Bitcoin Basics

What is Bitcoin?

Bitcoin is a decentralized digital currency created by an individual or group of individuals under the pseudonym, “Satoshi Nakamoto.” Bitcoin does not rely on a central server to process transactions or store funds. No more than 21 million BTC can ever be created.

Bitcoins are sent and received through software and websites called wallets. They send and confirm transactions to the network through Bitcoin addresses, the identifiers for users' Bitcoin wallets within the network. Each Bitcoin address has a private key, which is a password used to “unlock” the bitcoins in the address so they can be sent to another person. The private key is what gives you control over your bitcoins, and should not be given to anyone who shouldn’t have access to your money.

Bitcoin addresses are often stored in “wallets.” These wallets are also capable of generating new Bitcoin addresses.

Bitcoin wallets come in a few different forms. Bitcoin wallets can be kept locally on your computer a mobile device, a “web wallet” on a privately owned website or securely offline. Web wallets are hosted by private companies, which store the wallets on their servers. When using a web wallet, you should be aware that some wallets give their host companies access to your private keys, while others have no access to your coins. Additionally, some companies are bound by Anti-Money Laundering and Know Your Customer laws, requiring them to ask you for personal information. Other companies are not bound by these laws, and their web wallets can be used without giving up personal information or revealing your identity.

Wallets can also be kept on physical media. The most popular physical wallet is a paper wallet, which is a slip of paper containing a single address. Hardware wallets are also an option, which are dedicated Bitcoin-storage devices.

Bitcoin Wallets

Where do I store them?

Desktop Wallets

  • Armory: High security, more suited for experienced users
  • Electrum: A convenient option for beginners or those who don’t require strict security measures, although this wallet is still a secure option.
  • Bitcoin Core: The “original” Bitcoin wallet. The Bitcoin Core wallet was created by Satoshi Nakamoto as a client for the Bitcoin protocol.
  • MultiBit HD: High security, data loss recovery, supports hardware wallets such as Trezor and KeepKey
  • Msigna: A secure multi-signature Bitcoin Wallet making security less complex

Web Wallets

Mobile Wallets

Hardware Wallets

Hybrid Wallets

  • Green Address
  • Coinbase: Coinbase users can access their web wallets from the Coinbase mobile app as well as the Coinbase website.

Tracking Bitcoins

How do I track them?

A Bitcoin address looks like this: 123EzjTvKCuDVvcjQaQqUkijtnrzok4ENY also sometimes starting with a 3.

Every bitcoin payment has a unique transaction ID as well. A transaction ID looks like this: dbf7ba60a6cc1a8668ab6cd9b77a80b4959286ee42ac6db8dd0d294bbca63340

When sending a bitcoin payment, you will be able to view it as it is broadcast on the blockchain in real time with a “block explorer.” These explorers track the blockchain and show you the status of your payments. The most popular block explorer is blockchain.info. Some alternatives are:

To use a blockchain explorer, you simply paste a Bitcoin address or transaction ID into the search bar, and the explorer will return the relevant information.

In many cases, bitcoin transactions will not be “completed” until they get about 3 confirmations from the Bitcoin network. Most wallets will not let you spend fund you’ve received until their corresponding transactions receive the proper amount of transactions based on the wallet you are using. You will want to pay attention to the confirmation status of your payments as some transactions will require up to 1 hour.

Almost every wallet will give you some kind of visual notification that your transactions have gained the proper amount of confirmations. You can also check on the status of your transactions by using a block explorer. As mentioned above, paste the Bitcoin address or transaction ID into the explorer, and you will be able to see the amount of confirmations a particular transaction has received.

Existing Use Cases

There are many already existing uses for Bitcoin. Bitcoin’s use-cases can be broken down into two categories: regular financial transactions and non-currency uses. Here are a few examples of regular financial transactions that can be done with Bitcoin:

  • Retail purchases
  • Payment for services
  • Real estate purchases
  • Wages and salaries
  • Remittances
  • Currency exchange

Non-currency uses are based on Bitcoin’s underlying technology, the blockchain. Many of these uses can be done directly on Bitcoin’s blockchain through specially-built applications, while some require a different protocol, such as Ethereum. Some basic non-currency uses for the blockchain technology include:

  • Contracts
  • Signatures
  • Voting
  • Record keeping
  • Cloud storage

Where Can I Buy Bitcoin?

Bitcoin can be purchased in a number of ways. The two most popular methods of purchasing bitcoin are online exchanges and peer to peer methods, and there are many additional options.

Online Exchanges

Online exchanges are the most widely-used way of purchasing bitcoin. These exchanges are websites that host trading platforms where people can buy and sell bitcoin. To use an exchange, you have to make an account on the website and may have to provide personal information including connecting a bank account to your exchange profile.

There are several different exchanges. Some are geared towards beginners, while others cater to more seasoned traders by offering various analysis and trading tools.

*Please note that our list of exchanges is not exhaustive, and you may find other platforms while conducting your own research.

Beginner-friendly exchanges:

  • Coinbase
  • Circle
  • Uphold
  • Paxful: Allows you to buy bitcoins with gift cards, cash deposits, online transfers, and debit/credit cards.

More advanced exchanges:

Bitcoin ATMs

Bitcoin ATMs are modified versions of traditional ATMs. These machines can convert fiat currency to bitcoin and vice-versa. However, it should be noted that some Bitcoin ATMs are only “one-way,” meaning that they can only be used to buy or sell bitcoin, and not both. Other machines are “two-way,” and are capable of both purchasing and selling bitcoin. Bitcoin ATMs are currently not very widespread. To check if there is a Bitcoin ATM in your area, check coinatmradar.com

Face-to-Face Exchanges

If there are a significant number of bitcoin users in your area, it’s likely you will be able to buy and sell face-to-face. Services like LocalBitcoins shows you if there are any buyers or sellers in your area, and aids you in setting up meetings to trade with them. However, there are risks associated with Face-to-Face trading, which will be discussed later on in this pamphlet. You can also check sites like meetup.com and find a local Bitcoin meetup and see if any participants are open to trading.

  • LocalBitcoins: LocalBitcoins is a website that shows you bitcoin traders in your area, and helps you organize meetings with them when you want to buy or sell.
  • Mycelium: The Mycelium mobile wallet has a local trader function that works the same way as LocalBitcoins. The utility displays available traders in your area, and helps you arrange meetings.
  • Meetup.com: You can check Meetup.com to see if your area has any Bitcoin meetup groups that gather regularly. If your area does have a Bitcoin group, you can go to the next meeting and see if anyone is willing to trade.

Local markets have their fair share of risks. You will most likely be interacting with strangers when trading locally, and you can never be certain if they are legitimate traders or criminals with unsavory motivations. If you decide to trade locally, arrange meetings in secure and well-lit areas, such as bank lobbies or highly visible parking lots. Additionally, you should only trade locally in areas that you are familiar with or feel safe in.

Where Can I Spend Bitcoin?

Merchant adoption of bitcoin has exploded in recent years. If you want to buy something with bitcoin, you can probably find a business that accepts the digital currency. Even if you can’t find a bitcoin-accepting business, there are still workarounds to let you spend your coins.

There are a few major retailers that accept bitcoin, many of them are businesses that specialize in computers and other electronic hardware. A few of the biggest bitcoin-accepting businesses include:

If you want to find bitcoin-accepting stores in your area, you can consult coinmap.org to find local businesses that will take your coins.

Bitcoin Debit Cards

Bitcoin debit cards have grown in availability and popularity over the last two years. Most of these cards operate on the Visa or MasterCard networks, and will therefore work anywhere that accepts those two major cards. These cards work like normal debit cards; you connect a bitcoin wallet to the card, and when you spend from the card it will debit your wallet balance, immediately convert the bitcoins to fiat, and send the fiat payment over the credit card network to the merchant. Bitcoin debit cards are a convenient way to spend bitcoin on websites and physical stores that do not directly accept the digital currency. It should be noted that some Bitcoin debit cards work as pre-paid cards rather than normal bank cards.

Some of the more popular Bitcoin debit cards available include:

  • E-Coin Not available in the United States
  • Xapo Unavailable in the United States, Venezuela and Vietnam
  • coinsbank.com
  • Coinkite Secure Bitcoin storage and Debit Card
  • Shift Card Available for Coinbase and Dwolla Customers in all their available locations
  • WageCan Bitcoin specific debit card and mobile wallet

Note: These lists are not exhaustive, and you may find more Bitcoin debit card providers when conducting your own research.

How Can I Save Money Spending Bitcoin?

Bitcoin can be spent in a number of ways that can actually save you money. Some methods of saving money with Bitcoin are straightforward and reliable, while others are riskier and require discipline and vigilance. Although we will cover the riskier options, we recommend that people new to Bitcoin stick to the safer and easier methods.

Discounts

Looking for special bitcoin discounts is one of the easiest ways to save money when spending the digital currency. Many bitcoin-accepting businesses offer exclusive bitcoin discounts on their products as a way to encourage people to use bitcoin instead of credit cards. Taking advantage of these discounts helps both you and the business owner; you save some money, and the business owner saves on the 3% fee he or she would have had to pay if you used a credit card.

These discount promotions often end after a certain amount of time, and their availability depends on bitcoin acceptance in your locale. Therefore, you should do your own research if you’re interested in taking advantage of these discounts.

Purse.io

Purse.io is a website where you can buy things on Amazon with bitcoin and choose a discount on your purchases. Purse has two methods of saving money on your Amazon purchases:

Purse Instant

This is Purse’s default discount method. With Purse Instant, you get a 5% discount on all Amazon products. All you have to do is search for what you want and add it to your cart, and the 5% discount is immediately applied. Purse Instant orders are processed directly through Purse, and does not use their buyers and spenders marketplace.

Name your discount

This is the Purse “advanced feature,” where you can use the buyers and spenders marketplace to pick the discount you want. To use the Name Your Discount service, you paste an Amazon Wish List URL into the search bar to create your order. Then, you can set how much of a discount you would like on your purchase. Once you submit an order, a buyer on Purse will claim your order and purchase your products with fiat currency. In return, they get the bitcoin that you used to pay for your Amazon products. Discounts can range from 2% off to 50% off. However, the higher you set your discount, the longer it will take for someone to claim your order.

CardCash.com

CardCash is a discount gift card buying and selling service that accepts bitcoin for gift card purchases. All gift cards for sale on CardCash come with a discount, allowing you to save money on the gift cards you buy with bitcoin. You also have a chance to make some money as well with the gift card selling feature. To sell a gift card, enter the brand of the card and the amount of money it’s worth, and click the “get an offer” button. The site will then tell you how much you can make from your gift card, with a number of options for how you can receive your money. However, you cannot get paid in bitcoin when selling gift cards—all payment options involve fiat currency.

Gyft.com

Buying gift cards with Gyft can potentially save you money through its reward points program. Reward points give you discounts on future gift card purchases. According to Gyft’s website, 1 point is worth a $0.01 USD discount. These points are earned through “special promotions and contests.” By earning reward points on Gyft, you can get discounts on the gift cards you purchase with your bitcoin, helping you save money.

Paxful

The Paxful marketplace is a great place to save money on your bitcoin purchases. On the marketplace, sellers offer discounts on their gift cards, allowing you to get them for below face value.

Diversify Your Investments

Diversification is a staple in any investment strategy, including Bitcoin. If you have a significant amount of bitcoins, and you’re worried about volatility, you might want to consider putting some of your bitcoins into gold. Gold has been considered a safe way to preserve wealth against devaluing currencies for centuries. Gold has even been known to gain value over time, creating the potential for profits.

BitGold

Bitgold allows you to directly convert your bitcoins into gold in minutes.

Vaultoro

Vaultoro is another gold exchange service. In addition to converting your bitcoins into gold, Vaultoro allows you to convert gold into bitcoins. This two-way capability allows you to adjust your investments to take advantage of market fluctuations.