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Beginners guide to bitcoin

Bitcoin beginners guide

Bitcoin beginners guide

The Bitcoin beginners guide will get you up to speed asap with all that is happening in this fast moving technology.

Did you know that bitcoin is deemed as the future of currency and that it is one of the fastest ways to make money in the online world at the moment. But what exactly is bitcoin? If you’re new to this field and have just heard of bitcoin recently then there’s probably a lot of questions on your mind right now. So what is bitcoin? Bitcoin is a form of digital currency that in 2013 suddenly shot up in value from $13 to an unbelievable price of over $1000 dollars and it’s popularity soared thereafter.  The coins are in fact a kind of electronic money, the first crypto currency in fact. Bitcoin started circulating in 2009 and the key difference between such crypto currencies and traditional fiat money is that no government or traditional banking protocols have any control over it.

In traditional currencies the decision regarding the amount to be printed depends heavily upon factors such as inflation and is governed and regulated by a central bank. Contrary to this there is no central authority to regulate bitcoin or other crypto currency supply and transactions. It is the people’s confidence in this digital currency that decides its value so the more people who believe in it the greater the demand and the higher the price will go. You can use bitcoin to purchase things from people who accept these electronic currencies and since these coins are digital they can even be transferred over the Internet with the proper software, thereby leading to successful online transactions. Bitcoins are quite an attractive proposition if you’re looking to settle international transactions but hate being plagued by exchange rates and bank charges. The aftermath of the wild success of bitcoin has inspired the launch of a number of other competing crypto currencies such as PPCoin, Freicoin, Litecoin, Dogecoin and so on. Alternative crypto currencies to Bitcoin are usually collectively described as altcoins. You can go to cryptsy.com for a list of tradable and active coins that are available today.

How it works

Bitcoins are actually generated by computers online by dealing with difficult maths tasks; more widely known as bitcoin mining. The maths tasks in Bitcoin mining are programmed to progressively increase in difficulty, which means it will become more more difficult to mine the coins over time and the total amount of Bitcoins that will ever be mined is capped at 21 million coins. Due to this uniquely finite amount of currency no central bank has control over the flow of bitcoin or can manipulate the value of coins already in circulation. All of the computers in the network are coded to be used to monitor and verify the validity of each bitcoin that is mined and all of the transactions between users. Around 25 new bitcoins are mined every 10 minutes which is why more and more bit coin miners are building powerful computers just for the use of Bitcoin mining. Bitcoins can be bought, sold and traded with real money within a lot of online exchanges. One of the biggest advantages of bitcoin and digital currency generally, is that it can be used in international transactions without any bank charges or exchange rates and the fees are so small as to be almost negligible.

Bitcoin beginners guideBonus: This article is nearly 3500 words long. Download the full PDF ebook version for free.

The History of Bitcoin

The beginning it is essential to understand where Bitcoin and digital currencies come from in order to understand what is in store for us in the future. The true identity of the creator of Bitcoin is still a mystery but is widely known Bitcoin in 2007, with Bitcoin.org first surfacing on the Internet in 2008. The first Bitcoin transaction was conducted in 2009 between Satoshi Nakamoto and Hal Finney, a cryptographic activist and developer. In the same year an exchange rate was first published for this electronic currency with the value against US dollars at 1309.03 BTC per dollar. In 2010 a truly historic event took place when 10,000 bitcoins (then worth around $25) was spent on pizza. It was one of the first transactions that involved a tangible product. Today that amount of Bitcoin would be worth at least $5 million! A range of events occurred in 2011 including significant ones like Bitcoin becoming on par with the US Dollar, an offer to sell a  vehicle for bitcoins, the opening of exchange markets with respect to the British pound Sterling and Brazilian Real and so on. In 2013 the market capitalisation of Bit coin rose to $1 billion in April 2013 the value went beyond $100 per coin. From 2013 onwards, space travel could be conducted in exchange of bitcoins by Virgin Galactic, a company belonging to Richard Branson. At the end of 2013 bitcoins and other digital currencies suddenly exploded in price thanks to the power of Bitcoin and other digital currencies bloomed from there. Today Bitcoin is valued at around $460

How can you Cash in on Bitcoin and other Crypto Currencies?

There are 4 main ways to profit from bitcoins.

  1. The first method is to mine coins and sell them for profits
  2. Invest in the digital currency with real money and then sell again for profit
  3. Offer your services or products in exchange for bitcoins or other crypto currencies. It’s easy to start accepting Bitcoin as payment on your website for example.
  4. Get free Bitcoins!

Let’s look at these methods in a bit more detail.

Mining

In the early days of Bitcoin it was relatively easy to mine coins with a standard home computer, but, as more coins are mined, the calculations required to mine coins become increasingly complex. This means more computing power is required to mine coins as time goes by and profitable mining is certainly out of reach of the average home pc now. Mining bitcoins requires a lot of calculations on the miners’ part in order to make profit. A good miner has to understand the technical side of this digital currency and the cost of entry is fairly high with a requirement for specialised hardware to mine the coins. Of course, due to the increasing complexity of the calculations it is highly likely that entry level equipment will be made obsolete and ineffective fairly quickly.

Investing

Perhaps a more likely route for most is trading in digital currencies. This is one of the easiest and fastest ways to get started in making money with digital currencies. It doesn’t require a lot of technical knowledge but it does require your time to monitor charts and the news for best results; a lot like trading in any currency or commodity.

Get Paid in Bitcoin

Selling your products and services for bitcoins is one of the most secure ways to acquire bitcoins over the Internet. The benefit here is that you will not have to pay any of those huge bank transaction fees. The downside is, of course that the price of Bitcoin changes rather fast meaning you might have to wait for the right price before you can cash out.

However, setting up Bitcoin as an alternative payment method on your website is fairly easy, so if you feel like a dabble and especially if you mainly deal in low cost digital products like ebooks then the risks are low.

Get FREE Bitcoins!

This perhaps the slowest method, as you’d expect but there are numerous sources where you can grab bitcoins for free. Most of them will require your time to do something in return such as clicking, or viewing ads.

Your First Bitcoin wallet

A Bitcoin wallet is a simple piece of software to keep all your bitcoins in, much like a real wallet, only a digital version of you like. Very much like a real wallet, as the owner of the wallet you must take extra care of it, which in this case includes giving it a good and lengthy password that you must never forget or lose. If you lose your password or wallet all of your bitcoins inside will be gone for good. This means you must always make a backup of your wallet. You can always back up your wallet by making a copy of it and placing it on another secure hard drive or a thumb drive. It is very easy to get your own first Bitcoin wallet.  All you have to do is go to bitcoin.org and choose the one that’s the best fit for you.

If you want to become a Bitcoin Miner

Not withstanding my previous comments on the ever increasing complexity of mining requiring greater and greater processing power (and electricity bills!), you might still feel like trying out as a Bitcoin Miner. If so the first step will be to get yourself a Bitcoin wallet. By the way you might have noticed my interchanging use of capitalisation on the “B” in Bitcoin. This is due to Bitcoin with a capital “B” being the official name of the currency, and bitcoins with a small “b’ being the actual coins that are traded; much like  Sterling and pounds.

The next steps to becoming a miner include preparing your mining “rig”, connecting it to a client such as CGMiner which you can download free at github.com. However, as this is such a fast moving technology, some of the information here will be obsolete as soon as I write it. For that reason, you should do some internet research to find the latest and most highly recognised/recommended Mining Clients.

It’s then a simple case of configuring your mining rig bearing in mind that you can choose to mine bitcoins or other cryptocurrencies. If Bitcoin is your currency of preference then you can join a mining pool to maximise your mining efforts. For other crypto currencies you can connect your minor to services such as middlecoin.com for automated mining and payments in Bitcoin. Another good place to connect your miner to is hashco.ws 

Then it’s time to start mining!

Mining Bitcoin requires a PC to be running and connected to the Internet non-stop in order to churn out the coins. This means the costs that you will have to bear to mine bitcoins or other crypto-coins is the cost of the hardware plus the cost of the electricity and internet usage fees.

One of the more popular and still profitable ways to mine coins these days is to mine crypto-coins such as lite-coin or doge-coins and then convert them into bitcoins later on.

You will need a basic PC that can run two or more graphic cards at the same time and although it can be fairly basic, it must be able to withstand the heat produced from running the “mining rig” non stop.

A basic mining rig will cost in the region of $1000, but it must have a strong enough power supply to handle the graphics cards required for successful mining. you should never never use a laptop to mine coins, unless you want to see what a melted laptop looks like :-). Alternative mining methods include the use of a PS3 ASIC Miner

For a more detailed and very good guide to mining with a PC I recommend cryptobadger.com, but take note of the latest comments on this post. Due to the ever increasing complexity of mining, it is only an option for the very serious. Accepting Bitcoin as payment for the work you already do or trading in crypto-currencies are becoming more realistic ways of filling your virtual wallet as each day goes by!

However, if you still aren’t put off by mining the you should do some calculations to ascertain when you will become profitable. The main costs for mining are paying for electricity and the mining rig so be sure that you calculate how long it will be before you actually move into profit.

The golden rule of mining is to mine until the price of your profit is equivalent to the price of electricity. When the price of bitcoin is high, you will see a faster return on investment.

Example Calculations

Estimated cost of a mining rig with two GPU cards are 9 to EDX is about $900 give-and-take give-and-take so if the electricity bill was $40 per month and you’re getting about 0.015 bitcoins per day from mining (middlecoin.com), you would be getting around 0.45 BTC per month.

So if the price of BTC is $650 0.45 BTC = $292.50 per month. Minus the electricity bill you get $252.50 per month. At a cost of $900, it will take you roughly three and a half months to break even with your cost,  and then after that you’ll get an estimated $252 in profit per month.

Note that the calculation above will vary in different countries, with different mining rig builds, the varying cost of hardware available in your country and the price of Bitcoin itself.

Of course if you want to earn more, the general way to do this is to build more rigs with more mining power, but for starters it’s recommended that you to start with a lesser cost at first to let you see if it’s for you in the long term.

The example shown is based on a GPU mining rig. For ASIC miners, you may pay more for the ASIC hardware, but the good thing is it produces less heat and noise and possibly consumes much less power as well. Again, do your calculations before you choose the right mining rig for your requirements.

Warning

Always take into the calculation the saturation of the coin that your mining and the ever increasing difficulties that are associated with mining for best accuracy. Make sure that the amount that you have can bring the fastest return on investment. If it takes too long to generate a return, it is better to try other methods to make money with digital currencies.

There’s a great mining calculator and profitability charts here: coinwarz.com/cryptocurrency

Trading in Bitcoin or other Digital Currencies

The 2 main investment strategies open to you are:

  1. The Arbitrage Strategy
  2. The Buy and Hold Strategy.

Let’s look at these in more detail.

The concept of investing in bitcoins is very easy. The main idea here is to buy the the price is low and sell it off when the price is higher.

You’ll find that both investing strategies that we will look at are based on the above concept in order to profit.

To get started there are numerous Bitcoin exchanges online that you can join to trade bitcoins. One  such exchange is btc–e.com but there are many others. Due to the fast moving nature of this technology, you should always do your own research to satisfy yourself that you are using the most suitable exchange for your own personal requirements.

Arbitrage Strategy

This strategy is a very simple way to make money with Bitcoin.

It involves monitoring the Bitcoin or crypto charts and buying bitcoins at a very low price and then when the price shoots up, you sell it back.

The good news is that a btc-e.com you can do all this automatically where you can place your buy and sell orders at the price that you want.

Due to its simplicity, this strategy can be used to make profits on a daily basis as long as you follow at tight strategy and do not get too greedy.

It is recommended to start small first and get used to the movements of the digital currencies’ price before investing larger amounts.

The Buy and Hold Strategy

This strategy is based on the belief that in the future, the price of the digital currency (mainly Bitcoin) will be higher than the price is now. In fact many investors are collecting bitcoins like a cult and not selling at all. They believe in the future, the price of bitcoins will be 10 times or 50 times more than the price is now.

Some of the reasons why a lot of people believe the Bitcoin price will keep going up in the future is because it is rare and limited to only 21 million coins. This means that the mining of Bitcoin is getting harder day by day. All of this means is that its rarity will cause the price to go way beyond what we’ve seen up until today.

Another reason for the price increase is that the demand for Bitcoin will only increase due to the fact that you can save on transaction fees.

When you pair rarity with demand, it is no wonder that many people are sticking to the buy and hold strategy. Throughout its short history, the people who have made the most money out of Bitcoin and other crypto currencies have used this strategy.

Accepting Bitcoin

More and more big companies are accepting bitcoins as payment right now. Some of these Big brands include Overstock.com, the Humble Bundle,  Namecheap,  tigerdirect.com,  Lamborghini, Alleywatch, Zero Hedge, Playboy, Virgin Galactic, USHobby, Reddit and Zynga.

Accepting bitcoins is easy. All you have to do is provide an option for people to pay via Bitcoin.

For a guide on how to accept Bitcoin for your online business have a look at this article

Converting your crypto coins into real money

So what do you do with the coins that you acquire from your business? Well, you can then sell it off in Bitcoin exchanges or use it to buy all other merchandise from companies that accept Bitcoin. In fact you can use the coins that you acquire to invest and trade for even more profits

Getting FREE bitcoins

As I’ve mentioned already there are numerous sources out there that offer free bitcoins. Most of them will require your time to do something in return such as clicking or viewing ads or to do some work, but there are many variations. Let’s take a closer look at some of the options:

Bitcointalk, forum services section is a viable place to search for jobs that help you earn bitcoins. Many of the jobs here can be done within a short space of time and hence you can earn your digital currencies swiftly. bitcointalk.org

Jobs 4 Bitcoins on Reddit concentrates on dishing out job listings mainly for programmers, but here you are able to search jobs in other fields as well. reddit.co/r/jobs4bitcoins.

Another online job board that comes with a range of job offers is bitgigs.com. Check out the variety of jobs available on bitgigs.com

Coinality is another job site that deals in crypto currencies. However, unlike other such portals, it follows the innovative approach of listing the jobs as well is displaying them over a map coinality.com

Fast Start Plan

  1. Understand the potential of Bitcoin and pick a method first that suits you.
  2. Select the type of wallet that would suit your needs and download it.

Security note

Make sure you do not forget or share your wallet’s password around. Use a very strong password and make sure that you have a back up copy of your wallet at all times.

Keeping it Simple

Like most things, it’s best to keep it simple with Bitcoins, at least until you’re confident about what you’re doing.

  • Earn Bitcoin using the method of your choice, choose between mining, trading etc.
  • Spend Bitcoin on available goods and services or hold your bitcoins and sell them off for cash at a very good price. Many people believe that Bitcoin’s price is just on the baby stage at the moment and that it will hike to a very high price in the future.
  • Take action now. The future of currencies is here, it is up to you now whether or not you’ll be part of this mega moneymaker and make a great amount of money from this trend…or if you’ll miss out on this modern day Gold Rush.
  • Start gathering your Bitcoin today and when the price shoots up again you could be the next Bitcoin millionaire!

Hungry for More?

beginners guide bitcoin

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