A Bitcoin Buying Guide for Beginners

A Bitcoin Buying Guide for Beginners

Bitcoins (BTC) frenzy is becoming huge by the day. People are mortgaging their precious properties to purchase and trade Bitcoins. Companies are being founded by investing Bitcoins. Bitcoins have their own exchange rate and ATMs. Fortune 500 companies like Expedia and Dell are accepting Bitcoin payments. Governments and public sector banks are also experimenting with this digital currency. This blog is Bitcoin Buying Guide to help you make the right move.

Are you also looking to make hay while the Sun shines? Are you looking for guidance on Bitcoin trading before you start heavy-duty Bitcoin trading? This article will explain the basics about Bitcoins, and the step-by-step process of buying and trading Bitcoins.

How to Get Bitcoins?

There are four places where you can get your first stash of Bitcoins:

  • Cryptocurrency exchanges– These are open marketplaces or brokers where you can use regular cash, cheques or wire transfers for purchasing Bitcoins. You can create an account in an exchange and purchase Bitcoins and start trading here. For newbies, trading through exchanges is best. Coinbase, BitHumb, and LocalBitcoins are some exchanges.
  • Bitcoin ATMs– These machines send Bitcoins to your wallet in exchange for cash. Just feed in your cash, hold up your wallet’s QR code for scanning, and an equal amount of Bitcoins are transferred instantly to your wallet. Use Coinatmradar to find a Bitcoin ATM near you.
  • Classified sellers: You can buy Bitcoins from individual sellers in exchange of cash or assets. LocalBitcoins is a leading seller in U.S.A..
  • Sale of assets or services: Sites like Purse can help you sell your goods, assets, or services to get Bitcoins.
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It’s advisable to read reviews of exchanges and sellers before investing any money. Some crypto exchanges have gained notoriety for conducting large transactions on their private ledger, using investors’ private accounts.

Preparation Step: Get a wallet

A wallet is used to store your Bitcoins. Instead of holding actual Bitcoins, wallets contain your encrypted signature (private key). Some exchanges like CoinBase are also a wallet. You will need a wallet whether or not you use a cryptoexchange. You can own an account in one exchange and wallet in some other. Wallets allow you to trade freely with individuals and exchanges.

Here are the five main types of wallets and their advantages and disadvantages:

  • Electronic wallets– These are actually downloaded files that exist on your computer. If they are cloud-based, you will allow a third party, the cloud hosting company) to access your private keys.
  • Software wallet– These are applications that you will have to download from Google Play or Apple store, depending on your system’s iOS. Their advantage is that they give you complete control of your private keys. A downside is their security issues.  You will have to take regular backups else you lose your private keys if your system gets stolen or compromised. If somebody hacks your computer, they can access your private keys. These wallets are also of three types- full client, lightweight, and web-based. It’s better to use a lightweight wallet like Electrum or Exodus that downloads only real-time transactions on the blockchain, instead of the entire history of transactions since the first Bitcoin was created.
  • Online wallets– These wallets are cloud-based and allow you to handle your Bitcoins from any computer or location if you know your passwords. They are easily downloadable and usually free. Their questionable security makes them a risky option. Coinbase and Xapo offer secure online wallets.
  • Mobile wallets– These are available as mobile applications that you can use on the move. They are great if you want to do shopping using Bitcoins. Bread and Arba are exclusively for smartphones and tablets.
  • Hardware wallets– These are compact flash drive-like devices that can be plugged in when you start transacting. They are very secure.

Paper wallets– These are hard copy of your private keys. They can be stored safely or gifted to someone, but are prone to water and fire hazards.

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The type of wallet you choose depends on your spending strategy. You could hold a Bitcoin balance offline (in hardware or paper wallets) and some liquid Bitcoins (in software wallets) for immediate spending. The only word of advice is to keep your private keys secure and share only with trusted people.

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Warm-up Step: Find an exchange

Next, you will need to pick a reliable crytoexchange to buy your first Bitcoins. You can buy Bitcoins directly from a Bitcoin holder, but it’s too risky. Exchanges like GDax and CoinBase offer real-time exchange rates that let you buy Bitcoins at fair market value. They also have many great features and tools to manage your Bitcoins. CoinBase also has an integrated wallet.

If you will deal occasionally, you will not be required to open an account in the exchange. But if you plan to be a long-time investor and make big transactions, you will have to sign up into the exchange.

There are three types of exchanges:

  • Brokers: They are like foreign exchange or gold for cash brokers. They set a purchase rate for Bitcoins and you will have to buy your Bitcoins at that price.
  • Trading exchanges: These are brokers that connect buyers and sellers and charge a fees from both parties.
  • Direct trading: They allow peer to peer exchange of Bitcoins at a rate set by each individual seller.

To guide you in selecting the best exchange for your first buy, we created a five-point checklist:

  • Favorable reviews on forums like Bitcointalk and Reddit will tell you about the reputation of an exchange. Reputable exchanges tell about their regulatory compliance on their websites.
  • Full disclosure of fees-related information on the exchange website. Most exchanges charge 1% pre transaction flat rate fees for selling directly to buyers. Large-ticket transactions can be done at lower fees of 0.25%.
  • Multiple payment methods such as credit card, online wallets, and wire transfers are great. Bear in mind that if an exchange allows payment only by credit card, they will require you to reveal your identity and also charge processing fees. Wire transfers can take longer.
  • A short verification process that lets you start trading instantly.
  • A low cryptocurrency exchange rate. Rates can vary by almost 10% between exchanges.
  • There should be no geographical restriction on the use of tools and wallets from an exchange. You should enjoy full access to all platform tools from any location you want.
  • Usually exchanges have a cap on the amount of Bitcoins that can be transacted per person in a day. The limit is more for fully-verified users and less for occasional users.

In the wake of many money-laundering cases in Bitcoin exchanges, IRS has mandated users to fill a KYC (Know Your Customer) form and offer photo identification in order to get registered at an exchange. These steps may seem cumbersome but are essential to safeguard your investment in the long run.

Read detailed reviews of all leading crypto exchanges here.

Buying Step: Buy your Bitcoins

Login to your exchange and start purchasing Bitcoins. You can purchase any amount of Bitcoins you wish, even less than one Bitcoin. You will be charged a transaction fee from the exchange and depending on your payment method (credit card, cash, transfers, or from another exchange) your transaction can be fast or slow.

Next, transfer your Bitcoins to your wallet and get a Bitcoin debit card to start shopping! Feel free to let us know about your experience from this blog on Bitcoin Buying Guide.

Bitcoin Mining Basics

Bitcoin Mining Basics

Bitcoin mining is the process of adding new transaction records to the blockchain. It also results in creation of new Bitcoins in the system. It involves solving complex computational problems using computers (mining rig is the colloquial term). People who do mining are called miners and a group of miners who mutually agreed to divide the rewards of mining among themselves, form a mining pool.

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Australian Bitcoin miner, Andrew Geyl, has conducted detailed research to compile Bitcoin mining statistics such as a number of miners, earnings trend of miners, transaction fee trends, and so on. In his research blog, Neighbourhood Pool Watch, Andrew estimates there are more than 10,000 Bitcoin miners currently. He calculates the number by using a miner hash rate distribution provided by some miner pools. Then he scales up the results to reflect the general trends.

So, what makes Bitcoin mining so attractive? And, will it be worthwhile to invest time, money, and energy in Bitcoin mining, going forward? This blog will dissect the variables you should consider before you jump onto the mining bandwagon.

Graphical-representation-of-estimated-number-of-miners

First, a bit about the process of Bitcoin Mining

So, what is this Bitcoin mining? Millions of Bitcoin transactions (buying, selling, transfer, etc.) take place every second. But not all of them are legitimate. While some users might try spending Bitcoins that are already spent (double-spending), some might be over-spending their wallet balance. Since there is no bank or treasury to monitor cryptocurrency transactions, how can the system be made secure? This is the job performed by miners.


Flow of Bitcoin Mining Process

Without going into the technical intricacies of mining process, let us just state that Bitcoin mining is a labor-intensive and hard job. It is purposefully designed to control the number of new blocks added to the network and the number of new Bitcoins generated. In return for their hard work, miners get transaction fee plus a subsidy of new coins.

How to calculate mining profitability?

Use free profitability calculators that latest Bitcoin price. Just punch in your power consumption expenses and hash rate and you will get a chart with your expected earnings and recoup time. It will look something like this:


Estimated-expected-bitcoin-earnings

Is Bitcoin mining worth it?

Bitcoin mining might seem like an easy way to make money, and it was in the early days when the number of miners was less and mining costs were lower. But now, mining is typically done in large warehouses with hundreds of miners contributing their hash powers. Small time miners just can’t beat the competition. Joining flourishing mining pools might seem to be the answer. But it comes at an additional pool cost, about 1%. Smaller pools might offer free admission, but they seldom catch any blocks.

Moreover, Bitcoin rewards are halved every four years. They started with 50, halved to 25 in 2012, halved again to 12.5 in 2016 and will get chopped to half in 2020. Plus, the difficulty metric seems to get harder day by day. Remember, Bitcoins can’t exceed the magic number of 21 billion.

Plus, there is no regulating body that controls the number of new miners that can join the network. The unlimited army of miners (some with super computers) competing for a limited number of blocks is a sure recipe for disaster.

And you just can’t ignore the mounting operational costs- electricity bills, internet bills, maintenance cost of rigs, etc. Setting up a basic rig can cost anywhere between $3000 and $10,000. You might have to buy graphic cards that cost about $700 apiece. More sophisticated equipment would be needed for mining for longer period.

The only silver lining to this dark cloud could be Bitcoin value appreciation. But the coin is known to be volatile, so you won’t like to place your eggs in that basket!

Aspiring miners can try mining Litecoins, z-cash or monero. These coins have poor exchange rates but can be converted into BTC. Of course, that again involves paying exchanges a transaction fee on each conversion.

It’s a Wrap…

Bitcoin mining asks for basic investments but promises no definite rewards. So, it’s somewhat a gamble. Consider your options wisely and pick what is best for you. Happy mining!