Bitcoin Mining

In the very early days of Bitcoin, this was a reasonable way for an average, everyday person
with a little computer knowledge to generate income. However, as more people began to use
Bitcoin and realized the potential for making money, large groups of people (including some
corporations) were set-­up, effectively locking out individuals who want to mine for bitcoins
using a home computer.

Here's a look at what you need to get started with Bitcoin Mining.

● Bitcoin Mining Software -­ While early Bitcoin Clients included the ability to mine for
bitcoins, this stopped as dedicated software for Bitcoin Mining was created and
released. You'll still need a Bitcoin Wallet to store the bitcoins you collect via mining,
but the actual mining software will be separate from the main Bitcoin Client.

● Bitcoin Mining Hardware -­ As Bitcoin became more popular, people realized that
graphics cards in computers were great for doing the complex math needed for Bitcoin
mining. Soon, dedicated hardware was created just for mining bitcoins. Software is still
needed to run them, but these devices -­ known as ASICs after the type of processor
they use -­ are almost a necessity to have enough computing power to be able to
successfully mine bitcoins.

Another thing to think about is joining a pool or what's known as a Bitcoin Guild. This is a
group of people who pool their computing power together in order to solve blocks more
quickly. This makes it easier for smaller players (individuals) to be able to compete. Once a
block is solved, the bounty is split up between members of the group based on the amount of
processing power they contributed to mining the bitcoins.

Additionally, some enterprising individuals have set-­up companies with entire data centers
setup with multiple computers in order to mine bitcoins on a very large scale. The pure
computing power available to them makes it difficult for individuals to compete these days. This
is one reason Bitcoin Guilds are becoming so popular. Lone Bitcoin miners are rarely able to
compete with the large companies unless they band together.

HOW TO OBTAIN BITCOIN

Understanding how Bitcoin works may be interesting to some, but you're probably wanting to
know how you can acquire some bitcoins of your own. There are actually a few ways you can
legally get bitcoins -­ no matter where you live in the world. As long as you have an Internet
connection and the Bitcoin software installed, you're going to be able to begin using this virtual
currency. The best news is that it's actually fairly easy to begin to build up your Bitcoin Wallet
if you have a little spare time.

First, it should be noted that it's really difficult to purchase bitcoins with a credit card or PayPal
account. This may seem odd at first, but if you think about it this makes sense. It's really easy
to issue a chargeback on a credit card. If someone buys BTC with a credit card and then
reverses the charge, it's really tough to prove to the credit card companies that the exchange
really happened. Because of this, most major Bitcoin Exchanges do not allow you to purchase
BTC with a credit card or PayPal account.

Okay, with that aside, let's dive in and look at the exact steps you're going to need to take in
order to start amassing BTC of your own. It's important to remember that the value of one BTC
is very volatile right now, so you probably don't want to invest everything you have in this virtual
currency. At the same time, the popularity of Bitcoin is growing throughout the world and some
people are already getting rich by building up large piles of bitcoins virtually via means and
method we'll describe below.

Step One: Get a Bitcoin Wallet

The very first thing you're going to need is a Bitcoin Wallet -­ aka a Bitcoin client. No matter
what type of computer you're running, there's going to be an installer program to get you up
and running in no time at all. Most people find it takes around 5 to 10 minutes to get a Bitcoin
client installed and connected to the network.

Be sure you take your time to find a client you're comfortable with using. Most are very
similar, but some have some extra bells and whistles that might make it easier for you to get
started. The most popular option for Windows, Mac and Linux is currently MultiBit. Bitcoin
Wallet for Android OS is also available.

Another option is to use a web based Bitcoin Wallet, although this isn't really recommended.
While you may be able to find a service that offers a high level of security, it's not the same
level you'd have if you install the software on your own computer where you have complete
control. Coinbase is one of the more popular online Bitcoin wallets currently.

Whichever you choose, once it's installed the next step is easy. You'll generate a public and
private key. This is your Bitcoin address that will allow people to send BTC to your account.

After you have your Bitcoin Wallet setup, you have a few different options on how to accrue
BTC in your wallet. We're going to go over these -­ one by one -­ next.

Bitcoin Exchanges

Bitcoin exchanges weren't around when Bitcoin first came out, but they're now an integral part
of how the whole Bitcoin ecosystem works. There are exchanges that include Bitcoin among
other virtual currencies online as well as marketplaces that deal exclusively with BTC
transactions.

It's interesting to note that some of these marketplaces will hold a balance for you -­ outside of
your Bitcoin Wallet -­ in order to make it easier to conduct trades. Choosing the right Bitcoin
Exchange is important if you want to stay safe and not risk losing your BTC balance due to a
scam or technical problems.

Here's a look at the major factors you need to look at before choosing a Bitcoin Exchange.

● Security – The most important aspect you want to think about is security. If a Bitcoin
Exchange is new to the Internet and is missing contact information, this is a good sign
that they probably don't care too much about the security of your personal information.
It's important to do your homework so that you can determine which Bitcoin Exchange
website has the best track record when it comes to security. Luckily, if you spend any
amount of time on the many Bitcoin forums and communities online, you'll see which
exchanges have problems and which exchanges are recommended.

● Geography -­ While Bitcoin is a decentralized network that spreads around the globe,
you still need to think about your physical location. For example, some Bitcoin
Exchanges will not allow you to withdraw funds to a US bank account. It's a good idea
to make sure whatever exchange you're thinking about using has a way for you to
convert your BTC to your local currency easily and safely. In 2013, some people
began complaining about the amount of time it took MtGox to transfer funds to the US,
so it's a good idea to once again hit the forums and try to gauge public opinion about
any exchange you're thinking of using.

Next, let's take a quick look at some of the major Bitcoin Exchanges currently operating. New
ones are appearing all the time, but it's generally a safer bet working with one that has been
around for a while and has managed to build up a track record of being reputable and honest.

● CoinBase – This is one of the most popular Bitcoin Exchanges at the moment. They
offer the ability to transfer funds to US bank accounts. Having said that, if you live
elsewhere in the world, you may not be happy about not being able to transfer funds to
your local bank account.

● MtGox – At one time, MtGox was responsible for the majority of Bitcoin transactions in
the world. This has changed recently as they've run into some legal problems in
different countries around the world, but they're still a very popular Bitcoin Exchange
that many people use on a daily basis.

● BTC-­E – This website is based in an unknown city in Bulgaria, so you might be
cautious about keeping any BTC here. The prices per BTC are generally a lot lower
here, but this is because it takes a ridiculous amount of time to confirm a transaction.
Still, it's an option you might look at depending on where you live currently.

● Bitstamp – This exchange is similar to CoinBase in a lot of ways. The main difference
is that they do routinely work with people in countries other than the United States,
making it easy to transfer BTC to foreign currencies. If you're looking for a truly global
Bitcoin Exchange, this is a good place to start.

● Cryptsy – This isn't a pure Bitcoin Exchange. By that we mean that you can trade
other cryptocurrencies as well. For example, you can exchange your BTC for LTC
(LiteCoins) and vice versa. If your virtual currency investments go beyond Bitcoin,
you'll want to check out Cryptsy.

● BTer – With slow transaction speeds and limits on the size of transactions, this isn't
really recommended, but we thought they deserved a spot on the list because they do
serve the needs of some people who use Bitcoin.

● BTC-­China – One of the fastest growing Bitcoin exchanges – according to Wired
magazine – is BTC-­China, which has really ramped up their efforts recently. By some
accounts, they've overtaken MtGox as the place where most Bitcoin transactions take
place on a daily basis.

Face to Face / Over the Counter Trades

Even though it's a virtual currency, you can still arrange to meet someone in person and
conduct a transaction with them. Having said that, finding such people might be difficult. This
is where the LocalBitcoins.com website comes into the picture.

LocalBitcoins is the main website people use to find people who want to meet face to face to
exchange bitcoins for cash or vice versa. The website even allows them to negotiate prices
beforehand. Add in an escrow service, and it's one of the easiest and safest places to find
someone to exchange bitcoins with locally.

No matter the value of the money being exchanged, it's important for you to stay safe. To do
this, it's a good idea to always arrange to meet in a public place surrounded by a lot of people.
Never agree to go to someone's home, apartment, or a field on the outside of town! In all
seriousness, use your common sense when setting up a face to face Bitcoin transaction.

Even though you're meeting in the real world, you're still going to need access to your Bitcoin
Wallet. Once you have the cash, use the other person's Bitcoin Address to send them the
predetermined amount of bitcoins. The good news is that you can use a laptop, tablet or even
your smartphone to do this wherever you are as long as you have a WiFi connection.

In addition to one on one meetings, many people around the world also have Bitcoin groups
that meet in public places in order to exchange Bitcoin for cash and vice versa. Websites like
Meetup.com routinely have Bitcoin groups that meet in real life. In some big cities, you may
find multiple groups meeting on different days of the month. Additionally, you may find so
called "Satoshi Squares" or Bitcoin markets set-­up in public places.

It should be noted that in most cases you're going to pay a transaction fee of 5% to 10% (or
more) to the seller in exchange for the privacy and immediacy. This is too much for some
people, but for others it's just a cost of doing business. Just be sure the local police don't think
you're exchanging money for illicit substances!

HOW DOES BITCOIN WORK?

The Basics You Need to Understand

Let's start by looking at the different things you need to get a cryptocurrency working. We'll
start with the basics and then move into more specifics about what you'll need to get started.

● The Transaction -­ The first thing you need to think about with a virtual currency is the
transaction -­ the actual exchange of value from one person to another. While this may
sound simple, in many ways it can be easy to forge a transaction to try to cheat the
system. With physical currency, transactions are controlled by banking institutions
which verify that they're not forged and are unique.

● A Serial Number -­ To avoid people trying to forge transactions or reuse them with
virtual currency, you need a way to tie a unique serial number to each person and
each transaction as well. Bitcoin does this by using a private and public encrypted key.
These hashes are used to make sure transactions aren't duplicated in the network and
there's no way to cheat the system.

● Goodbye Banks -­ Currently, banks are in place to facilitate a financial transaction
between two people. When Bitcoin was being set-­up, it was realized that banks could
be taken out of the picture entirely if a peer-­to-­peer network was created to verify the
transactions between two entities. This decentralization of financial transactions is one
of the biggest reasons so many smart people are getting excited about Bitcoin.

● Bitcoin Mining -­ Another piece is needed to make Bitcoin work. If it's too easy for
transactions to be validated, people could program bots to flood the network with
verifications, making it difficult to actually verify the transaction. To combat this, the
idea is to make it computationally difficult to verify the transaction. This helps fight
against the bad guys while at the same time offering a way to reward people who give
up computing power to verify the transaction. The computational puzzle has to be
difficult enough to make it impossible to hack while easy enough to still allow people to
solve in a reasonable amount of time.

So, when you set-­up a Bitcoin Wallet -­ aka a Bitcoin client -­ you will generate a public and
private key that is unique to you. This is used to transfer bitcoins to you as well as allow you to
transfer bitcoins to other people in the network.

After your Bitcoin Wallet is installed and running, you can create a Bitcoin Address if you
want to receive BTC from someone else on the network. At the same time, you can use
another Bitcoin address generated in order to pay for goods or services.

The next step is a transaction being generated when the actual swapping of BTC occurs
between a buyer and seller. This is added to the block chain where others will verify the
transaction (by solving the math problem) and then publish details of the transaction publicly.

Good and Bad of Bitcoin

As you can see from the points above, Bitcoin has a lot of positives and negatives attached to
it currently. Because it's decentralized and generally has low fees for transactions, many
people are starting to take notice and get excited about this and other cryptocurrencies.
Another thing to note is that some people worry about who controls the Bitcoin network. The
reality is that because it uses peer-­to-­peer technology, no one person or corporation can own
the Bitcoin network. This may seem scary to some while it's revolutionary and exciting to
others.

The need for all versions of Bitcoin software to be compatible and be able to communicate with
each other is paramount to Bitcoin's success. Luckily, most people who are involved realize
this and have worked together to improve the Bitcoin software and network considerably in just
a few short years.

The fact that Bitcoin is different than anything else that was around when it first came out is
both good and bad, but at the end of the day it makes Bitcoin unique and special. And this just
might be what's able to help Bitcoin grow even more quickly around the world. This may turn
out to be the financial system that brings the world together.

Bitcoin vs. Conventional currencies

1. Bitcoin is Decentralized

Unlike traditional currency, which is controlled by a central authority -­ usually an arm of the
government -­ Bitcoin is decentralized. Because it operates as a peer-­to-­peer network, all
transactions and verification of transactions are done by various people in the network.

2. Bitcoin is Virtual Currency

The other thing that sets Bitcoin apart from traditional currency is the fact that it's virtual. That
is to say coins and paper money aren't produced to represent the value. Instead, all bitcoins
exist in virtual space. This means you can't go to an ATM and withdraw physical money. Some
people have created unofficial physical representations of bitcoins, but first and foremost,
Bitcoin is virtual.

3. Bitcoin has Scarcity

Because only 21 million bitcoins will be created, BTC has scarcity, unlike traditional currency
that can be printed when governments decide to print more. To spread out the creation of
bitcoins being released into the world, the number that are created by "mining" will half every
four years. This means that people will still be able to create them until the year 2140. At that
time, no new bitcoins will be created and the existing stockpile will enjoy the benefits of
scarcity -­ i.e. becoming more valuable.

4. Bitcoin transactions cannot be reversed

In order to preserve the block chain of all transactions in sequential order, Bitcoin transactions
are not reversible. Additionally, a Bitcoin transaction can take ten minutes or more to confirm.
This is different than other currencies that typically process transactions in seconds and also
allow for reversing a charge to a credit or debit card.

5. Bitcoin is not Ubiquitous

Wherever you go in the world, you're going to run into local currencies. In most places, you'll
be able to trade your country's money for bills of the country you're visiting. And no matter
where you go in the world, you're going to be able to trade your money for goods and
services. Bitcoin hasn't yet been embraced by the world at large. This may change in years to
come as more businesses begin to accept Bitcoin for payment, but for now it's a difference
that matters to a lot of people.

GENERAL INFORMATION YOU SHOULD KNOW ABOUT BITCOIN

WHAT IS BITCOIN?

Bitcoin is called virtual currency, but a better term is cryptocurrency. Unlike physical money,
there are no coins or paper money officially produced. No government entity decides how
much and when to release it into the world. Bitcoins are created digitally by people as they
solve complex math problems with their computers. In many senses, it is truly decentralized.
One of the interesting things about this virtual currency is that all transactions are stored and
published publicly. The currency is traded via a vast peer-­to-­peer network that encompasses
the entire globe. While there aren't a lot of rules regarding Bitcoin, there are some, and this
helps with making bitcoins a genuine currency that works like "normal money."
BITCOIN EXCLUSIVES

Next, we're going to take a look at some of the ways that Bitcoin is different than traditional
currencies. It's these differences that make Bitcoin such a powerful possibility. One of the
main differences is that Bitcoin is decentralized. No one person, corporation or government
controls the Bitcoin network. This isn't the only difference, however, so let's take a look at
some things that are exclusive to Bitcoin.

       INTRODUCTION

THE BIRTH AND EVOLUTION OF BITCOIN

The idea of Bitcoin was created by an anonymous programmer who goes by the name
“Satoshi Nakamoto.” The idea came to this person back in 2008, when the world economy was
looking at a major recession. Satoshi first registered the bitcoin.org domain name then went
on to release a paper about Bitcoin in October of 2008. They wanted to come up with a new
currency that held onto the good points of previous currencies -­ divisibility, portability,
durability, uniformity, quality and scarcity.

The paper Satoshi published in 2008 described a mathematical problem with 21 million
possible solutions. This finite number of solutions fit well with his idea of making Bitcoin scarce
-­ just like real money. Even though bitcoins had no value when they were first released, he
hoped this would change over time as more people became involved. Satoshi registered the
project for Bitcoin at SourceForge.net on November 9, 2008, deciding to keep the code open
source. This helps by allowing others to view and study the code, even making their own
contributions. Strict controls were put in place to make sure everyone is on the same page
when it comes to the direction the software behind Bitcoin is moving.

By January 9, 2009, Bitcoin v0.1 was released and announced on a cryptography mailing list
online. A lot of people noticed, but Bitcoin didn't really take off quickly. For over eight months,
work on the code continued but the problem of bitcoins not having any value continued. Then,
in October of 2009, exchange rates for bitcoins were published by New Liberty Standard.
They listed the value at 1,309.03 BTC = $1 USD. While many people laughed at the idea of
starting a new currency, the fact that bitcoins now had value changed everything. The Bitcoin
peer to peer network was up and running. And due to the fact that only a certain number of
Bitcoins were created, this gave the new currency scarcity, which helped it tremendously.

On December 16, 2009, Bitcoin v0.2 was released to the world. The main users of Bitcoin at
this time were computer programmers, but they actually began to trade BTC back and forth for
money and services. By January of 2010, the first Bitcoin Exchange was established online,
allowing people to buy, trade and sell BTC in a marketplace. By July of that year, MtGox, what
would become one of the largest BTC marketplaces, was launched.
Over the next three years, Bitcoin would become even more popular, reaching many
milestones along the way. From the first pizza bought with BTC to it finally reaching parity with
the US dollar on February 9, 2011. Slashdot also took notice of Bitcoin in February of 2011,
causing the Bitcoin.org website to crash due to the number of people checking out the
website. Over 5 million BTC had been created by this time, but it was still well under the 21
million to be created.

Many new marketplaces opened in 2011 and 2012 as more and more people began to find out
about Bitcoin. While it had started as a tech curiosity for programmers, Bitcoin was slowly but
surely attracting all types of people. And as the media coverage of Bitcoin continued, the
number of people interested also rose considerably. On June 2, 2011, the exchange rate for
bitcoins reached $10 USD per BTC, an unheard of level up to that point. Some speculated that
the value would hold around $10, but this wasn't the case as bitcoins became even more
popular -­ and valuable.

As the value of bitcoins increased, criminals also started to take interest. On March 1, 2012, a
large theft of bitcoins occurred. Close to 50,000 BTC were pilfered after a security breach at
the web host Linode. This furthered the idea that bitcoins had value and made them more
valuable. Unfortunately, this wouldn't be the only theft of BTC during its lifetime, but it was the
largest up to that point, and one that made a lot of people notice Bitcoin for the first time.
In September of 2012, the Bitcoin Foundation was set-­up. A lot of Bitcoin conferences had
taken place over the previous two years, but the Bitcoin Foundation was formed to
standardize, protect and promote Bitcoin worldwide. This is now the organization that votes to
make major decisions about the future of Bitcoin around the world. Keep reading as we take a
look at how you can get involved with Bitcoin as well as what the future holds for
cryptocurrency around the world.