Howto start with Bitcoin

By | 2016/02/05

Within the last months I have heard a lot about Bitcoin. So I thought to get a bit into this topic. According to Wikipedia [1] it is a decentralized cryptocurrency. The main advantages are basically that the currency is managed decentral, meaning that there are basically no banks required to do any transaction. In addition the transaction costs are basically very low [2], while for certain services (e.g. faster processing) costs can be higher. A good detailed describtion of the Bitcoin transaction fee logic can be found at [3].

For a start I would refer to the official bitcoin homepage [4], where you can find a quick intro. To start you will definitely require a wallet – either you do it on your own, by installing a bitcoin client or you take a wallet from an online account e.g. from blockchain [5]. Since a local installation provides more independency, it also has the risk of loosing bitcoins whenever your computer gets lost/stolen or hacked. With the online version, you usually also have tools and apps available to access your wallet every time and everywhere (e.g. if you like to pay something with your mobile).

Once you have a wallet – you need to find a way to get bitcoins. Ways to get bitcoins are the following ones, which are described in more detail below:

  • Bitcoin Mining
  • bitcoin faucet
  • Earn bitcoins
  • Buy bitcoins

Bitcoin Mining

Bitcoin mining is a nice idea to earn money – but you are years too late. It was only profitable in the beginning, while nowadays you can forget the cost income ratio due to the need for special hardware and high energy costs which are not compensated by the bitcoins you earn.

Bitcoin Faucet

These are basically pages which are showing you advertisements for bitcoins. Most of the pages (e.g. bitvisitor.com [6]) you earn some Satoshi every 5 minutes. Other ones e.g. moonbit [7] are collecting Satoshi over the time, which you are able to claim every 5 min. While the first one triggers the payout after 30 bits, the second one does a payment once a week when more than 5000 Satoshi are reached. I’ve tried both, and both are working fine. The only thing which should be highlighted – after collecting Satoshi’s over one week, I have not more than 0,1 EUR. That is not much to spend for watching tons of ads.

Earn bitcoins

There are pages like coinworker [8], where you receive bitcoins, once you have completed some tasks, which are mainly surveys. This work out fine, except, that for most of the task you have to reach a specific level, which goes with the amount of completed tasks and a certain quality. So once you start there, it takes ages to get to this level, since in the beginning most of the time there are no tasks available. The earnings are higher than on the Bitcoin faucet pages, but still you will not get rich.

Buy bitcoins

The best suggestion to get bitcoins is to buy them. This can be done either via local bitcoin platforms, where you can buy from real-life persons [9] or you go over a platform like coinbase [10], where you have to register yourself with an official ID and transfer some EUR/USD to buy some bitcoins. Of course you can pay with a credit card as well, but the transaction costs are higher. While the first method might be more convenient, the second option seems to provide better rates for the exchange. But there are of course plenty of other platforms available.

Once you have some bitcoins you can start spending them. There are a pages available [11] which shows you where you can spend you bitcoins. As the currency is quite new, decentral, and partly not legally accepted, the amount of places to spend is limited. But as we are living in a digital world, I am sure there are enough online place to spend them.

While Bitcoin is the best known crypto currency, there are plenty more digital currencies (also known as altcoin) available. A page which provides a quite good overview is coinmarketcap [12] providing details, information regarding rate and liquidity, but also market places where to buy and sell.

There are some issues and problems I see with digital currencies, which I would like to highlight at the end:

  • Personal wallets (like Bitcoin Core): this wallets are bound to your PC and once your computer is hacked or your PC is gone, your virtual money is gone as well.
  • Tax: I know nobody wants to pay tax, but considering that you are trading on Bitcoin Exchanges, taxes on capital income should apply.
  • Monetary control: while some see it as an advantage that there is no currency control available by any kind of government, it might also come with some disadvantages. Since the mining continuously produces more bitcoins, there is no way to reduce the amount – meaning that over time there must be a devaluation.
  • Volatility: Bitcoin has a high volatility, meaning which you could be a lucky bird and earn a lot, you could also lose a lot.
  • Shops: the amount of “real-life” shops is limited.

 

[1] wikipedia.org, Bitcoin

[2] Bitcoin Wiki, Transaction Fees

[3] bitcoinfees.com, Bitcoin Transaction Fees Explained

[4] bitcoin.org

[5] blockchain.info

[6] bitvisitor.com

[7] moonbit.co.in

[8] coinworker.com

[9] localbitcoins.com

[10] coinbase.com

[11] spendbitcoins.com

[12] coinmarketcap.com

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