Bitcoin for the beginner
Thursday 13 March 2014
Confused? I know how you are feeling. Bitcoin can feel overwhelming and I blame this partially on the media. Every day you see news reports such as this CNN Money report that state, “U.S. government agents have arrested Charlie Shrem, the CEO of Bitcoin exchange BitInstant, charging him with laundering money.” Another recent article from businessinsider.com columnist Mark T. Williams, seen here, says bitcoin has “flawed DNA” and calls it “unfit for currency.” He finishes his article with, “I predict that Bitcoin will trade for under $10 a share by the first half of 2014, single digit pricing reflecting its option value as a pure commodity play. Miners/speculators will be best served to acknowledge the meltdown has begun, act quickly and take fleeting profit off the table.”
The problem with these articles is that they are in part misleading. So rather than make statements that sound like Bitcoin has a CEO, or Bitcoin is involved in money laundering, or that Bitcoin is flawed, our series of safety articles will deal with fact. Fact is, bitcoin as an era, is upon us. It is working very well, and just as email would have been very confusing to someone in 1985, bitcoin to most in 2014, seems very hard to grasp indeed. I hope to accomplish three things:
- Introduce you to bitcoin as a protocol and help you see how it works.
- Teach you the safety risks and ways you can protect yourself in the online world.
- Help you see fraud, scams, cheats and scum, before they surprise you with tricks.
If I can do even a tiny portion that I set out to do, it will beneficial to all. I am not here to make guesses as to whether bitcoin will be worth $10 or not in 3 months. But I will tell you that I continue to spend most my day learning and exploring the digital currency and am even paid in bitcoin in a few places.
It does have danger; earlier this year I had a wallet through multibit.com which is donation ware and a secure, lightweight, international bitcoin wallet for Windows, MacOS and Linux. Once the wallet is downloaded on your computer you can store your bitcoin there. As I was setting it up, I made a password, typed it in twice, and sent 1.1btc there and closed the program and went to bed. The next morning, I had no idea what password I had set. Well, this is not like google or PayPal that you can click “forgot password”. This is an encrypted password and the only way for me to EVER recover those bitcoins, was to remember it. For about three weeks I considered it a loss of approximately $600 but one glorious night, I saw a password next to the word wallet in my Last Pass Secure Notes and it hit me that that’s where I put the password. Ta-da! I retrieved my lost bitcoins.
So bearing in mind the risks involved, here are a few keys facts to know about bitcoin at this time:
- Bitcoin is, at the base, an underlying protocol. This protocol may morph into something that looks different to what we see now. Compare it to looking at the early basic Internet protocol in the early 1990′s.
- Bitcoin is a currency, as well as a payment system. Bitcoin is a currency that can be traded for goods and services. Since Bitcoin is essentially “programmable money,” and can be sent to someone through the Internet like and e-mail, it is also works as a payment system. Some consider it as a commodity. While I agree for the most part, it is technically not a commodity since it has no value if the Bitcoin network were to cease to exist. However, if it is decided to be a commodity going forward there would be some consideration being given to regulate it as if it were a commodity.
- There are only 21 million bitcoins that will ever be produced and some think there are not enough to go around. Currently there are about 12.5 million bitcoins in circulation.
- Bitcoin has 8 decimal digits and can be broken down to 0.00000001 which is called a “Satoshi.”
- There are no usernames/passwords associated with bitcoin transactions. Web wallets will have usernames/passwords but that is not associated with the blockchain. Wallets may be encrypted and password protected but that is not associated with the blockchain.
- A bitcoin private key cannot be “brute forced” from the public bitcoin address. Each bitcoin address has private keys that can be used to spend the funds at that address. There is no known way to reverse the process to get the private key from the public bitcoin address. There are far too many keys for modern day computers to be able to “brute force attack” to try and steal the private key.
- If someone gets a copy of a wallet file that contains private keys it may be encrypted with a password. At that point a computer could “brute force attack” this encryption password if the password is weak. This cannot be done from data found in the public address or the public blockchain ledger. To have your bitcoin stolen, the wallet file must be obtained from the user’s computer. Check back every day, and pass the articles along to your friends and family as we remind ourselves to be safe.
Be Aware. Be Accurate. Be Alert
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