Bitcoin
StepbyStep
Author:MichaelCaughey
©CopyrightMichaelJCaughey2012.Allrights
reserved.
Idedicatethisbookto
thedevelopersofthesoftware,
thedesignersoftheminingrigs,
theminersdiggingforBTCblocksthatkeepthenetwork
alive,
theexchangesandservicesthattienonBTCtoBTCso
thismarketcancoincidewithtraditionalmarkets,
theoldhandsthatcontinuetohelpothersenterthe
marketplace,
thenewcomerwhowillbeanoldhandsoonenough,
themerchantsthatuseBTCintheirMarkets,
thedepositors,
Cindiforeditingthis,
andmywifewhorealizesthatIhaveBTCfever.
-Michael
Contents
IntroductionWhatIsABitcoin?BitcoinStorageBitcoinExchangeFundingYourMarketAccount
ExtractingFundstoGovernmentBackedCurrencyBitcoinTransactionsOtherTransactionTypesBitcoinsinActionEarningBitcoinsBitcoinUnderbellyAppendixA:OtherResourcesAppendixB:Bibliography
Introduction
ThegoalofthisbookisnottobethecompleteguidetoBitcoin(BTC).ThiseBookismeanttogetthenewuseruptospeedquicklyandsafely.Theusershouldbeabletohaveasecurewallet,buyandsellBTC,acceptandsendBTCwiththesameleveloftrustandconfidenceastheexistinguserbase.
TherearemanypeoplebeforemethatputalotofhardworkintodocumentingeverythingthereistoknowaboutBitcoins.Mygoalistocondenseallthatintosomethingthatwillgetyouupandrunningquickly.Ifyouarethetypeofpersonwillingtotakethetimeandmakethemistakes,youcanfigureitoutwithoutthiseBook.Ihaditfiguredoutin
aboutthreeweeksofresearchandsomethinglike80to100hoursoftime.Therehasbeenevenmoretimeaddedsincethen.Ihopetofasttrackyouruser’sexperienceandgetyouusingtheBTCinfrastructureaseasilyaspossible.ThegoalistogetyouuptospeedandusingtheBitcoinnetworkinthetimethatittakesyoutoreadthiseBook.
IwillmakereferencesthroughouttheeBooktoanumberofadditionalresourcesthatexpandontheinformationthatI’mgivingyou.OftentimesIwillpointtothewikisite.ThroughoutmanyplacesintheeBook,therearescreenshotsfromcopyrightedsources.Ididobtainthewrittenpermissiontoincludethescreenshots.Ihopeyouwillvisitthesites
referencedintheeBook.
WhatIsABitcoin?
ABitcoinisaunitofmeasureinanonlinecurrencyexchangesystem.Unlikegovernmentbackedfiat,suchastheUSD,thereisnogovernmentorcentralowneroftheBTC(Bitcoin).ABitcoinistradedwithinapeertopeernetworkwhichusescryptographicprocessestobuildtrustaroundeach
transaction,thusbuildingproofofownershipforyourBTC.AccordingtotheBitcoinwikisite:
“Bitcoinisanexperimentalnewdigitalcurrencythatenablesinstantpaymentstoanyone,anywhereintheworld.Bitcoinusespeer-to-peertechnologytooperatewithnocentral
authority:managingtransactionsandissuingmoneyarecarriedoutcollectivelybythenetwork.Bitcoinisalsothenameoftheopensourcesoftwarewhichenablestheuseofthiscurrency.
Thesoftwareisacommunity-drivenopensourceproject,released
undertheMITlicenseandoriginallycreatedbySatoshiNakamoto.
Bitcoinisoneofthefirstimplementationsofaconceptcalledcrypto-currencywhichwasfirstdescribedin1998byWeiDaionthecypherpunksmailinglist.Buildinguponthenotionthatmoneyisanyobject,oranysortof
record,acceptedaspaymentforgoodsandservicesandrepaymentofdebtsinagivencountryorsocio-economiccontext,Bitcoinisdesignedaroundtheideaofusingcryptographytocontrolthecreationandtransferofmoney,ratherthanrelyingoncentralauthorities.”(anonymous,2012)
Let’sdefineafewterms.
Bitcoin:aunitofmeasureforthecurrencytraded,whichcanbesentovertheinternet
Block:usedtorecordtheownershipoftheBTCwithinthenetwork
Hash:usedinthecryptographicprocess
MarketValue:thetotalnumberofBTCtimesthecurrentexchangerateinthegovernmentbackedcurrency
Mining:Theprocessoffindingcryptographichashesthatcanbeusedtokeepthenetworkrunningortofindnewblocksof50BTCwhichentercirculationafterfound
Thecurrentnumberofblocksis199,446.Thereare
9,972,350BTCandtheUSDExchangerateis$12.10/BTC.So,thetotalmarketcapitalizationis$120,665,435USD.Insimpleterms,ifIhad$121MillionUSD,IcouldbuyalltheBTCinexistenceifeveryonesoldthemtomeatthecurrentrate.
AsIwillexplaininthechaptersthatfollow,theexchangerateisdetermined
bysupplyanddemand.WhatyoushouldtakeawaynowisthatthenumberofBTCisnotfixedatthistimebutgrowing.Inthefutureitwillbecomefixed.
ThenumberofBTCgrowsslowlyovertimeandwillreachamaximumnumberat21millionatwhichtimetherewillbenomoreBTCcreated.Theonlymethod
throughwhichnewBTCcanenterintothemarketisthroughBTCMiningoperations.Thisiswhereusersbuyspecializedcomputerequipmentwhichcanbeusedtoprocesstheworkrequiredtofindtheuniquehashesthatareusedforthenetwork.Theminerskeepthenetworkalive.Thehardwaretheyuseiswhatkeepsthenetworktraffic
flowing.Withoutitmoving,atransactionwouldnotoccur.Theminersmustbuytheequipmentandpayfortheelectricitytorunit.Inexchange,theystandachanceoffindingnew50BTCBlocks,knownasareward.Therewardwillreduceto25BTCsometimearound12/1/2012.Onceaminerfindstherewarditbecomestheirs.Someminersminein
poolsthatshareinthefindsovertime.
IfyouarethesortofreaderthatisstronginmathandarelookingforareallygoodsourceofinformationabouthowtheBitcoininfrastructureworks,hereisagoodlinktotheBitcoinwiki:
https://en.bitcoin.it/wiki/Difficulty
https://en.bitcoin.it/wiki/Difficulty
TheeBook,whichcanbefoundfor$0.99onAmazon,describesthemathingreatdetail.
Bitcoin:APeer-to-PeerElectronicCashSystem[Illustrated]
http://www.amazon.com/Bitcoin-Peer---Peer-Illustrated-ebook/dp/B00538IVFK/ref=sr_1_1?ie=UTF8&qid=1348453217&sr=8-1&keywords=Bitcoin%3A+A+Peer-
http://www.amazon.com/Bitcoin-Peer---Peer-Illustrated-ebook/dp/B00538IVFK/ref=sr_1_1?ie=UTF8&qid=1348453217&sr=8-1&keywords=Bitcoin%3A+A+Peer-to-Peer+Electronic+Cash+System
to-Peer+Electronic+Cash+System
BitcoinStorage
AsauseroftheBitcoinnetwork,youwilleventuallyownyourownBTC.You’llneedsomewheretoputthem.Themostlogicalplaceisawallet.Asitwouldhappen,thisisexactlywhereyouwouldputthem,intoanelectronicwallet.Thewalletcanresidelocallyonyourcomputer,onaUSBStickor
onlineinoneofthemanyonlinewalletsites.
Asaprofessionalsecuritypractitioner,IfeeltheneedtomakethefollowingstatementwithregardstoallimplicationsofsecurityreferencedinthiseBook:
Note:Allclaimstosecurityinthisbookcannottakeintoaccountallthreat
vectors,namelyyou.IfyouallowanattackertoinfiltrateyourcomputerwithaTrojanthathasabackdoorandkeylogger,theywilllikelyendupwithyourwallet.
Therearemanyunforeseenattacksurfaces.Iwillattempttodocumentsomegoodpractices.Ialsocannot
speaktothelevelofsecurityactuallyprovidedonthesecureonlinewallets.Recentlyanexchangewasinfiltratedandapproximately$250,000USDworthofBTCwasstolen(Kirk,2012).
Mygoalisnottoscarewould-beusersaway,butIdowanttoinstillinthemafairsenseofsecurity.IcansaythatIusetheBitcoin
networkandfeelsafeinusingit.
TradingBTCLetusstartwithhowBTCisexchanged.Insimpleterms,theprocessofsendingBTCfromoneusertoanotherisbasedonasymmetriccryptography.ThismeansthatifAlicewantstosendBob12.5BTC,thefollowingwouldhavetooccur:
1.Bobusesthewalletapplicationtocreatean
address,whichisrepresentedbythesoftwareasalongstringofalphanumericcharacters.2.BobgivesAlicetheaddresswhichisthepublickeyforwhichBobhasamatchingprivatekeyinhiswallet.3.AliceusesherBitcoinapplicationtosend12.5BTCtoBobusingthe
providedaddress.4.Thetransactionismadepubliconthenetworkandminersbegintoprocessit.5.Oncethetransactionhasgonethroughenoughcyclesonthenetwork,itisreleasedtoBob.
The12.5BTCarenownolongerAlice’s.The12.5BTCnowbelongtoBob.The
informationthatprovesBob’sownershipexistsinthedatabaseofblockswhichisstoredonyourlocalPCbythewalletapplicationorontheonlinewalletserviceifyouchooseanonlinewallet.TheproofofownershipforBobisthatprivatekeywhichisstoredinhiswallet.ThefactthateveryoneinthenetworkhasthesameinformationprotectsBob’s
righttoownershipaslongasheretainsthesecretkeys.Hecouldgivesomeonehiswallet,oritcouldbestolenfromhimandthebearerwouldhavetheabilitytotaketheBTCandtransferthemtoanotheraccount.
OnlineWallets
Thechoicetouseanonlinewalletisonewhichshouldbeweighedheavily.IwouldliketoquotesomethingfromthewikiwhichIbelieveisveryimportant:
“Whenbitcoinsarestoredonline,theproviderretainsfullcontrolofthoseamounts.YouaretrustingathirdpartytomaintainyourBitcoin
balanceonyourbehalf.Incomparison,ifyouruntheBitcoinsoftwareyourself,youareinfullcontrolofyourcoinssolongasthewalletfilestoredonyourcomputeriskeptsecretandsecure.”(Anonymous,Browser-basedwallet,2012)
AlistofeWalletscanbefoundhere:https://en.bitcoin.it/wiki/Category:EWallets
https://en.bitcoin.it/wiki/Category:EWallets
AnewerbreedofeWalletcalledHybrideWalletcanbefoundhere:https://en.bitcoin.it/wiki/Category:HybridEWallets
AGoodplacetostartwhencreatinganonlinewalletisBlockchain:
https://blockchain.info/
https://en.bitcoin.it/wiki/Category:HybridEWalletshttps://blockchain.info/
Step1:CreateaNewWalletTheironlinewalletcanbefoundat:
https://blockchain.info/wallet/
https://blockchain.info/wallet/
Select“StartANewWallet”.
Step2:CreatePassword
Createyourpassword,andconfirmit.Selectacomplexpassword.Usethefollowingrule:
·Atleastonecapitalletter·Atleastonelowercaseletter·Atleastonenumber·Atleastonesymbol~!@#$%^&*()_+=-[]\
mailto:~!@#$%^&*()_+=-[]/{}|;':
{}|;’:”,./?><·Makethepasswordatleast24charactersinlength
Followingthesestepswillmakeitnearimpossibleforanattackertocrackthepasswordandgainaccesstoyouraccount.
Next:WRITEDOWNTHEPASSWORD,andkeepitsafe.
EntertheCaptcha.
Pressthe“Continue”button.
Step3:MakeNoteoftheWalletURL
Iblockedoutmyaddress
sinceIdonotwanttoprovideextrainformationtoanattacker.CopytheentireURLfromhttps://throughtotheendofthatline.
Youcanoptionallyaddanemailaddressandnickname.
Thenpress“ProceedToLogin”.
Step4:LogintoOnlineWallet
Again,Icoveredupmy
address.You’llnoticethattheaddressintheAddressBarofyourbrowseristheonepreviouslynoted.
EnteryourpasswordwhichyoucreatedinStep2.
Press“OpenWallet”.
Fromhereyoucan:
·Fundyourwallet·Withdrawfunds·Modifyyouraccount
settings·Backupyourwallet·Sendmoney·Receivemoney·Viewyour
transactions·Viewaccount
balances
You’llnoticeanaddressabovethetwitterbird.ThisistheaddressthatotherswillusewhensendingyouBTC.
UntilyouhavebecomeveryfamiliarwiththeBTCenvironmentandyourwallet,youshouldconsidernotplayingwiththeimport/exportfunctionality.
Intheremainderofthebook,Iwilldemonstratevarioustasks:
·Fundingyourwallet·SendingBTC·ReceivingBTC·Viewingtransactions
IfyouhaveaniPhone,thereisanapplication(ofcourse)thatwillallowyoutoperformsomebasicfunctionswith
yourwallet.Forinstanceyoucanviewyourbalance,sendandreceiveBTC.Hereisanaddressformoreinformationonit:
https://blockchain.info/wallet/iphone-app
ThepreviousarticleindicatedthatyoucouldnotdownloadfromtheAppStore.Apparentlythishasbeenresolved,becauseIhave
https://blockchain.info/wallet/iphone-app
downloadeditfromtheAppStoreanditworksjustfine.Additionally,yourotheroptionsaretoloaditonajailbrokenphone.Ihighlydiscouragethissinceanyjailbrokenphonecaneasilybecompromisedbyanattackerandrenderyouraccountvulnerable.Ifyouhaveawaytobuildtheapp,youcandownloadthesourcecode,compileitandloaditonyour
phone.YouwillneedaMacandanumberoftoolstodothis.Ihaveonoccasiondonethisinthepast.Itisnotforthefaintofheart.Iflikeme,youareasoftwaredeveloperandhappentohavethisenvironmentalready,thismightbeanoption.
Androidisnotleftouteither.ThereisanappontheAndroidMarket.Ihavenot
reviewedthisapp,butitdoesexist.Hereistheaddressformoreinformation:
https://blockchain.info/wallet/android-app
https://blockchain.info/wallet/android-app
Step5:VerifyYourEmailYouwillreceiveanemailshortlyaftersettingupyouraccount.Whenyoureceivetheemail:
·Logintoyouraccountifyouarenotalreadyloggedin.
·Fromthehomescreen,pressthe“AccountSettings”buttonontheright-
handsideofthescreen.
·Youwillbetakentoascreenwhichhasasmallmenuontheleft-handside.
·TheGeneralmenuwillbeselectedbydefault.
·Enterthecodeprovidedintheemailandpressthe“Verify”button.
Step6:OptionalSecurityFeaturesIfyoudecidetouseanonlinewallet,considersomeoftheadditionalprecautionsavailablesuchas:
·Doubleencryptingyourwallet-Thiswillusethepasswordpreviouslygeneratedtoauthenticateyou.Thesecondpasswordwillbe
usedtomaketransactions.·Usemulti-factorauthentication·Paymentnotifications
Step6A:DoubleEncryptionFromthemainURL:
https://blockchain.info/wallet/
https://blockchain.info/wallet/
Select“2DoubleEncryption”.
Enterapasswordusingthepreviouslymentionedstandardandwriteitdown.
Step6B:Multi-FactorAuthentication
Multi-FactorAuthentication(MFA)allowsyoutoincreasethesecurityofyouraccount.Apasswordhelpskeepyouraccountsafebecauseitallowsyoutokeepsomethingthatyouknowprivatelyandpresentittotheservice.Onlysomeonethatknowsthispieceofinformationcangainaccesstoyouraccount.MFAallowsyoutoaddsomethingthat
youhave.OnesuchsolutionistheYubiKeywhichisasmallUSBdevicethatplugsintoyourcomputerandactslikeakeyboard.WhenyoupressthebuttonontheYubiKey,ittypesaOneTimePassword(OTP).(Thiscombinedwithyourpasswordthatyouknowmeansthatonlyifsomeonehasbothcantheyaccessyouraccount.)Thismeans
thatsomeonecanonlyaccessyouraccountiftheyhaveboththeOTPandyourpasswordthatonlyyouknow.
ToconfigureyouronlinewallettouseMFA,logintothewallet.
Selectthe“AccountSettings”buttonontheright-handsideofthescreen.
Selectthe“Security”optioninthemenuontheleft-handsideofthisscreen.
OneoptionistouseaYubikey.YubikeysareasmallUSBdevicethatstorescryptographicstringhashesandaresyncedtoaserver.Youcanfindmoreinformationhere:
http://www.yubico.com/yubikey
Usingmulti-factorauthenticationmeansthatifanattackerdoesgetyourpassword,theywillalsoneed
http://www.yubico.com/yubikey
theUSBkeyinordertogainaccesstoyouraccount.Thisfollowstheruleofsomethingyouknow,yourpassword,andsomethingyouhave,yourYubikey.Ifyoudochoosetouseanonlinewallet,Istronglysuggestyouinvestina$25Yubikey.
Step6C:EmailNotificationsFromtheAccountSettings
screen,selectthe“Notification”menuoption.
Theoptionsonthisscreenarefairlystraightforward.Youcanhavethewalletnotifyyouviaanumberofdifferentmethodsandforacoupleofdifferentreasons.Thesimplestistoselectemail.
TosetupSMSNotifications,selectthe“SMS
Notifications”checkbox.Youwillbepromptedwithalistboxofcountrycodes.Selecttheonethatfitswhereyourphoneserviceresides.Thenenteryourphonenumber.IntheU.S.,makesuretoenteryourareacode.Thenpress“Enter”onyourkeyboard.
NOTE:Ientereddashesthefirsttimeandthemessagedidn’tcome
through.Afterwaitingabout15minutes,Ireturnedtothepageandtookthedashesfrom555-555-1212andmadethenumber5555551212.Then,Ihitenteragain,andtheSMSmessagearrivedwithin10seconds.
Whentheconfirmationcodearrives,enterit,andthenPress“Verify”.
ImportantNoteforOnlineWalletUserIwillusethepersonalwallettodemonstratemuchofthefunctionalityaroundsending,receivingBTC,aswellasfundingyouraccount.Whilethestepswilldiffer,thefunctionalitycanbetranslatedtohowyouwoulddoitintheonlinewallet.Thenextsectiondescribeshowtocreateyourpersonalwallet.
PersonalWallets
Iwillwalkyouthroughtheprocessofinstallingandsettingupyourwalletonyourlocalcomputer.Thebasicsetupwillinstallawallet.datandblocksdatabaseonyourlocalcomputer.IwillshowyouhowyoucansecurethisbymovingitontoasecuredriveusingTrueCrypt,anopen
sourcetoolforcreatingsecuredrivevolumes.Iwillwalkyoustepbystepthroughtheprocess.Thiswillallowyoutoeitherstorethewalletonasecuredriveonyourcomputer’sharddriveorplaceitonaUSBmemorystickwhichyoucansecureinafiresafeorothersafelocation.
Rememberthatifyoulose
thewallet,youhavelostyourmoney,sowewillalsoseewaystobackthisup.Ifallofthisseemstoomuchforyou,thenstickwiththeonlinewallet.
Step1:InstalltheBitcoinWalletSoftwareDownloadthesoftwarefromthewiki:
https://en.bitcoin.it/wiki/Main_Page
https://en.bitcoin.it/wiki/Main_Page
Dependingonyouroperatingsystem,downloadthecorrectoneforyou.
Thewikialsohasasetofscreenshotstowalkyouthroughthesetup:
https://en.bitcoin.it/wiki/Getting_started_installing_bitcoin-
https://en.bitcoin.it/wiki/Getting_started_installing_bitcoin-qt
qt
ThereisevenalinktogetsomefreeBTC(evenifitisjustafractionofaBTC).
Step2:SynchronizetheBlocksOnceyouhavethesoftwareinstalled,youwillnoticethatitbeginsaprocessofsynchronizingtheblocks.Thiscantakeabout24hourstocompleteandwilltransfer
2to4GBofdatatoyourcomputer.Itisanimportantstep,andyouwillhavetoletitcompletebeforeyoucontinueperformingothersteps.
Irecommendthatyoucontinuetoreadandcomebacktothissteponceitiscomplete.YoucancontinuewithSteps3&4whileyouwait.
Oncetheinitialblocksareinstalled,thenyoucancontinuewithStep5.
Step3:InstallTrueCryptThereareanumberofapplicationsthatcanbeusedforthisstep.IchoseTrueCryptbecauseit’sopensource,whichmeansit’sfreetouse.Itisalsofastandreliable.Thefactthatitisopensourcemeansthatthe
codehasbeenandcanbereviewedbyanyonewhichmakesitmuchmoresecuretouse.
DownloadTrueCryptfromhere:
http://www.truecrypt.org/downloads
Oncedownloaded,installtheapplication.
Selectthedefaults.
http://www.truecrypt.org/downloads
Step4:CreateSecureDriveOnceinstalled,opentheapplication:
Select“CreateVolume”andfollowthewizard.
Select“Next”.
Youwillwanttoplacethevolumeeitheronaharddriveoronathumbdrivewhereyoucancreateatleasta10
GBfile.
Select“Next”.
Thesizeofthedriveneedstobeatleast10GB.
Select“Next”.
Thisstepissoveryimportant.Icannotstressthisenough.
Selectacomplexpassword.Usethefollowingrule:
·Atleastonecapitalletter·Atleastonelowercaseletter·Atleastonenumber·Atleastonesymbol
~!@#$%^&*()_+=-[]\{}|;’:”,./?><·Makethepasswordatleast24charactersinlength
Followingthesestepswillmakeitnearlyimpossibleforanattackertocrackthecodeandgainaccesstothedriveshouldtheyfinditanddownloadit.Theywillhavetodownloadtheentire10GB
mailto:~!@#$%^&*()_+=-[]/{}|;':
fileinordertotrytocrackit.
Next:WRITEDOWNTHEPASSWORD,andkeepitsafe.IfyoubuildasmallfortuneinBTCinyoursecuredriveandthenforgetthepasswordtoitandyoufollowedmyrecommendation,youmaybesafefromattack,butyou’renotgoingtogetintoiteither.ThoseBTCwillbelost.
Select“LargeFiles”.
Select“Next”.
Select“Next”.
Thenmovethemousearoundonthisnextscreenandhit“Format”.
Step5:MoveWalletandBlockstoSecureDriveDonotcontinuewiththisstepuntilthewalletapplicationhasfinishedsynchronizing.
IftheWalletapplicationisrunning,exitoutoftheapplication.
OpenTrueCryptandpress
“SelectFile”.Then,selectthefilewecreatedintheaboveprocess.Alsoselectafreedriveletter.Youwillwanttousethesamedrivelettereverytime.
Nowselect“Mount”.
Enteryourpassword,andhit“OK”.
Ifeverythingworkedasitshould,nowthesecuredrive
shouldbemountedandlookslikeaharddrive.
NowweneedtoidentifywhereyourBitcoinsWalletfileis.Thereferenceforwhat’sinthedatadirectoryandwhereyoucanfinditishere:
https://en.bitcoin.it/wiki/Data_directory
Lookingatthatpage,thelocationforWin7is:
https://en.bitcoin.it/wiki/Data_directory
C:\Users\YourUserName\Appdata\Roaming\Bitcoin
WiththeBitcoinwalletapplicationclosed,youwanttocopythecontentsofthisdirectorytoyournewdrive.First,makeadirectoryinthenewdrivecalledBitcoin.Nowopenthatfolderandcopythefilesintoit.
Step6:ConfigureYourWalletApplicationtoUse
theNewLocationOncethefilesarecopiedover,weneedtotelltheappwherethedatafilesare.Thereisacommandlineoptionthatweneedtoset.TodothisonWin7,rightclickonthedesktopshortcutandselect“properties”.Ifthereisnoshortcutonyourdesktop,copyitfromtheStartMenutoyourdesktopifyou’dlike,oredittheonein
theStartMenu.Thatisuptoyou.Youwillneedtonotewhichshortcutyouedit.Thisiswhereyouwillneedtolaunchitfrominthefuture.Intheexamplebelow,ImountedmysecuredrivetoDriveX,sothewallet.datislocatedinX:\bitcoin.
Noticethe–datadir=x:\biticon
AddtheparametersaftertheBitcoin-qt.exeinthetarget.Thisiswhereyousetthecommandlineoption.ItwilldifferforLinuxandMacoperatingsystems.Press“OK”.
You’redone.
Step7:ReopenWallet
AppTheprocesstoopenyourwalletwillalwaysbethefollowing:
1.OpenTrueCrypt.2.MounttheEncryptedDrive.3.Openbitcoin-qt(yourwalletapplication)usingtheshortcutwiththemodifiedtarget.
Ifyoutrytoopenbitcoin-qt
withoutopeningtheencrypteddrivefirst,itwillnotbeabletolocatethewalletorblockswhiletheencrypteddiskdriveismounted.
Eachtimeyouopenyourwalletyouwillnoticethatitneedstosynchronizewiththenetwork.
Donotleaveitopen.Youshouldonlyopenyourwallet
whenitisrequired.IfyoudohaveaTrojanorotherbackdooronyourcomputer,yourwallet.datfileisvulnerabletobeingcopiedoffyoursystem.
Thereismoreinformationonthewikiaboutsecuringyourwallet:
https://en.bitcoin.it/wiki/Securing_your_wallet
https://en.bitcoin.it/wiki/Securing_your_wallet
Bitcoin-qtOnceinstalledandalltheblocksareupdated,youwillseethemainoverviewscreen.
TheOverviewTabshowsthecurrentnumberofBTCyou
haveandthemostrecenttransactions.
TheSendTaballowsyoutosendBTC.I’lldemonstratethisinalaterchapter.
TheReceiveTaballowsyoutosetupaddressesthatcanbeusedtoreceiveBTC.I’lldemonstratethisinalaterchapter.
TheTransactionsTabwill
showyouahistoryofthetransactionsforthiswallet.
TheAddressBookallowsyoutoenteraddressesthatyouoftensendmoneyto.
Exportallowsyoutoexportyourreceivedaddresses.
BitcoinExchange
SpendingBitcoinsiscertainlyausefulthingtobeabletodo.However,untilittakesoverastheprimarycurrency,(I’mnotsuggestingitwill.)userswillneedtobeabletomovegovernmentissuedmoneyinandoutofthesystem.Thisisdonethroughexchanges.Currently,thereareanumberofexchanges
thatconvertmanydifferentdenominationstoandfromBTC.Thepriceoftheexchangeissetbyyou,thebuyersandsellers,inanopenmarketformat.
AnyonecansellBTCforUSD,EURorothercurrency.Youcanplaceanordertosellatapresetamountknownasalimitorder.Whensomeonedecidestheyneedtobuy
BTC,theycanpurchaseatthatprice.UserscanalsodecidethattheywouldliketobuyBTCatapresetprice.Theycanenteralimitorderandwaituntilsomeonedeterminesit’sfairandsellstheirBTC.Theexchangeschargeasmallfee.OnesuchmarketMtGox,thelargestsuchmarket,charges2.5%pertrade.
LimitordersaregoodwhenyouhavealotofBTCthatyouwanttoreceiveaspecificpriceforandhavethetimetowait.IfyoujustwanttobuyorsellBTC,youcanplaceamarketorder.Ifthetransactionissmall,underathousandUSD,itshouldhitnearthecurrentbidoraskpricedependingonifyouarebuyingorselling.Ifyouplantosellalotfast,expectto
drivethepricedown.Ifyouplantobuyalot,expecttodrivethepriceup.
Atthetimeofthiswriting,thecurrentmarketcapitalizationinUSDis$120Million.Youcanseethecurrentmarketdetailsat:
http://bitcoincharts.com/bitcoin/
http://bitcoincharts.com/bitcoin/
YoucanseetheMarketBook,thelistofsellordersandbuyordersoutstandingforagivenmarket,at:
MtGox:http://bitcoincharts.com/markets/mtgoxUSD_depth.html
http://bitcoincharts.com/markets/mtgoxUSD_depth.html
ThenumberofBTCandthepricetheyarebeingsoldatorboughtatislisted.ThereisacalculatorwhichcanbeusedtodeterminehowmuchaparticularnumberBTCwillcostandiftheordercanbefilledornot.ThisisusefulifyouwanttoobtainaspecificpriceorifyouwillbefundingaBitcoinpurchase.Youshouldplanthepurchase.
Youmaybuymanycoinsanddriveuptheprice,thenmakeapurchaseshortlyafteratthiselevatedprice.ItispossiblethatthepricewilldropsignificantlyassomeoneelsesellsBTCatthebidpriceratherthanyouraskpurchase.
Forexample,basedonthenumbersinthechartshownabove,let’ssayyouwantto
buy742coins.Thelastsalepricewillbe$12.24.YouwillhavejustraisedthepriceofBTCfromabout$12.10to$12.24USD.IfsomeoneelsecomesinandsellstheirBTCtosomeonebasedonthebid,whichwouldoccuriftheydidn’twanttowaittosell,thenthenewpricewouldbe$12.08.Asyoucansee,therecanbesomevolatilityinthemarkets.
ThereareanumberofdifferentmarketsthatyoucantradeBTCtogovernmentbackedcurrencyandgovernmentbackedcurrencytoBTC.Foralistofthemarkets,visittheAllMarketspageat:
http://bitcoinwatch.com/
or
http://bitcoincharts.com/markets/list/
http://bitcoinwatch.com/http://bitcoincharts.com/markets/list/
Agraphicalmarketindexwithallthecurrentmarketscanbefoundat:
http://bitcoincharts.com/markets/
ThepageprovidesLastPrice,30daythumbnail,AveragePrice,Volume,LowandHigh,BidandAsk,24hravg.andvolume.
AnotherlistofmarketscanbefoundontheBitcoinwiki:
http://bitcoincharts.com/markets/
https://en.bitcoin.it/wiki/Buying_bitcoins
https://en.bitcoin.it/wiki/Buying_bitcoins
FundingYourMarketAccount
Giventhelargenumberofmarketsandthevariouswaystofundeachofthem,itisbeyondthescopeofthiseBooktodescribeeverypossiblecombination.IamcurrentlyamemberofMtGoxUSD,whichisalsothelargestexchange.Theyclaim,asofJuly2011,to
handle80%oftheBitcointrade.Seetheirhomepageforthereference:https://mtgox.com.Fromthecurrentnumbers,itappearstheydoindeedhavethelargestsharebutnot80%.Demonstratinghowtofundonthismarketaccountisthebestplacetostartsinceusingitwillprovideyouthebestliquidity.
https://mtgox.com
Step1:SignUpforAnAccounthttps://mtgox.com/signup
https://mtgox.com/signup
Onceyouaresignedup,you’llbeaskedtogothroughaverificationprocess.Youshouldconsiderdoingthis.However,ifyouwillnotbemovingmorethan$1,000USD/dayand$10,000USD/month,youdonotneedtobeverified.
Step2:FundYourAccountFromtheHomePage,Select“FundingOptions”.
Togetmoneyintotheaccount,youcandoabanktransfer,whichisbestforlargeamounts.Ifyouhavecashandwanttogetitintothesystemfast,thefollowingisonewaytodoit.
Step2A:ACashDeposit
throughBitInstantSelect“CashDepositviaBitInstant”.
Youcanenteranamountand
itwilltellyouthefees.Forinstance$500willbe$23.45,so$476.55willbedeposited.
Thenselectthe“AddFunds”.
Youwillbepromptedifitisvalidtosend.Thereisanupperlimitondepositthroughthismethod.
TrustCashwilluseyouraddressesprovidedtoMtGoxtodeterminethenearestlocationswhereyoucandepositthefunds.Selectabanklocationandfillintheinformation.Youwillbegivenareceipttotaketothatbanklocation.
ThehandlingfeethatI’m
seeingis$1.26,whichmightbedifferentifyouuseadifferentbankthanIselected,sothetotalfeetodepositthismoneyis
·4.49%+$1=$23·$1.26atthebank
Thatcomestoabout4.9%overall.Thatisnottoobad,butyouwilllosemoneyintheprocessoftryingtofundtheaccount.
Step2B:AlternativeBitInstant–BitInstantSiteDirectlyBeforegoingtotheBitInstantsite,itisimportanttonoteyouraccountnumberfromMtGox.Itcanbefoundatthetopofthewebpageinthecenter.Itwillsay“AccountNumber”nexttoit.Youwillneedthatnumbertoensureyouwillreceivethemoney.
Gotothesite:https://www.bitinstant.com/
https://www.bitinstant.com/
Select“MoneyGram”inthePayFromdropdownmenuand“MtGox”inthePayTodropdownmenu.Youcanexperimentwithotheroptions.LooktoseeifthereareCVSor7/11storesthatsupporttransactionsinyourarea.Nearme,onlyMoneyGramsaresupported.IcangotoWal-Martandhaveitfunded.
Intheaccountbox,placeyourMtGoxaccountnumber.
Entertheamounttosendandnotificationemail.
Whenyoudo,youwillbetakenthroughaseriesofscreenswhereyouwillverifyadditionalinformation.Icannotfinishtheprocesstogetthescreenshots.IfIdo,Iwillhaveanoutstandingmoneyorder.Sothereare
noscreenshotsforthis.Whenyoudothis,youwillendupataZipZapsitewhereyoucanenteryourphonenumberandsearchforalocationtosendtheMoneyGram.
Onceyou’redoneenteringyourinformation,select“CreatePaymentSlip”atthebottomofthescreen.
Printthisoutandtakeitto
thelocationyouchose.I’llcontinuewiththeexampleassumingyoupickedWal-Mart.AtWal-Mart,thereisaMoneyCentergenerallyinthefrontofthestore.Gothere,grabablueMoneyGramformandfillintheinformation.Theslipyouprintedoutwillhavetheinformationyouneedtoproperlyfillitout.
Paytheclerkthemoney.Drive,walk,takeacab,busortrainhome.Within30to60minutes,yourMtGoxaccountwillbefunded.
Thefeesonthisarealittlebitless:
·3.99%=$19.94on$500·$3.95MoneyGram
TotalPercentageis4.78%,
whichisalittlelessthanifyoufunditdirectlyfromMtGox.
Step3:BuyingBitcoinsIfyourecallfromtheExchangesection,youcanplaceamarketordertotellthesystemhowmuchUSDyouwanttospend,andyou’llspendthatmuchmoneyandreceivethenumberofBTCbasedoncurrentBTCforsale.Alternatively,youcanenteralimitorderandsetthepriceatwhichyouwanttobuytheBTC.Withalimit
order,youwillneedtowaituntilsomeoneinthemarketplacedecidestheywanttosellatthepriceyouareasking.
Toenteralimitorder:
·EnterthenumberBTCtobuy.·Enterthepricetopay.·Selectthe“BuyBitcoins”button.
Youropenorderwillbedisplayedinthebottomsectionofthescreen.Ifyousimplywanttoplacea
marketorder,checkthe“marketorder”checkbox.EnterthenumberofBTCyouwishtobuy,andyouwillbetoldapproximatelyhowmuchitwillcost.
YoucandothesameforSellingBitcoins.
Step4:SendingtheBitcoinstoYourWalletFromtheTradewindow:
·Select“FundingOption”.·Then,selectthe“WithdrawFunds”tab.
·EnterthenumberofBTCtotransfer.
·Enteranaddressfromyourwallet.(Seethesectioninalaterchapteraboutcreatinganaddressforotherstosendtoyou.Youwilluseoneoftheseaddresses.)·SelecttheOpentransaction.
Itisoptionaltopaythetransactionfeeonsmalltransfers.Thetransaction
feehelpspaytheminers.Thisisanotherwaytohelpfundtheinfrastructure.Ifyouconsideradding0.005BTCat$12USD/BTC,itworksouttoabout$0.06.Itisworthconsidering.Itwillspeedupyourtransaction.Ifyoudon’t,itwillstillgothroughbutcouldtakelonger.Thefeewillprovideanincentivefortheminerstocontinuetomine.
·Press“Confirm”.
Nowcheckyourwallet.Eventuallyyouwillseethemoneythere.Itdoestendtomovequickly.
ExtractingFundstoGovernmentBackedCurrencyThereareanumberofwaystoconvertyourBTCbacktoagovernmentcurrencyliketheUSDollar.MtGoxisplanningtoreleasetheirMasterCardDebitcardwhichwillallowyoutomaintainUSDbalanceinyouraccountandspenditdirectlyusingthedebit/MC.Thismeansthatyouwillnot
needtotransferthefundstoyourbankfirst.Itisduetobereleasedatanytime.Sincewehavealreadydiscussedusingthismarket,whendebitbecomesavailableitwouldbesomethingworthwhiletolookinto.ItissupposedtotieyourUSDorothercurrencytothedebitcardwhichwillworklikeaMasterCard.Therereallyis
notmuchtosayaboutthissinceithasnotyetbeenreleased.
MtGoxallowsyoutoperformabankwiretoyourbank.Thiswillallowyoutoextractlargersumsofmoneydirectlytoyourbank.Thisisgoodforlargeramountssincethereisa$25servicechargeinvolved.
Step1:WheretoGoTogettowithdrawtheoptions,ontheMtGoxsite:
·Goto“Home”inthemaintoolbar.·Thenselecttheoptionfor“Fundingoptions”.·ORURL:https://mtgox.com/trade/funding-options·Thenselect
https://mtgox.com/trade/funding-options
“WithdrawFunds”.
·Selectthe“AvailableWithdrawMethods”dropdowntoselectoneofthemanymethods.
Step2:HowtoAddOtherOptions·Pressthe“Add
WithdrawMethod”.
·Selectthe“BankTransfer”
Selectoneofthemethodsthatsuityourneeds.
Step3:AddmoneytoPayPalThereareacoupleofmethodstodothis.IwillwalkyouthroughtheoneIfoundtobetheeasiest.Thefeesarealittlehigher.
Step3A:BTCPakGotohttps://www.btcpak.com/
https://www.btcpak.com/
ThisisgoingtoallowyoutoconvertBTCtoMoneyPakwhichcanbeusedlikecashtofundyourPayPalcardorpre-paiddebitcards.
Youwillalsoneedtoaddanaddressforrefundstobesenttointheeventarefundisrequired.Thisisrarebutifforsomereasonarefundismadeandthereisnoaddress,theBTCwillbelost.
Youshoulduseanaddressthatexistsinyourwallet,soyouendupwiththemoneyintheeventofarefund.
WithoutBTCtomoveout,Icannotshowmoresteps.
You’llnoticethatthefundingoftheMPtakesaboutonehour.Theonehouristhetimethatittakesforsixconfirmationsofthetransactiontooccur.Ifyou
sendmoneyfromMtGoxandUseaGreenAddress,itwillcreatetheMoneyPakinstantly.
BitcoinTransactions
NowthatyouunderstandwhataBitcoinis,howtostorethem,whatgivesthemvalueandhowtofundyouraccount,letustalkabouthowtosendandreceivethem.WhenyouuseawallettostoreyourBTC,youknowthatitactuallystoresakey,whichprovesyourownership.Thiskeyis
actuallyapair.Thereisapublickeyandaprivatekey.Thepublickeyisknownasanaddress.ThisaddresscanbeusedtosendBTCfromoneusertoanother.BTCaretradedusingPublicKeyCryptography.
AfulldescriptionofPublicKeyCryptographyisbeyondthescopeofeBook.Iwillgiveyouasimple
explanation.Foracompleteexplanationcheckout:
http://en.wikipedia.org/wiki/Public-key_cryptography.
Twoverylargeprimenumbersarefoundthatwhenusedcanbothunlockamessageifthemessageisencryptedwithoneofthem.Oneofthenumbersbecomesthepublickeyandtheotherbecomesthesecretkey.
http://en.wikipedia.org/wiki/Public-key_cryptography
Encryptingwithonekeyallowsthemessagetobedecryptedonlybythecorrespondingnumber(key).Wecanthenprovideourpublickey,andwhensomeoneusesittosend(encrypt)BTCtous,wearetheonlyoneswithoursecretkeythatcanreceive(decrypt)it.
LetussaywehaveAliceand
BobwhowanttoexchangeBTC.Bothhaveakeypair.
1.AliceusesBob’spublickeytosendthemoney.2.TheBTCisencryptedwithBob’spublickey.3.TheTransactionissignedbymanyoftheminersusingthehashestheyarefinding.Thisbuildsthetrustinthe
network.4.BobcanthenopenthetransactionwithBob’sprivatekey.
ReceivingBTCToreceivetheBTC,openyourwallet.WewilldemonstrateherewithBitcoin-qt.Usetheprocedurespreviouslynotedtoopenyourwallet.Onceopen,ifithasshutdownforawhile,youwillnoticeitisoutofsync.
Giveitalittletimeanditwillbegintosync.
Thesyncingistheapplicationgoingoutandgettingthemostcurrentblocks.These
blockstelltheapplicationwhoownswhat.Itonlyknowsbasedonthesignedblocks.Eitheralocalprivatekeyinthewalletcandeciphertheblockandproveownership,oritcannot.Thesearetheonlytwooptions.
So,ifsomeonesendsyouBTCandyourwalletisnotinsync,youmaynotseethe
transactioncomethrough.Oncealltheblocksareinsync,youwillbeabletoseeit.
Onceyoucanseethegreencheckmarkinthelowerright-handcorner,thewallet
issynced.
InordertohavesomeonesendyouBTC,youwillneedtocreateanaddressforthem.Clickonthe“ReceiveCoins”button:
Createanewaddress.Pressthebuttoninthelowerleftsideofthescreen,“New
Address”.
Giveitaname.IlikeusingtheconventionYear-Month-Dayname.Thisallowsmetoknowhowoldtheaddressis.
Click“OK”,andtheaddresswillshowupinthereceivewindow.
Togettheaddresssothatyoucanprovideittoothers,rightclickontheaddressand
select“CopyAddress”.
Addresstosendto:
13QPmiJymZpuv2q2rhdgXWokdybit8cFZC
NowwecanprovidethataddresstoanotherpersontosendusBTC.
Whenanewtransactioncomesin,youwillseeamessageinthelowerright-handcorner(onwindows).
IfyouswitchtotheOverviewTab,youcanalsoseethetransaction:
Noticethatyouseeanunconfirmedamountandthatthereisstillazerobalance.Thetransactionneedstobeprocessed.Trustneedstobebuiltaroundthistransaction.Oncethatoccurs,youcanspendtheBTC.WhenwecoversendingBTC,youwillseethereisanoptiontopayatransactionfeeinordertospeedupthehandlingofthetransaction.
IfyougototheTransactionTab,youcanseethetransaction.
Doubleclickonthetransactiontoseethedetails.
Aboutnineminuteslater,thetransactionreceiveditsfirstconfirmation.
SwitchingtotheOverviewTab,wecanseethattheBTCisnowconfirmedandisinyourbalance:
SendingBTCInordertosendBTC,youfirstneedanaddresstosendto.Forthisdemonstration,wewillusetheeBookDemonstrationinmyotherwallet:
1P9scjVao6n9t9ihNUBGXiCSHYAghzhzY7
PleasefeelfreetosendBTCtoanyoftheaddresseslistedinthisbook.JDonationsarewelcomeevenifitisonly
0.01orless.
Tosend,clickonthe“SendCoins”button.
ThenentertheaddressandalabeltohelpyourememberwhyyousentmetheBTC.
Whentheconfirmmessageappears,click“Yes”.
Ifyoudonothaveenoughtofundthetransaction,youwillseesomethinglikethemessagebelow.Inthiscase,thewalletwasaddingatransactionfeeautomatically.Therewerenotenoughfundstocovertheamounttosendandthetransactionfee.
Youhavetheoptiontosetatransactionfee.Thetransactionfeeencourages
theminerstoprocessyourtransactionfaster.Thedefaultistheamountshowninthewindowabove.Thinkofthetransactionfeeasatipforgoodservice.WhenalltheBitcoinblocksarefound,itwillbethetransactionfeesthatkeepthenetworkgoing.Atthepresenttime,youarenotrequiredtosubmitatransactionfeeonsmalltransfers.However,itis
highlyrecommendedthatyougetinthehabitofaddingone.AtthepresenttimewithBTCaround$12,0.005,BTCisequaltosixcentsUSD.Thisisnothingifyouaresending$100USDor8.5BTCormore.Ifyouareonlysending1.5BTCasweare,considergiving0.001.Wewilladjustthetransactionfeeto0.005forthisexample.
Clickon“Settings”inthetoolbar.
Thenselect“Options”.
Usethearrowkeystomovethevalueby0.001upordowntozero.Thenclick
“Apply”.
Nowlet’senteranewvaluetosend.
Thistimeitwillgothroughandclearoutourbalance.
ConfirmedTransactionsIttakessixminerstoprocessthetransactionbeforeitisconsideredfullyconfirmed.WewereabletoresendtheBTCbeforeitwasfullyconfirmedbutnotuntilitwasconfirmedatleastonce.About30minutesafteritwasinitiallysent,itwasstillnotfullyconfirmed:
Aftersixconfirmations,itisconsideredfullyconfirmed.Thenetworkwillcontinueto
confirmthetransactions.Toviewthis,sendmyaddress0.01(Okay;youcanuseanyaddress.)andwatchtheconfirmationsbuildoverthedaysandweeks.Ihaveatransactionthatisafewdaysoldandithas500confirmations.Thechainofconfirmationwillcontinuetogrow.
Ittook41minutesforthe
transactiontoreachthesixconfirmations.
OtherTransactionTypes
EscrowYoumightbeaskingyourself,ifthismarketplaceisbuiltontrustandnon-revocabletransactions,thenhowcanIdobusinesswithsomeoneIdonottrust?Insomecases,trustwillhavetobeimplicitwiththefactthattheyaredoingbusinessinthemarketplaceandtheywould
notlastiftherewasnottrust.Forinstance,themarketwithhighvolumemakesmoremoneybyoperatingethicallythaniftheyweretostealfromanyoneperson.
Thisisnotthecasewithindividuals.IfsomeoneispromisingyousomethingforBTCandyoudonotknowwhotheyare,thensuggest
usinganescrowservice.Theseareservicesthatexistinordertobrokertrustbetweentwountrustedparties.
LetushaveAliceandBobperformanescrowedtransaction.Theescrowservicefacilitatestheexchangeforafee.Letustradesomethingsimplethatseemstobeacommon
untrustedexchange.AlicefindsBob,andAlicewantstobuy50BTCfromBobfor$600USD.Youmightask,“Whynotjustusetheexchange?”Aswenotedintheprevioussections,therearealotofmiddlemenintheprocesswhoalltakeatransactionfee.Thesefeescanmount.Thebuyerandsellerwillneedtodotheirownmathtodetermineifan
over-the-countertransactionisoneworththeireffort.
Bobwillsignintoanescrowsiteandsetupatransactionandsendthe50BTC.Oncethecoinsareconfirmed,thenAlicewillneedtopayforthecoins.Shedoesn’thavepossessionofthem,butneitherdoesBob.Theescrowservicehasthem.OnceAlicepaysBoband
providesamethodtoverifythetransactionhasoccurred,theescrowservicewillreleasethe50BTCminusthetransactionfee.TheabilitytoverifymightbeaPayPaltransactionnumberthatcanbeviewedbybothpartiesorsomeotheragreeduponverificationmethod.Iftheexchangeisgoods,thenthebuyermayhaveaninspectiontime.Oncethe
inspectiontimeexpires,thenthepaymentismade.Thesetransactionsaregenerallyslow,sousersbeware.However,theyarealotsaferthanthealternative.Therearemanyscammersoutthere.
Alistofescrowservicescanbefoundhere:
https://en.bitcoin.it/wiki/Bitcoin_Escrow_Service
https://en.bitcoin.it/wiki/Bitcoin_Escrow_Service
Thereismoreaboutsecuretradinghere:
https://en.bitcoin.it/wiki/Secure_Trading
https://en.bitcoin.it/wiki/Secure_Trading
OvertheCounterOver-the-counter(OTC)tradesareanotherwaytotradeBTCforgovernmentbackedcurrency.ThissystemallowsyoutobuyandsellBTC.TointeractwiththeOTC,youwillneedtodownloadandinstallanInternetRelayChatclient.IwillgooverhowtodothisonWindows,butthereareclientsforMacandLinuxas
well.
YoucanuseanyIRCClientyouwant,butIwilldemonstratetheuseofmIRCwhichcosts$20.Youcandownloaditfromhere:Http://www.mirc.com/get.html.TherewasatimewhentherewerefreeIRCclients.Ifyouhaveaccesstoone,feelfreetouseit.ThecommandsIwillbedemonstratingwill
Http://www.mirc.com/get.html
workinanyIRCClient.
Onceyouhaveitdownloaded,goaheadandinstallit.Justacceptallofthedefaults.Onceitisinstalled,weneedtosetupyourIRCAccount.IRCwillallowyoutologinandinteractunverified.Ihighlyrecommendthatyouloginandcreateanaccountwithapassword.Iwillreviewhow
todothis.
DoubleclickontheicononyourdesktopformIRC:
Youcanusethetoolforfreefor30days,orifyou’dlikeandwanttouseitlonger,youcanregisteritforabout$20.Sincethereisafree30daytrial,youcanuseitin
ordertofollowmyinstructionstocreateyourIRCUser(whichisdifferentthanregisteringtheIRCClient).Youcanalwaysfindadifferentfreeone,orregisterthisoneatalatertime.IamnotaffiliatedwithmIRC,butIdohavearegisteredcopy.
Whentheapplicationcomesup,itwillaskyoutoenteryourNickname,alsoknown
asanick.Thisisauniquenamethatyouwanttouseinthechannels.Thechannelsarethecommunitymessageareaswherechatcanoccur.I’llexplainthatmoreonceweareregistered.
Thenselectthe“Servers”itemandchangetoFreenode
>RandomServer.
Click,“OK”andthenhitthe“Connect”button(lookslikealightningbolt)intheupperright-handcornerofthescreen.
Youwillseeascreenthatlookslikethis:
ThearrowpointstotheCommandwindow.Thecommandsthatyouwillneed
totypeinwillneedtobetypedinhere.
Onceconnected,enter:
/msgnickservregister
Useyourownpasswordandemailaddress.AlsonotethatyourIPAddressappeared.Wewillfixthisaswell.Writedownyourpassword,anddonotuseasimplepassword,asitcanbestolen.YoudonotwantsomeonetotakeoverthisaccountifyouaregoingtoestablishitwiththeBitcoinOTCmarketplace.Youwillreceiveanemailwithacommandtoverify.You
mustdothisstepbeforeyoucancontinue.
/msgNickServVERIFYREGISTER
WhenyouneedtologintoIRCinthefuture,youwillneedtousethefollowingcommandtologin:
/nickservidentify
Thetokenisreplacedwithyourpassword.Youwillgenerallyhaveabout30secondstoenterit.Ifyoudonotenteritfastenough,theIRCserverwillbootyouthinkingyouarenotthenickowner.
AsImentionedbefore,theIRCismadeupofchannels.Youfirstneedtovisitthehelpchannelandaskfora
cloak.ThiswillhideyourIPAddressfrompryingeyes.Hackerswillbelookingforyou.IfyouleavetheIPvisibletothem,theywillbeabletolaunchanattackagainstyou.Iftheygetyourwallet,it’sgameoverforyourmoney.Soyouneedtoprotectyourself.
Tojointhehelpchannelusethefollowingcommand:
/join#help
Inthenewchannelwindow,asktheadminforacloak.Simplytype:
Admin,canIgetacloak?
Withoutthecloak,yourIPAddressisvisibletoeveryone.Withthecloak,yourIPAddressishiddenfromotherusers.Thisway
theycannotdetectwhatcomputeryouareonandtrytoattackit.Sonowwhenyoulogbackin,youwillbeautocloaked.Itisimportantthatyouobtainacloakbeforeyoubegintotrade.AllanattackerneedsinordertoattempttoattackyouisyourIPAddress.
TojointheBitcoinOTC,let’sjointhecorrectchannel.Use
thecommand:
/join#bitcoin-otc
Toauthenticatewiththeservice,youneedtointeractwiththechannelbot.Thebotisacomputerapplicationthatisloggedintothechannelasauser.Thebothereisnamedgribble.Sotostartaprivateconversationwithgribble,type:
/querygrible
Youwillseeanewchannelappear.Thisisgribble.
Let’squicklytrysomethingwithgribblebeforewe
authenticate.Enterthefollowingcommandandmakesuretousetheprecedingsemi-colons.Thattellsthebotyouareenteringacommandforittoconsume.
;;ticker
Youshouldseesomethinglikethis:
Bestbid:
12.1388,Bestask:12.19988,Bid-askspread:0.06108,Lasttrade:12.1388,24hourvolume:39840,24hourlow:11.6304,24hourhigh:12.27
Nowswitchovertoyourwalletandcreateanewreceiveaddress.Wearegoingtousethisinthe
authenticationprocesstofollow.Inamedmine,2012-09-23-Bitcoin-OTC.
Nowcopytheaddressandusethefollowingcommandtoauthenticate:
;;bcregister1CXnFLTUc1Z15uvhune6P1VtjcXnrsbzq
Youwillreceiveamessage
stating:
Requestsuccessfulforuser,hostmask!~@unaffiliated/.Yourchallengestringis:freenode:#bitcoin-otc:
Gotoyourwalletapplicationandselectthe“ReceiveCoins”button.
Selecttheaddressyoujustcreatedandpressthe“SignMessage”buttonatthebottomofthescreen.
Nowasignmessagescreenwillappear:
Copyjustthechallengestringintothewindowintheareamarked1whichwilllooklikethis:
freenode:#bitcoin-otc:2b5195d2442cbfc302a0b2f6d7b856cd04ecc0435d0e306827b94e9c
Youmustusetheoneprovidedinorderforthistoworkforyou.Thenpressthe“SignMessage”button.Thenamessagewillappearinthe
windowlabeled3.Tocopythisout,pressthe“CopytoClipboard”button.
NowintheIRCClient,issuethefollowingcommandtogribble:
;;bcverifyrandom-looking-gibberish-that-is-your-signed-message-goes-here=
Iftheprocessworked,thenyouareauthenticatedwiththisnick.Ifitdoesn’twork,reviewtheinstructionshereformoreinformation:
http://wiki.bitcoin-otc.com/wiki/Bitcoin_address_authentication
TheBitcoin-OTCwikihasalotmoredetailsabouthowtousetheservice.Youcanfindthewikihere:
http://wiki.bitcoin-otc.com/wiki/Bitcoin_address_authentication
http://wiki.bitcoin-otc.com/wiki/Main_Page
ThereisanimportantnoteabouttradingontheOTCthatIextractedfromthewiki:
“Therearenoautomaticsystemssetuptomatchbuyersandsellers.TheentiresystemisOTC,ifyouseeabid/askyoulike,contactthecounterpartydirectlyon
http://wiki.bitcoin-otc.com/wiki/Main_Page
channelorinprivatemessagetosetupthetransaction.Issuestodiscussmaybe:whobearsthetransactionfees?Whopaysfirst?Whatescrowagentdoweusethatismutuallytrusted?Remember,thisisadirectnegotiatedtransaction-soeverydetailisnegotiable.”(Anonymous,Usingbitcoin-otc,2012)
MoreInformationMoreinformationaboutBitcoin-OTC(OverTheCounter)canbefoundhere:
http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otc
YoucanseethelistofcurrentordersontheBTC-OTChere:
http://bitcoin-otc.com/vieworderbook.php
http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otchttp://bitcoin-otc.com/vieworderbook.php
ForamorecompleteguidetoIRC:
http://en.wikipedia.org/wiki/Internet_Relay_Chat
ListofIRCCommands:
http://en.wikipedia.org/wiki/List_of_Internet_Relay_Chat_commands
http://en.wikipedia.org/wiki/Internet_Relay_Chathttp://en.wikipedia.org/wiki/List_of_Internet_Relay_Chat_commands
BitcoinsinAction
SonowyouknowaboutBTC.Youhaveawalletandprobablyfundedyouraccount.YouknowthatthevalueoftheBTCisbasedonthefactthatthereisliquiditythroughthemarketssuchasMtGox.However,thesupplyanddemandisdrivenbythefactthatpeoplecanusetheBTCforsomethingreal.As
longasthereissomethingthatpeoplecanusetheBTCfor,therewillbeamarket.ForthenaysayerswhotellyouBTCarenotbackedbyanything,IwouldtellyouthataslongastheycanbeliquidatedtoUSDorothercurrenciesandaslongasBTCcanbuyyousomethinguseful,therewillbeamarketforthemandanassociatedvalue.Thisvaluewillbe
drivenbythenumberofpeoplebuyingupBTCversusthenumberofpeoplesellingBTC.
StayingInformed
Soifyouaregoingtojointhemarket,youwillwanttostayinformed.Therearemanyblogsoutthere.Hereareafewgoodonlineresources:
·
http://bitcoin.alltop.com/·https://twitter.com/bitcoinnews·http://www.btcnn.com/·http://www.bitcoinblogger.com/·http://www.thebitcointrader.com/·http://www.bitcoinnews.com/
Acurrentlistcanbefoundon
http://bitcoin.alltop.com/https://twitter.com/bitcoinnewshttp://www.btcnn.com/http://www.bitcoinblogger.com/http://www.thebitcointrader.com/http://www.bitcoinnews.com/
thewiki:https://en.bitcoin.it/wiki/Category:Blogs
https://en.bitcoin.it/wiki/Category:Blogs
WheretoSpendSolet’sinvestigatesomeofthethingsthatyoucanbuywithBTC.I’mnotgoingtogointomuchdetailaboutanyoneitem.Iwillprovidelinksbelowandyoucaninvestigateforyourself.Iamnotpersonallyendorsinganyoftheplaceshere.I’mjusttryingtoprovidealisttokickstartyourenjoyment.Mygoalistodemonstratethat
thereisahugemarketplaceoutthere.
EquityTradingThesestockfloorsarenotregulatedliketraditionaltrading,butsomegooddealscanbefound.Justbecarefulwhoyoudobusinesswith.
GLBSE:https://glbse.com/
BitFloor:https://bitfloor.com/
Atthetimeofthiswriting,GLBSEhadclosedduetothe
https://glbse.com/https://bitfloor.com/
lackofregulation.AccordingtoanarticlegiveninBitcoinMagazine,thegoalistoopenbackupinaregulatedmanner.Iftheycanpullthisoff,thiswouldbesomethingsignificant.Asauser,youshouldbecarefulinthisspace.Therecanbealotofscams.
Thewikisitemaintainsallsortsoftrainingsites(Thisis
amustseepage.):
https://en.bitcoin.it/wiki/Trade
Youcanalsotradeinthefollowing:
·Preciousmetal·Gift/Debitcard·Currencies·LocalInHandExchanges
https://en.bitcoin.it/wiki/Trade
MerchantsthatAcceptBitcoinsThereareanumberofplacesthatyoucangotomakepurchaseswithBitcoinsdirectly.
ThereareacoupleofplacesthatyoucanvisitinordertofindwhereyoucanspendtheBitcoins.Oneofthesitesis:https://www.spendbitcoins.com/places/
Thewikipagepreviously
https://www.spendbitcoins.com/places/
mentioned,https://en.bitcoin.it/wiki/TradealsolistssystemsyouneedinordertoenhanceyourabilitytoacceptBitcoins:
·BitcoineWallets·Paymentsystems·Escrow·Mobileservice
ThereisalistofVPNServicessothatyoucanmaintain
https://en.bitcoin.it/wiki/Trade
anonymousconnectivityfromareasthatmightimpedeonyourrighttodosomethingontheinternet.
ThereisalistofinternetrelatedservicesthatyoucanbuythatacceptBTC.(##)isthenumbercurrentlylisted.
·CreativeDesignServices(15)·WedDesignServices(50+)
·ArtDesignServices(6)·Webhosting(36)·Dedicated/VirtualServers(20+)·DomainNameHosting(16)·Email(2)·VoIP/SMS(13)·SecurityServices(7)·MobileAppDevelopment(3)·Productivity(1)
·Other(13)·SearchEngines(1)·CloudProviders(7)·Software(5)·EducationRelated(13)·Gambling(30+)·Games(20+)·GraphicDesign(5)·FileSharing(8)·Music(20+)·VirtualArt(2)
·DigitalDownloads(6)·EntertainmentBooks/Magazines(8)·SocialMedia(2)·CyberBegging(1)·InternetMarketing(1)
Solet’ssayyouarenotinterestedininternetrelatedservices.Youcangoshoppingforjustaboutanything.Ihadoriginallyplannedtoincludethelist
fromthewikisiteinthisbook;however,itconsumed25pages.Irealizeditwouldbebettertodirectyoutothewiki.ThisisavaluableresourceIhighlyrecommendthatyouvisit:
http://en.bitcoin.it/wiki/Trade
http://en.bitcoin.it/wiki/Trade
EarningBitcoins
Sonowyou’reexcitedabouteverythingyoucando.However,youdon’twanttopaythefeesassociatedwithmovingcurrencyintothesystem.Youwouldratherofferservices.Ifyouhaveaservice,I’msureyoucanfindaserviceouttherethatcanhelpyougetstarted.Youcertainlycanstartabusiness
andmakeitbigintheBitcoinworld.It’sbeyondthescopeofthisbooktotellyouhowtodothat.Withthenumberofservicesavailable,Ithinkyoucanfindsomeonethatcanhelpyou.Whenyoufigureitout,youcouldwriteaneBooktotellothershowtodoso.Ihavenotseenoneavailableyet.
IfyoulikeeBayandCraigslist,
checkoutthemarketplacesifyouhavesomethingtosell:
Marketplaces·TheBitcoinMarketplace-Bitcoinsclassifiedsiteandmarketplace.BuyandSellanythingwithBitcoins.
·BitcoinHarbor-UserscanbuyandsellforBitcoins--outofbusiness.
http://bitcoinmarketplace.net/http://www.bitcoinharbor.com/
·BitmitSecureBitcoinmarketplace.SellandbuygoodsforBitcoin.Worldwide!
·MokiMarketTheebay/craigslistofBitcoins!
·BitcoinshoppingShopwithyourBitcoins-Worldwideshipping
Auctionsites·CentBiz.com-Oneof
http://bitmit.nethttp://mokimarket.comhttp://www.xrwh.com/bitcoin/http://www.centbiz.com
theoldestPennyandCentAuctiononline,BitCoinsAcceptedforPayment.AvailableforPortugal,IrelandandUK.0,25euro/poundperBid.
·PennyAuctions-Barteringmarketplacewhereuserscanpurchasecreditstobidonitems,orearncreditsbyauctioningoffgoodsorservicesas
http://mokimarket.com
pennyauctionsforfree.Bitcoinisacceptedaspayment.
·BiddingPond(info)
·BidnappereBaysniper-PlacesbidsoneBayandotherauctionsitesinthefinalseconds,calledsniping.
·Bitmarket(info)
http://www.biddingpond.com/https://en.bitcoin.it/wiki/Bidding_Pondhttp://www.bidnapper.com/bitcoin.php3http://www.bitmarket.ca/https://en.bitcoin.it/wiki/Bitmarket
·Bitmit-BitCoinauctionhouse&shoppingportal(English&German)
·goSnipeeBaySniper-PlaceyourbidinthefinalsecondsofaneBayauction.LoadyouraccountwithBitcoins.
·MyibidderAuctionbidSniperforeBay-AuctionbidSniperfor
http://www.bitmit.net/http://www.gosnipe.com/http://www.myibidder.com/
eBay,bidonlastsecondsautomatically.TheWindowsclientapplicationcanbepurchasedwithBitcoins.
·HASTUschon?(info)AGermanauctionsite.
·BitBidBitcoinAuctionHouse.
http://www.hastuschon.de/?_BitCoin=1https://en.bitcoin.it/wiki/HASTUschonhttp://www.bitbid.net
MiningThebigserviceoutthereistheminingservice.AllI’mgoingtodohereisprovideyouwithsomelinksastohowtogetstartedmining.ThisistheonlywaytogetBTCforessentiallynothing.Youprovidethehardwareandtheelectricitytoruntheequipment,andyougetpaid.Aslongastheelectricitycostslessthanthe
BTCyouaremaking,youturnaprofit.
Beginnersguidetomining:http://startbitcoin.com/
MiningGuide:http://www.weusecoins.com/mining-guide.php
PooledMining:https://en.bitcoin.it/wiki/Pooled_mining
MiningHardware:https://en.bitcoin.it/wiki/Mining_hardware_comparison
http://startbitcoin.com/http://www.weusecoins.com/mining-guide.phphttps://en.bitcoin.it/wiki/Pooled_mininghttps://en.bitcoin.it/wiki/Mining_hardware_comparison
BitcoinUnderbelly
IwanttokeepthisbookpositiveandpromotethegoodabouttheBitcoininfrastructure.Thereishoweveranunderbelly.TherehavebeensomehighprofilecasesinjustthepastmonthorsothathaveshedabadlightontheBitcoins.Thatsaid,Bitcoinsarenottheproblem,thecriminalsare.
OnearticlerecentlyseemstoindicatethattheBTCtransactionsarenotasanonymousassomehavethoughtoraseasytohide.ThisisinconnectionwiththeBitFloorheist,where$250,000USDworthofBTCwerestolenfromvarioususers.
HackerStealsBitcoinsBitFloorbreached,hackermakesoffwith$250,000inBitcoins:
http://www.techspot.com/news/50043-bitfloor-breached-hacker-makes-off-with-250000-in-bitcoins.html
Bitcointhievesyettospendstolenhoard:
http://www.techspot.com/news/50043-bitfloor-breached-hacker-makes-off-with-250000-in-bitcoins.html
http://www.bbc.com/news/technology-19633980
Thisarticleindicatesthatthetransactionsofthestolenkeysarebeingwatched.Thisisinteresting.
http://www.bbc.com/news/technology-19633980
RansominBitcoinsInaseparatecase,USpresidentialcandidateMittRomney’staxreturnswerestolenandthehackerwantedtobepaidin$1,000,000USDpayabletooneoftwoBTCaddresses.Onewouldreleasethetaxreturns,andtheotherwouldkeepthetaxreturnshidden.
http://venturebeat.com/2012/09/05/romney-tax-returns-hacked/
http://venturebeat.com/2012/09/05/romney-tax-returns-hacked/
GamblingwithBitcoinsAlittleoverayearago,apokerwebsiteopenedupSealsWithClubswhichallowedpeopletobuyinwithBTC.IplacethisintheunderbellybecauseintheUSA,itisillegaltogambleonline.Forthoseofyouincountrieswheregamblingonlineislegal,thisentrymay
notseemsonegative.UsingBTCreducesthelikelihoodthatoffenderswillbecaught.
http://www.pokerscout.com/SiteDetail.aspx?site=SealswithClubs&ab=1337
http://www.pokerscout.com/SiteDetail.aspx?site=SealswithClubs&ab=1337
BuyingDrugswithBitcoinsSilkRoadissellingdrugsonlineinexchangeforBTC:
http://www.forbes.com/sites/andygreenberg/2012/08/06/black-market-drug-site-silk-road-booming-22-million-in-annual-mostly-illegal-sales/
Ithinkthisonespeaksforitself.
http://www.forbes.com/sites/andygreenberg/2012/08/06/black-market-drug-site-silk-road-booming-22-million-in-annual-mostly-illegal-sales/
AppendixA:OtherResources
NowthatyouknowwhataBitcoinis,howtosetupyourownwallet,fundyouraccount,earn,spendandtransferBTCtogovernmentcurrency,you’reallset.Thereshouldbenootherinformationyouneed.JNotso.Thereissomuchmoreouttherethanthe
scopeofthisbook.
ThefirstplaceIrecommendyoutakealookatisthewikisite:
https://en.bitcoin.it/wiki/Main_Page
LookattheTopicCentral:
https://en.bitcoin.it/wiki/Main_Page
Youcanseethetopicscover
muchmorethanthiseBookdid.
Forin-depthtechnicalinformationabouttheblocks:
http://blockchain.info/
Foralookatchartsthatshowthemarkettrendsasawhole:
http://blockchain.info/charts
http://blockchain.info/http://blockchain.info/charts
CurrencyExchangemarketwatchcanbefoundat:
http://bitcoinwatch.com/
Ifyouaregoingtogetintomining,beforeyoubuyanythingmakesureyouconsidertheproductsatButterflyLabs:
http://www.butterflylabs.com/products/
Theirnewsupercomputerlineofminingrigsisthetop
http://bitcoinwatch.com/http://www.butterflylabs.com/products/
ofthelineand50timesfasterforthepricethananyoftheircompetitors.Weonlytouchedonmining.Makesureyoudoyourhomeworkandplanfirst.Ifyourelectricitycostsaretoohigh,youwillnotbeturningaprofit.
Besidesthewiki,anothergreatplacetogetinformationabouttheBitcoin
worldisthroughBitcoinMagazine.ThisisanonlinepublicationwithprintversionsavailableinmanyBarnes&NobleBookstores.
http://bitcoinmagazine.net
Atthebottomofthelistofarticles,thereisapageselectorsothatyoucanscrolltomorearticles.Checkthelastpage,whichlistssomeofthefirststorieswrittenabout
http://bitcoinmagazine.net
walletswhicharegood.
AnIntroductiontoTerminology:
Part1http://bitcoinmagazine.net/introduction-to-bitcoin-terminology
Part2http://bitcoinmagazine.net/introduction-to-bitcoin-terminology-part-ii
Ihighlyrecommendthatyouvisitthemagazine.I’ma
http://bitcoinmagazine.net/introduction-to-bitcoin-terminologyhttp://bitcoinmagazine.net/introduction-to-bitcoin-terminology-part-ii
subscriberandenjoythearticles.
AppendixB:Bibliography
anonymous.(2012,9).Bitcoin.Retrieved921,2012,fromBitcoinwiki:https://en.bitcoin.it/wiki/Main_Page
Anonymous.(2012).Browser-basedwallet.Retrieved0918,2012,fromBitcoinWiki:https://en.bitcoin.it/wiki/Browser-based_wallet
Anonymous.(2012,09).Usingbitcoin-otc.Retrieved0923,2012,fromBitcoin-OTCWiki:http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otc#Trading
Kirk,J.(2012,Sep4).BitCoinexchangeloses$250,0000afterunencryptedkeysstolen.RetrievedSep
18,2012,fromPCWorld:http://www.pcworld.com/article/261894/bitcoin_exchange_loses_2500000_after_unencrypted_keys_stolen.html
CopyrightDedicationIntroductionWhat Is A Bitcoin?Bitcoin StorageBitcoin ExchangeFunding Your Market AccountExtracting Funds to Government Backed CurrencyBitcoin TransactionsOther Transaction TypesBitcoins in ActionEarning BitcoinsBitcoin UnderbellyAppendix A: Other ResourcesAppendix B: Bibliography