As a veteran internet surfer you may have encountered a new kind of global digital currency, bitcoins. What are these new internet coins and what are they useful for. How can I acquire my own bitcoins, and what is a bitcoin worth. I will cover the very basics of bitcoins in the following post, and will try to answer the question if it would be wise to invest in bitcoins or not.
What is a bitcoin?
Bitcoins are a new kind of digital currency used for digital transactions. Now I hear you thinking, why not just use the regular Euro or Dollar etc. Bitcoins are not related to any specific area in the world, thus not subject to regional inflation or rate changes. In addition, bitcoins are not subject to a centralized bank or instance. Bitcoins are de-centralized by using a widespread peer-to-peer network to verify each transaction. This stops a single party to influence the value of a bitcoin. Bitcoins and bitcoin transactions are all highly encrypted, making it nearly impossible to hack or exploit the system. This ensures that a bitcoin can only be spent once, and only by its rightful owner. One last major advantage (or disadvantage for some) is that bitcoin transactions are completely anonymous. The only kind of ID you will ever get, or need for a transaction, is a persons address, which in this case consists of a string of about 33 random numbers and letters long.
What can I do with a bitcoin?
In essence, a bitcoin can be used for any transaction, both online and offline. However, for a currency to work in transactions it needs to be accepted first by the general public. This is where bitcoins are lacking, but are improving rapidly. On the internet bitcoins are accepted more regularly. Several different web shops accept bitcoins, and there are a few sites that are solely based on the trading of goods and services using bitcoins. To give an example: forbitcoin is a website where after creating an account you can offer whatever service you want to the community in exchange for bitcoins. This can vary from designing a website, writing a song or doing a silly dance. Most of these transactions are closed completely digital. Ideal for working at home, if you can convince people your services are worth it.
Another option is to sell you bitcoins directly for any other currency you may want, but mostly dollars. Several major money exchange websites accept bitcoins these days, like mtgox. This website facilitates the exchange of money and bitcoins between users without those users to deal with each other. You just tell mtgox how much you would like to buy or sell, and how much you are willing to pay, and it automatically finds the best deal for you, or combines offers from different users to get your request as complete as possible.
How can I acquire my first bitcoins
In order to start using bitcoins you may want to get your hands on some of them first. The quickest way is to simply buy bitcoins for money. This can be a good investment whenever the bitcoin exchange rate is worth more than your local currency in the area you are dealing with. There are more interesting options though, actually able to make you bitcoins for free.
One way to do that is to join a website like freebitcoins. On these kinds of websites you can complete offers in exchange for small amounts of bitcoins. These offers usually require you to subscribe to something, or make a trial purchase. This can be interesting of the offers are any good, but most of them are usually not.
Another way is to offer your services to forbitcoin. You can add whatever service you may want to provide and ask for a set amount of coins. This can be frustrating, because merely offering services does not mean anyone is going to buy them from you. Even after uploading several services you might not get a request for weeks. This all of course depends on the services you offer, and how well you can convince them to take your offer and not someone else’s.
Whatever method you prefer, you will also need to create a bitcoin wallet. This is easily done by downloading the bitcoin client and let it set up its account automatically. You can get the client here.
Please mind that bitcoin stores your wallet locally, so ensure the computer you install your wallet on is safe, backup your wallets data, or encrypt it in a secure manner. Bitcoin is relatively safe, unless someone has access to your computer and just downloads your wallet.
another way to generate an income is mining for new bitcoins. This is the most steady (but slow) method. New blocks of 50 bitcoins each are generated when a computer solves a preset puzzle. When this happens, all other computers connected to the peer-to-peer network will verify that said previous computer really did solve the puzzle and that it’s answer was correct. After this has been done, the owner of the computer that solved the puzzle will receive 50 bitcoins for free. Now you may think this will cause huge inflation, but it does not. I will go into more detail a little bit later.
To solve these ‘puzzles’ you will need to fire up your computer and make it do computations all day long. The most effective way is use an ATI/AMD video card, but it can also be done using a Nvidia card or even your computer’s processor. Solving one of these puzzles alone using a regular PC however is a long shot. It can take several months to find a block. It can also take five minutes though, since the chance of your computer solving the correct string of computations is always there.
Most people don’t want to invest into so called ‘mining rigs’ (computer clusters set up solely for the purpose of mining bitcoins) but still want to get a bit back using their computers spare computing power. These people join mining pools. This a joint venture between many different people from around the world, adding their computing power together in order to find new coin blocks faster, and when found, share in its profit. The owner of a pool usually claims a part of the found block in order to finance the pool. Usually this is 2% (1 coin of 50 per found block) however some pools allow you to set your own donation, like btcguild. You are even allowed to set your donation to 0%, so that all of your computer’s hard work will be rewarded directly to you. One of the biggest pools is bitcoin.cz. They do however claim a 2% donation from each block, but blocks are more often generated. You have to share with more people too, though.
Setting up a miner
Setting up a miner can be tricky, but I will quickly explain the very basics of doing so. The first thing you are going to need is a mining program. GUIminer is the easiest to set up. You can download it here. Once downloaded you will have to create and account on a website to join a pool, or skip this step if you are solo mining.
If you are solo mining, you can click setting up a solo miner in GUIminer. You will have to have the bitcoin client running for this.
If you are joining a pool, and have created your account, you will need to add your workers. Workers are the computers you will set to work. If your account is called account, and you want to work on your pc, you call your first worker account_pc. You will also have to set a password for this worker. Once done you will have to add this information into GUIminer and set its workload. For example, when using an ATI/AMD video card you can just leave it as it is. When using a Nvidia card, you will have to switch it to CUDA computations, and when using your processor you will need to set it to CPU computing. Then you select the pool you will be working for from the dropdown menu, in this case BTCguild.com, and you are done. Press start and you computer will start computing. You can see your progress on the website of your pool.
What is a bitcoin worth?
When bitcoins started they were worth 1 dollar per bitcoin. Over time bitcoins became more popular and harder to mine, thus increasing its value. It’s exchange rate is still fluctuating a lot, but a little while back one bitcoin was worth 17 dollars. As you can see bitcoins have increased in value greatly in a small amount of time. You might think that because of that investing in bitcoins is a wise thing to do, but in reality anything can happen and that makes investing in bitcoins about as safe as investing in the stock market. I do believe however that investing in a few bitcoins is not a bad idea, because bitcoins are still only just starting. When more people start using bitcoins, the value is bound to go up as well.
If you paid attention you will be thinking about creating new coins from scratch about now, and why that doesn’t plummet the rate of bitcoins. This is because the puzzles that have to be solved in order to get new blocks are becoming increasingly difficult. In addition there is a hard cap on the amount of bitcoins that can be active at the same time. You can create extra bitcoins to facilitate new users of the system, and to make sure bitcoin prices will not be skyrocketing, rendering them useless for small transactions. I have to add though, that although bitcoins are worth much, you are allowed to break them up in pieces of 8 decimals.
Bitcoins are a very interesting phenomenon to say the least. It’s growing rapidly, and I for one am going to invest a little bit in bitcoins, just to make I can still hop on the money train when it passes. I will be following its developments closely.
I hope you found this basic guide to the world of bitcoins useful. If you may have any questions, please post them below in the comments and I will try to answer them as fast as possible.
If you feel this was VERY helpful, you may always donate bitcoins:
Bitcoin address: 189YW752GNLpwzZjLcvwBgrJNBWCj9GYHH
Thank you for reading