 

Encrypting a Wallet:

 

If you want to add one step up to your protection, both of those clients allow you to encrypt your wallet by using a passphrase. Make sure the passphrase is complicated. An easy passphrase just creates a vulnerability. You can get a good enough encryption in order to make it pretty secure to store some coins.

 

Backing Up a Wallet:

 

You can copy a wallet.dat file onto a thumb drive, cd, or even write your private key on a piece of paper. In case of a hard drive failure, you do not want to lose your coins.

 

Cold Wallets (Think Savings Account):

 

In order to take away the vulnerabilities to your computer, then you can print out an only paper wallet. You can use the public address to send coins into the wallet and only import the private key at some point in the future when you wish to spend those coins. Some especially paranoid (or they just have a loooot of bitcoins) people will buy a computer that has never touched the internet in order to generate the address and then destroy the computer.

 

For a full description as to how to generate a good paper wallet, read this link:

 

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

 

If you want to generate some paper wallets, you can go here (be sure to move your mouse around as it helps make the address generation more random):

 

https://www.bitaddress.org/

 

There are many other cold storage options (and you can come up with your own) but here are some examples that are out there.

 

https://www.casascius.com/

 

http://www.wired.com/wiredenterprise/2013/03/bitcoin-ring/

 

https://bitcointalk.org/index.php?topic=156534.0

 

Many more are probably in use that people do not wish to share.

 

How Do I Get Bitcoins?

 

Exchanges

 

There are many exchanges available. If you wish to look at the list:

 

https://en.bitcoin.it/wiki/Trade#Currency_exchanges

 

Coinbase has been used and is trusted by a few FDR users. 

 

*Update: Since making this thread, I have created an account at Coinbase and would highly recommend them for purchasing bitcoins.

 

*Update #2: MMD also has used Coinbase and set up an FDR affiliate link. By using this link to create an account and purchasing at least $100 worth of bitcoin, Coinbase will give FDR $5 worth of bitcoin. A great way for you to get bitcoin and indirectly send a little tip for some of the work Stef and Mike have been doing around bitcoin lately.

 

This link is now the FDR affiliate link:

 

https://coinbase.com/

 

One of the easiest ways to get bitcoins is to use LocalBitcoins.com (https://localbitcoins.com/).  LocalBitcoins allows you to meet up with people (at a public place to prevent theft) and trade BTC for money.  Make sure to wait for confirmations before leaving a local bitcoin exchange unless you trust the other person [high rating] (and make sure you give a transaction fee to the network so that this happens in a reasonable amount of time.) If you have any worries at all in a local exchange, do not buy and just check the next person on the list. Bad feelings can easily let you just abort the exchange at any time.

 

Besides exchanging money, there are other options.

 

Faucet Sites:

 

These sites pay you to look at ads or watch videos. I run them sometimes in the background when I’m going to be on the internet all day anyway. You will not make a lot of money on this (a couple cents an hour maybe?) However, if you are just looking for a small amount to tip people with or just a free way to dip in, then faucet sites may be for you.

I have used bitvisitor.com in the past.

 

Donations/Tipping:

 

Create an address and put it in your signature in forums or on your website. When you produce content people enjoy, they may send you a tip.

 

Payment:

 

Accept payment for goods or services in bitcoin. Especially if you think prices will go up (or bitcoin just has fewer fees) you can provide discounts for customers who pay in bitcoin.

 

Mining:

 

I would HIGHLY recommend against this until you have spent a lot of time on bitcointalk.org and know what you are doing with mining. Mining can lose you money if you get the wrong equipment. However, some people (especially where power is free or very cheap) are able to make money mining for bitcoins.

 

Of course there are probably many other ways to earn BTC, but these are the basics.

 

Can I Accept Bitcoins Without Having to Hold the Bitcions?

 

Bitpay (https://bitpay.com/) and other bitcoin payment providers allow people to accept bitcoins and get a check for the value of bitcoins at the end of the day. This allows people to accept bitcoins as payment, but not worry about potential fluctuations in price in the bitcoin market.

 

How Can I Send Bitcoins?

 

If you have the coins on a cold wallet, import them into a client. Select “send bitcoins” or the equivalent. Make sure the transaction fee is set where you want it to be. Paste/Type the public address of where you would like them sent. Paste/Type the amount. DOUBLE CHECK THE AMOUNT AND ADDRESS!!! There are no chargebacks with bitcoin and someone may keep excess coins that are sent if they choose to. If you send to the wrong address, then it is most likely that that person will keep them (or they will never be seen again if you somehow really messed up). There are checks in the system to correct toward real addresses; however, double checking should always be performed. Send the coins.

 

What Can I Buy with Bitcoins?

 

A list has somewhat been compiled here:

 

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

 

However, there are probably many, many more who are not on that list and accept bitcoin. 

 

An open-source map of bitcoin-friendly businesses has been started here:

 

http://coinmap.org/

 

Even if you do not end up getting bitcoin, but enjoy the idea it would be awesome if you supported bitcoin-friendly buinesses in your area with fiat dollars as well as with bitcoin if you wish.

 

Where Can I Learn More?

 

http://www.weusecoins.com/en/

 

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

 

https://bitcointalk.org/

 

http://bitcoin.org/en/

 

http://www.reddit.com/r/Bitcoin/

 

http://bitcoincharts.com/

 

http://blockchain.info/

 

And many more...

 

 

At this point I will take a break and ask for feedback. I probably made mistakes, so I would be happy to hear corrections.

 

Do you have a question I didn’t answer? I will answer it below and if I think enough people will have the same question, I will edit this post so that others do not have that question at the end.

 

If you want more information on a topic, I may have some sources or can create another post about it.

 

Thanks for reading!

[Guest Ethan Glover]

cloudhashing.com is worth mentioning. They do all the work for you.

 

Oh, sorry to be a stickler but I'm a big fan of Khan Academy and that playlist is incomplete. You can find the official one here.

https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bitcoin/v/bitcoin-what-is-it

[Wesley]

cloudhashing.com is worth mentioning. They do all the work for you.

 

screen2.png

Oh, sorry to be a stickler but I'm a big fan of Khan Academy and that playlist is incomplete. You can find the official one here.

https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bitcoin/v/bitcoin-what-is-it

I changed the link for Khan Academy.

 

If you are going to do a cloud mining, you need to calculate a gain within 6 months to a year. You have to assume by 1-2 years that the difficulty will go up significantly and you will not be making very large gains. As long as you understand this and can make a profit quickly, then cloudhashing may be a good idea.

[Sayo]

The timing of this post is so eerie for me as I coincidentally made the jump into Bitcoin myself a few hours ago.

 

Getting started is a lot easier than I thought it would be, effortless really. One Multibit client and android app later; I was only left wondering why I had not done it sooner. 

 

I just wish I had enough memory to spare as to join the network; With the size of the block chain climbing so rapidly I wonder what kind of challenges it will bring to the proliferation of Bitcoin as barriers to entry for miners/nodes continue to rise. 

[Wesley]

They compress the old transactions so that it doesn't get significantly larger than it was in the past.

 

However, the developers are currently working on a way to have the blockchain on every node and still not have to download all of it.

 

Regardless, using a cold wallet or an app/browser address doesn't require the download of the blockchain. So if you find it prohibitive to download the blockchain you can still participate in bitcoin. It should only take a few hours to download, but obviously there are several factors that can change the speed.

[Sayo]

source: http://techcrunch.com/2013/10/16/blockchain-smashers/

click image to enlarge

[Wesley]

source: http://techcrunch.com/2013/10/16/blockchain-smashers/

click image to enlarge

Great graphic especially for people who prefer visual as opposed to a bunch of text. 

[kcq]

Excellent write-up Wesley.

very accurate, precise, and well-defined.

[wdiaz03]

I read the Block chain smashers article, very informative.

 

I have a few questions. It seems that you need miners to process transactions, right?

 

Is the process of mining the same as the process of validating transactions?

 

As validation becomes harder and harder wouldn't that increase the cost of transactions?

 

Will the purchasing power of the coins also go up as the cost of mining increases? meaning there's always a profit margin?

 

There seems to be a pressure towards powerful miners, This is tricky because they are easier to hit if bitcoins become illegal.

 

Thanks in advance.

[ThomasDoubts]

I read the Block chain smashers article, very informative.

 

I have a few questions. It seems that you need miners to process transactions, right?

 

Is the process of mining the same as the process of validating transactions?

 

As validation becomes harder and harder wouldn't that increase the cost of transactions?

 

Will the purchasing power of the coins also go up as the cost of mining increases? meaning there's always a profit margin?

 

There seems to be a pressure towards powerful miners, This is tricky because they are easier to hit if bitcoins become illegal.

 

Thanks in advance.

 

This is my understanding, but I'm not certain it's the case.  It does beg a question of mine though:  How would transactions be validated after all of the coins have been mined?

[Wesley]

I read the Block chain smashers article, very informative.

 

I have a few questions. It seems that you need miners to process transactions, right?

 

Yes

 

Is the process of mining the same as the process of validating transactions?

 

The transactions that miners perform are the validation and auditing of transactions.

 

As validation becomes harder and harder wouldn't that increase the cost of transactions?

 

Validation does not become harder with time. Validation gets harder when the math gets harder, namely in transactions where there are many, many addresses. (For instance a faucet site doing payouts to a couple hundred addresses) Harder transactions are de-prioritized by the software, so in order for them to gain priority you would attach a larger transaction fee.

 

Will the purchasing power of the coins also go up as the cost of mining increases? meaning there's always a profit margin?

 

The purchasing power of coins is going up in ratio to mining. There will always be a profit margin as the profit greatly increases as miners leave the industry. Miners also often mine for a loss on the bet that bitcoins will gain for the future. Thus, we have more miners now than would really be profitable.

 

There seems to be a pressure towards powerful miners, This is tricky because they are easier to hit if bitcoins become illegal.

 

There is, but it is still heavily decentralized. I even did some mining for a while in the GPU days. Also, there are many miners overseas or in areas with cheap electricity. If the costs go up here (illegality) then more miners will enter in other areas.

 

Thanks in advance.

This is my understanding, but I'm not certain it's the case.  It does beg a question of mine though:  How would transactions be validated after all of the coins have been mined?

This is several years down the road, however transaction fees get added to the reward that miners can make. In the future, the reward will be dependent on transaction fees.

[Panoptic]

Thanks for starting this. I've looked into BTC before. It seems like a very good way not only to make some money but also to learn about computers. I don't have any practical experience with computer hardware which was why I shied away. It sounds like a fun thing to try out though once I get out of school.

 

I always wondered about the profitability of constructing one of those powerful computers specifically for BTC mining and having to pay for the power it consumes. Would it be worth it?

[Wesley]

I specifically advised against it in my post. It is possible to make money, but you have to really know what you are doing which the average person entering bitcoins at this point is no where close to knowing what they are doing.

 

Nowadays they are using ASIC miners and not just nice GPUs. You will lose money using a GPU. However, an ASIC is only useful for bitcoin mining and you cannot sell it after the fact to computer people.

 

Now, before you go out and buy an ASIC, be aware that the current batch of ASICs you may not be able to get before that generation is obsolete. In order to be profitable, generally you need cheap electricity and to be an early preorder for the next generation of ASICs.

 

Before you preorder the next generation, realize that some of the companies suck. I ordered an ASIC from Butterfly Labs at a time when I had free electricity. Every month they said it was coming soon. I got it a year later. Luckily I was able to sell it on eBay to break even. If I had got it when I ordered it, I would have made more than I make in a year because of the current rise in bitcoin. Since I got it a year later, I barely broke even on the deal.

 

Now, you could buy a miner for the profitability in that you think in the future, bitcoins will be worth more. However, speculation would be more efficient to just buy and hold some coin. Mining for a loss may be profitable, but not compared to buying bitcoins for the price you paid for your mining rig (probably).

 

Someone else linked a site where you could get a certain hash rate by paying money and other people mining for you for 2 years. While a good idea in theory, the difficulty will go up and probably the last year of that term that hash rate will not be very much as the next generation of ASICs come out. Thus, you need to calculate profitability much earlier.

 

I am not discouraging all mining. It is possible to make a lot of money from mining. However you very much need to know what you are doing. The days of taking your computer and mining your GPU are over. If you wish to mine, you need to spend some time on the bitcoin forums searching them, seeing what is working and what isn't, and knowing what good companies are, and planning for the time you want to enter mining.

 

Do not start mining until you have researched and know what you are doing. The current preorder is almost 5,000 from Butterfly Labs. If you get that past it's profitability window, then you will have a useless piece of hardware that does nothing that you blew a ton of money on.

 

I am very much cautioning mining unless you know what you are doing. At least currently, you are more likely to make more by just buying coin. If you still want to enter mining, please put in a LOT of research time.

[lorr]

I am very much cautioning mining unless you know what you are doing. At least currently, you are more likely to make more by just buying coin. If you still want to enter mining, please put in a LOT of research time.

I entirely agree with your assessment.  We cannot make it clear enough that putting money into mining is probably just a waste of otherwise potentially gainful capital.  However, I have been mining for about 6 months and it's been a lot of fun (and frustration [followed by victory]).  I have/do mine two dozen different coins, using the three prevalent proof-of-work methods - SHA-256, Scrypt, and primes - using CPUs, GPUs, and ASICs.  I'm not a tech expert by any means, but I feel tentatively comfortable at talking with people about their choices in mining hardware, building/altering a computer to a mining rig, setting up wallets/mining software/mining settings, and understanding altcoins.  Please, if you have any questions or problems with mining, then contact me - I might be able to help.  Like I said, however, I can only speak to my experience and not to a greater understanding of tech.  If I cannot help, I will be honest.  I will be cautious to not guide you into a situation I cannot get you out of.  If anyone would just like to talk about Bitcoin, cryptocurrencies, or just want information resources, I will be happy to help.Edit: I've also bought cloudhashing through an exchange (CEX.io) and I don't have much intelligent to say about it except it didn't work out well for me :S

Thanks for starting this. I've looked into BTC before. It seems like a very good way not only to make some money but also to learn about computers. I don't have any practical experience with computer hardware which was why I shied away. It sounds like a fun thing to try out though once I get out of school.

 

I always wondered about the profitability of constructing one of those powerful computers specifically for BTC mining and having to pay for the power it consumes. Would it be worth it?

I have learned a lot about computers by mining.  Still have a lot more to learn, though.  My earliest mining was by converting my gaming computer into a mining computer (which is basically buying the appropriate graphics cards and installing them [mining equipment comparison available], then finding a mining program appropriate to your level of tech knowledge and learning how to use it to tune your cards, then learning how to regulate clocking and temperatures.)  I was assisted greatly in that process by the Sovryn Tech (sovryntech.com) episode that included a how-to on building a rig to mine cryptocurrencies and a personal friend who knows computers in and out.  At that time I was mining Bitcoin, but it's not profitable to mine Bitcoin with GPUs (or any other coin that uses the SHA-256 proof-of-work method) so I bought a few ASICminer Block Erupter - adding ASICs to my mining rig.  I eventually got my rig to mine Scrypt coins (the proof-of-work method which is currently optimized for GPUs).  When Primecoin came out, I delved into mining with my CPU with some success.  I'm currently trying Protoshares with my CPU.Given the size of the network currently and the difficulty the network has been pushed to, you cannot practically build a profitable BTC miner - there may not even currently be a profitable way to get into mining Bitcoin.  Speculative mining is a valid (but very risky) idea - hence the reason I mine about two dozen coins.  If you're dead set on mining BTC, we need to discuss the potentially viable options - ASICs and cloudhashing.  The market for both (especially ASICs) contains a lot of potential pitfalls if you're not aware of the history (albeit short) of the mining market.  If some dabbling is all you want, ASICminer Block Erupters may be had for as little as $10-$15 each, but I have 27 of them and make less than 0.001 Bitcoin each day.What do you think?

[Wesley]

 If some dabbling is all you want, ASICminer Block Erupters may be had for as little as $10-$15 each, but I have 27 of them and make less than 0.001 Bitcoin each day.

$13 each X 27 = $351

 

1 Bitcoin in current USD = $505

 

.001 Bitcoin a Day = 695 days (almost 2 years before you break even)

 

This does not factor in a fluctuating BTC price. Prices could go up or down leading to better or worse profitability.

 

This does not factor in a rising difficulty. It is unknown how difficult mining will be in the future, but it is guaranteed to be significantly higher in 2 years than it currently is. This could easily stretch it out to 3 years or even further depending on how much the difficulty rises.

 

This does not factor in electricity costs which could easily be more than .001 bitcoin a day, however I am not sure. This may make it nearly impossible to break even without a large jump in the value of bitcoin (which could easily happen)

 

However, you would get all of the bitcoin now and ride the wave up or down with no up front costs, no worries about difficulty, and no power usage if you just exchanged BTC for USD.

 

This is why I would recommend against mining until you know what you are doing, because there are a lot of mining options geared to new people entering the market that look really good, but when you run the numbers they just do not make sense.

 

There is no reason to speculatively mine now as you could buy bitcoin to speculate.

[lorr]

$13 each X 27 = $351

 

1 Bitcoin in current USD = $505

 

.001 Bitcoin a Day = 695 days (almost 2 years before you break even)

 

This does not factor in a fluctuating BTC price. Prices could go up or down leading to better or worse profitability.

 

This does not factor in a rising difficulty. It is unknown how difficult mining will be in the future, but it is guaranteed to be significantly higher in 2 years than it currently is. This could easily stretch it out to 3 years or even further depending on how much the difficulty rises.

 

This does not factor in electricity costs which could easily be more than .001 bitcoin a day, however I am not sure. This may make it nearly impossible to break even without a large jump in the value of bitcoin (which could easily happen)

 

However, you would get all of the bitcoin now and ride the wave up or down with no up front costs, no worries about difficulty, and no power usage if you just exchanged BTC for USD.

 

This is why I would recommend against mining until you know what you are doing, because there are a lot of mining options geared to new people entering the market that look really good, but when you run the numbers they just do not make sense.

 

There is no reason to speculatively mine now as you could buy bitcoin to speculate.

Thanks for taking the time to lay out the math and make the caveats explicit- in support of the general warning we are both giving about mining, I bought Block Erupters everywhere from 0.1 BTC each (August) to 1 BTC each (June), so I've spent significantly more than $351 (your estimate) and would indeed be $3000+ richer now if I never used BTC to buy Block Erupters (or make donations).  "Dabbling," to me, means that you spend time doing something because you enjoy it, not because it's economical.  I thought I was clear enough that I in no way endorse mining anything if your intention is proft.  Nevertheless, I don't regret my choice because mining has been a blast.  Therefore, I offer what help I can should someone want to jump in anyway.  I understood the risks and want others to understand them before they start mining.

 

Edit: Corrected a price

 

What do you think?

To be clear, I value your input, Wes, and have been agreeing with you the whole way, but my question was directed at Extraordinary_rendition.  I was asking what his thoughts are about mining now that he has a good idea that it's not going to be a quick profit, if any at all, and that it basically comes down to whether or not it's worth it to him to take it up as a hobby.

[Wesley]

Yes, it is possible to be an enjoyable hobby that wastes money, and I have done that myself for a bit. Almost every hobby wastes money at some point, but you find joy in it and it becomes worth it.

 

I just wanted to be extra clear about the negatives so that people didn't enter mining thinking they will necessarily make money.

 

 

In a side note, since I posted yesterday that this price was around $505, today the price has breached $600.

 

I am pretty sure when I started the thread, Bitcoin was less than $200. hopefully a few people were able to benefit from the increase. Of course, be wary. These large increases have happened before where the price gets ahead of itself a bit and then it crashes down a bit. We will have to see if it keeps going up.

[Omega 3 snake oil]

Has anyone dealt with:  https://www.cavirtex.com

[Kevin Beal]

coinbase.com looks like a very reputable site, and you can buy bitcoins thru them without doing a proof of address (for people with PO boxes).

[Magenta]

CampBX and Coinbase have been great for me for several transactions each.

[Wesley]

I will be adding CoinBase because of the recommendations I have seen for it.

 

Their fees seem really, really good:

 

Buy: 1% + $0.15
Sell: 1% + $0.15
Send & Receive: Free (we pay the miner fees)

 

They also seem to have a decent solution for online wallet protection, however I would still recommend you to not keep coin in an online capacity for very long except for small amounts or when actively buying or selling. I prefer not to depend on others for my Bitcoin security because there have been problems in the past with exchanges that weren't very good with security. However, if I was going to keep my coin online, this would be a good option.

 

I think this security is where the daily max comes from. They hold a percentage of their coin offline and unspendable. However I cannot find current information on what their limits are. If you can find something and link it, then I would appreciate it.

[Wesley]

An open-source map of local bitcoin businesses has been started that is separate from the very large list of online retailers. Even if you do not have Bitcoin, if one of these businesses is in your area it would be awesome if you supported them. This also may be something to check back with as Bitcoin continues to expand.

 

http://coinmap.org/

 

I am adding it to the "What Can I Buy With Bitcoin?" section.

[carlip]

The government has allowed bitcoin because when they take control of it they WILL be able to debase it as well as track every purchase you make. This is the stuff of hitlers dreams. All you need is 50%+1 of the nodes and you can control which bitcoin transactions are legit, thus being able to fake them. If the govt wanted to, they could track everyone's computer to see who is running "illegal" nodes in order to take control. All the framework for this is already setup by the NSA.

[Wesley]

How would the government get over 50% of the market? Currently, there is more hashing than the worlds largest super computers combined. Very shortly it will be nearly impossible to be able to do it.

 

Even if they did do it, bitcoin could fork to a new system or migrate over to other cryptocurrencies. Not to mention that as the system increases in popularity to make it more desirable to take over, it also will vastly increase in the amount of computing power needed to take it over, still making it out of reach.

 

Not to mention that they could always add more security against this if it ever became a threat, however just by running the numbers it would not make sense as it would cost more than it is worth to try to accomplish.

 

Just connect your node through tor if you are worried about them knowing your node. https://en.bitcoin.it/wiki/Tor

 

However, my coin is in cold storage and is not a node connected to the network.

 

Also, you should read the sections on mixing coins and other such solutions. There are ways to own untainted coins if you wish to have them. If you mix the coins properly onto cold storage the NSA would not know you had the coin.

 

Even if this wasn't included with the ability to remain anonymous through these tools, most people's transactions exist fully online and accessible to the state, so it is hardly worse than the current system.

 

Even if somehow they were able to know all transactions, it still is not to the advantage of the state as they cannot produce more to constantly inflate the system. There is an upper cap.

 

Even if the US made a whole bunch of laws restricting things, you still could dump your coins on the majority of the world that does not have these regulations and issues.

 

There are solutions to these problems if they are worries. Bitcoin is as safe as you want it to be and are willing to put time into obfuscating your ownership. There are ways to encode your key or use a brain wallet that make its discovery impossible outside of you telling someone.

[carlip]

You need to think about the internet like a road. Tor browser is not 100% secure, nothing is. The govt agencies has nearly infinite resources and all the time in the world to track people. If you get online via a service provider your data packet could be monitored since you are using their road, no matter what car you are driving Tor, Mozilla, or otherwise.All the govt needs to do is pass a law making it illegal to mine bitcoin without a license, then limit all traffic coming in and leaving the US. Which I am sure someone would come up with darknets and what not, but the risk would add to the cost of bitcoin. All I am saying is that if the govt is interested in it, they will weaponize it, like they do with everything.

[Wesley]

All the govt needs to do is pass a law making it illegal to mine bitcoin without a license, then limit all traffic coming in and leaving the US.

Bitcoin is math. There is nothing in bitcoin that says where it is. I do not understand what you mean by limit traffic coming in and leaving the US.

 

Other countries can mine bitcoin or bitcoin mining can move to the black market and it will not affect bitcoin at all.

 

 

All I am saying is that if the govt is interested in it, they will weaponize it, like they do with everything.

If this is your standard, then this could easily say this is true about any advance in technology.

[Rob_Ilir]

I wanted to find out the effects of the bitcoins that have gone missing: like this and others http://localuknews.co.uk/article/treasure-hunt-for-4m-worth-of-bitcoins-buried-on-hard-drive-at-landfill-site

 

As I understand it, it would raise the price, but is it any good if coins go missing and never come back?

 

Also is there a  localbitcoins.com type site for litecoins?

Thanks Wesley, great thread and info.

[Wesley]

I wanted to find out the effects of the bitcoins that have gone missing: like this and others http://localuknews.co.uk/article/treasure-hunt-for-4m-worth-of-bitcoins-buried-on-hard-drive-at-landfill-site

 

As I understand it, it would raise the price, but is it any good if coins go missing and never come back?

 

Also is there a localbitcoins.com type site for litecoins?

 

Thanks Wesley, great thread and info.

The small loss of coin will cause a natural deflation over time in a similar way that currencies did for hundreds of years when tied to hard assets.

 

Even more interesting is that the current bitcoin cryptography will not last forever. At some point, code breaking will reach the point of possibly being able to crack bitcoin and code making will have gone 10 steps past the current bitcoin code. At that point there will be a fork in the code and bitcoin users will be asked to upgrade in which everyone moves over to a new code and then everthing is fine.

 

A couple years after that, code breaking for the old code will be difficult but manageable. Thus, a new breed of miners will be hacking old "unowned" wallets in a similar way that the homesteading principle would work for land you haven't touched in several years. Then the coins will be added to circulation, though the constant loss of coins will cause a natural deflation from there.

 

Obviously this is a theoretical idea of how things will develop, but I have hear it a few times and find it interesting.

 

Even if the coins are lost forever, I think a natural deflation would be a beneficial thing to a currency once it has established a sort of stability.

 

 

I do not know the best ways to get alt coins. I do know that they are easily and cheaply exchanged from bitcoins and that I probably would buy some bitcoin and then exchange it for litecoin or other altcoins.

 

A brief search turns up the litecoin wiki market exchanges section:

https://litecoin.info/Service_Directory#Market_exchanges

 

I am sure you can browse through the options and see what works best for you- a USD to LTC or USD to BTC local exchange into a BTC to LTC exchange.

 

I am glad this thread is helpful to you.

[LanceD]

Thanks for the link to your thread here Wesley. This is a really great thread

[Wesley]

I updated my post to add more support for Coinbase as a way to buy bitcoin and changed the Coinbase link to the FDR affiliate link so FDR gets a little bitcoin for anyone who buys using that link. If you are going to buy bitcoins, that is definitely the way to go.

[ausppc]

No doubt this is a cynical point of view, but why do these ACIC manufactures sell their product when, assuming it works, these things should be able to pay for themselves many times over?  Isn't that like selling the goose that lays the golden egg? 

[Kevin Beal]

No doubt this is a cynical point of view, but why do these ACIC manufactures sell their product when, assuming it works, these things should be able to pay for themselves many times over?  Isn't that like selling the goose that lays the golden egg? 

Maybe because it benefits the bitcoin economy as a whole thus (potentially) raising the USD exchange rate and making the bitcoins they mine more valuable. And there was only one goose who laid the golden egg. There are a bunch of asics.

 

Also, Wesley already stated:

 

 

 

Now, before you go out and buy an ASIC, be aware that the current batch of ASICs you may not be able to get before that generation is obsolete. In order to be profitable, generally you need cheap electricity and to be an early preorder for the next generation of ASICs.

 

Also, just nitpicking, but I think that it's actually incorrect to call ASIC's "miners", since all the ASICS do is perform a very specific hashing algorithm really fucking quickly (SHA256). As I understand it, actual miners send those math problems over to the ASIC where the result (the proof of work) is sent back to the miner where the miner gets the reward (assuming it's integrated into the blockchain).

[ausppc]

Mining is the process of taking a number of queued transactions and searching through a large number space to find a number that, when hashed with the chosen transactions, produces a result beginning with at least x zero bits.  The greater the value of x, the fewer numbers there are likely to be in the number space that will produce the desired result and the longer it will likely take to find a suitable one of them.  As I understand it, these ASIC devices work in tandem with customised bitcoin mining programs.  My best guess is that the program running on the computer schedules the available ASICs to each search a certain portion of the number space for a given set of input data.  So, making a distinction about which part of the team (so to speak) is the miner doesn't really make sense. But that's just my opinion. 

[Wesley]

In the long run, ASICs will cost the same amount to purchase and mine as the profits that you get from mining over a reasonable amount of time. This stabilization will happen once ASICs progress to the point as to use the current chipset technologies that are used in other computing spheres, which is fast approaching.

 

At that time, ASICs will tend to be profitable in locations with cheap electricity and with favorable laws (like that do not tax ASIC profits like they do in America).

 

When I wrote this, and I believe currently the ASIC technology was traveling on an almost exponential rate of growth in order to quickly catch up with the current technology. Thus, people would calculate their profitability and order. by the time they got their ASIC, the technology would have already improved to make their order entirely obsolete.

 

Thus, during these rapid growth periods it can look attractive to go for the golden eggs, but I was cautioning to make sure you know what you are doing first.

 

Also, there are many ASIC companies. So one successful one might only spend tens of thousands or more to make ASICs just for themselves (as development is expensive) but they most certainly will not recoup their costs before another company made their ASICs and sold a whole bunch to people. This even assumes that you are the company that finds the solution first, which is just statistically unlikely.

[MrLovingKindness]

Can Bitcion be Hacked?

 

The Bitcoin Math itself cannot be hacked unless you took the power of the sun and converted it into computing power for a couple million years. This is theoretically possible, but practically impossible.

 

Have you taken into account the possible existence of a generalized quantum computer? One might or might not exist now, and I have no direct knowledge about that, but I don't think it's impossible that some nation state already has one. I have not tried the math myself, but it seems to me that some implementation of Shor's or Grover's algorithm might be able to break Bitcoin fairly quickly. I am not familiar with the Bitcoin math, and I am not a QC expert myself, so I can't say for sure. That said, I do have a good friend who is a QC expert. Can you point me to a concise paper describing the math? I will shoot it to him.