If you’ve been paying attention to tech news or even traditional news recently, chances are you know what Bitcoin is. The crypto currency launched in 2009, but started to gain mainstream traction over past couple years as it's become accepted by a larger number of businesses and as the market price rapidly inflated to highs of over $1000 USD per Bitcoin.
It's beyond being just a novelty. Bitcoin is now a real currency accepted by real businesses, and it's time to know how to use it. In this tutorial, I'll take you through everything you need to save, mine, and use Bitcoins.
Before we dig in further, here's Bitcoin in a nutshell: Bitcoin is a decentralized crypto currency with transactions being processed on millions of computers, called miners, working to constantly verify transactions via the web. Because of this, Bitcoin isn’t controlled by a bank or a government, so its international and even the largest transactions can take place with very small transaction fees. Instead of PayPal and other virtual banks using real-world currency, it's a digital currency for digital transactions.
For more info, check the How does Bitcoin Work page on the official Bitcoin site, and the video above.
Setting Up Your Bitcoin Wallet
Before you start using Bitcoins, you'll need a Bitcoin wallet. A Bitcoin wallet is where you send and receive Bitcoins. Within every wallet, a Bitcoin user is given a unique address that can be used to send and receive Bitcoins. Additionally, there are two different types of wallets available for use: desktop wallets and web wallets. Like the names suggest, desktop wallets store your Bitcoins on your computer while web wallets store them on a server, available for use anywhere you have an internet connection.
What wallet should I use?
Choosing a Bitcoin wallet can be a tough decision, though the decision boils down to two major factors: convenience and security. The major downside of using a web-based wallet is the fact that, if your account is compromised or the wallet service you use shuts down, your coins are at risk. However, if you use a desktop wallet, you sacrifice the anytime-anywhere accessibility you get with web wallets for added security. Another downside of desktop-based wallets is that if your hard-drive dies and you’re without a backup, your Bitcoins are lost as well.
Using MultiBit to host your Bitcoins (desktop-based).
If you’ve chosen to go the desktop-based wallet route, MultiBit is one of your best options for Mac, PC, or Linux. MultiBit gives users a barebones yet dead-simple interface for sending and requesting Bitcoins as well as viewing transactions and an up-to-date BTC (Bitcoin) to USD exchange-rate. MultiBit also has multi-wallet support, allowing you to send and receive Bitcoins at multiple addresses.
Creating a Bitcoin Wallet With MultiBit
After downloading and installing MultiBit, launch the application and look towards the left-hand side of the screen. You’ll see that MultiBit has already created your first Bitcoin wallet for you. You’ll want to first name this wallet by clicking into the Your wallet description box and typing in a description for your first Bitcoin wallet. This description will only show on your copy of MultiBit, so name it whatever you please.
If you’d like to create an additional wallet within MultiBit, look towards the bottom, left-hand corner of the screen and click on the New Wallet button. Upon clicking this, you should notice another Bitcoin wallet appear underneath your first Bitcoin wallet. Like your previous wallet, you can name this wallet.
If you’d like to quickly view the balance of any of your Bitcoin wallets within MultiBit, look towards the bottom right-hand corner of any of your wallets within MultiBit. You’ll see the balance in BTC as well as the converted USD balance. The BTC to USD rate is updated automatically, so you can be sure your conversion it up-to-date.
Sending Bitcoin with MultiBit
When it comes time to send Bitcoin using MultiBit, click the wallet you’d like to send Bitcoin from and look towards the center of the MultiBit window. Click on the tab labeled Send. Directly below this button is a text-box labeled Address. Click the textbox to the right of this title and enter your recipient's receiving address. You can then give your transaction a label, and then add how much Bitcoin you’d like to send next to the Amount label. Then, click the Send button located towards the right-hand side of the window.
Requesting And Receiving Bitcoin with MultiBit
If you’d like to start accepting Bitcoin in a commercial setting, say, in a coffee shop, you’ll want to learn how to request Bitcoin in specific amounts. Fortunately, it’s quite simple to do this within the MultiBit request window.
If you’d like to request Bitcoin from another Bitcoin user, click the Request tab that is located to the right of the Send tab. From here, type in a description for the request as well as the amount of Bitcoin you’d like to request. You can then send the receiving address located towards the top of the window to the person you’re requesting payment from.
You can create multiple requests per Bitcoin wallet, each with different descriptions and receiving addresses. This is helpful for those using Bitcoin in a retail setting as they can use a separate request for each transaction.
Once you start receiving Bitcoin, you do not need to do anything within MultiBit to accept them, they will simply land in your wallet. To receive Bitcoin from other Bitcoin users, they’ll either need your receiving address or QR code. This code can be found on the right-hand side of the request window.
Mining is the backbone of Bitcoin. Since the currency is completely decentralized, all Bitcoin transactions are verified by computers all over the planet running Bitcoin mining software. When submitted, transactions are added to a block. These blocks are then sent to miners to verify against other blocks on the block-chain to ensure each transaction is unique. Miners are then paid transaction fees for using their hardware.
A block-chain is, in simple terms, a record of every Bitcoin transaction ever made with each block being linked to ensure each transaction is new and legitimate.
Mining Bitcoins is intentionally designed to be resource-intensive. This is to keep the amount of blocks discovered by miners daily at a steady rate. Because of this, Bitcoin mining usually takes place in pools. A Bitcoin pool is a cluster of computers working together to mine Bitcoin blocks. Pools are necessary as Bitcoin blocks require a lot of processing power to mine, way more than a single computer or server can handle.
If you'd like to mine Bitcoins, you can do so with the app GUIMiner or Asteroid, among other Bitcoin mining apps. You can even setup your Raspberry Pi to mine Bitcoins, though it'll be even slower than your normal computer at it.
If you’d rather not mine, another way of acquiring Bitcoin is by purchasing them. There are many places on the web using an exchange. Exchanges are places where you can buy and sell Bitcoin using your bank account. One of the most well-known Bitcoin exchanges is Coinbase.
So now that you have Bitcoin, where exactly do you use it? Well, aside from using the currency to pay for goods and services to an individual, many online stores have started to accept the currency. Most notably, Square Market has started to accept the currency, so you can purchase anything from clothing to iPad cases using the currency.
Making a purchase with Bitcoins is simple. Most websites will automatically generate a receiving address where Bitcoin can be sent to complete the purchase. On Square Market, for example, the purchaser is sent an email with this address. The address will automatically open in the purchaser’s wallet, allowing the customer to pay in one-click.
Then, if you're selling your own goods, you can accept Bitcoin easily using the apps mentioned above, or via Square, or even can add Bitcoin payment options directly to your website.
Bitcoin may be based on cryptography, but using it is far from cryptic. In general, it's no more difficult to save and spend Bitcoin than it is to save your photos to your computer and share them to others. The only difference is, the bits this time are actually valuable and can be exchanged for real-world cash.
The greatest danger in using Bitcoin right now is its rapid price fluctuations which make it feel more like owning a volatile stock than traditional currency. But over time, there's a strong potential that Bitcoin will end up being as large a part of the digital economy as PayPal, if not more so.
If you're already using Bitcoin, or are just getting started with it and have any questions or concerns, be sure to leave a comment below!