Beginner’s Guide to Bitcoin: Entrepreneurs and Enthusiasts Edition

BitcoinHere is a fairly comprehensive Bitcoin guide, how to get started and how to start making money in the Bitcoin economy. This is going to be a long, resourceful post. Feel free to skip sections that you already know about or aren’t interested in. I also welcome all comments and discussions and would like to hear your experiences and resources that you use for Bitcoin that I may have missed. Also, a few links are affiliate.

 

What is Bitcoin?

Bitcoin is a completely digital crypto-currency that uses a peer-to-peer internet protocol for its existence. It is very unlike other earlier digital currencies that came into existence, like e-gold, liberty reserve, etc. Here are some very fundamental ways in which Bitcoin is unique and first of a kind cryptocurrency –

  • There is no central agency or issuer of Bitcoin. Everything is ‘mined’ according to a pre-defined algorithm and no single person or agency can manipulate the supply of Bitcoins.
  • Bitcoin is non-inflationary. There are a finite number of Bitcoins that can be mined in all, which is very much in contrast to other fiat currencies or even gold. There can atmost be 21 million Bitcoins that will come into circulation by the year 2140.
  • Bitcoins are anonymous and secured by the best cryptographic methods. A few hacks in the past have been a result of hackers breaking into systems that stored the private keys for encryption. Once this is secured, your Bitcoins are secure. Bitcoin gets its power by being backed by cryptography instead of a central agency. The entire history of Bitcoin transactions are public. The code is completely open-source.
  • Bitcoin is very new. The network came into existence only in 2009. It has an exciting and uncertain future ahead. There are several copycat cryptocurrencies already, including LiteCoin, ZeroCoin, PPCoin, etc.
  • Bitcoin is divisible into 100 million parts, each part called a satoshi (named after the founder). This makes it incredibly easy to involve in micro-transactions. This is a great way to gain some experience with how the process works – as I’ll discuss in later sections, a number of websites built around Bitcoin give away a small quantity of Bitcoins in exchange for your time and attention, and such transactions are infinitely easier with Bitcoin than with traditional currencies with their high transaction fees.
  • Several businesses and online vendors are beginning to accept Bitcoins. This includes well known online businesses from WordPress to Reditt and a few offline businesses and entrepreneurs who are brave enough (like EVR bar in New York).

There are just some of the features of Bitcoin. Look at the resources section below to learn more (or drop a comment here).

Resources to Learn More about Bitcoin

Official Bitcoin Website: This is the official Bitcoin website that you can use to learn more about the whole concept. This is also the place to install the Bitcoin client to get your wallet that can be stored on your computer. Look at the getting started section below that provides a simpler solution to manage your Bitcoins.

Bitcoin Wiki: This is a great resource for people looking to dig much deeper into Bitcoin and looking to learn more. It contains a wealth of information and practical resources.

Wikipedia: As usual, Wikipedia has a great article on Bitcoins and useful references.

Bitcointalk Forum: This is by far the most authoritative Bitcoin forum that the founder of Bitcoin was also active in, before he disappeared. You’ll find the most passionate of people who are willing to help you in all aspects related to Bitcoin. If you have any questions, this is a great forum to browse. Also, the forum is the starting point for a number of online ventures using Bitcoins.

CoinChat: Not as authoritative a source as the ones mentioned above, but I’ve personally learned a lot of things from chatting with other Bitcoin enthusiasts at CoinChat. This could especially be useful for beginners who are looking for specific questions. The regular folks who chat here know a lot about Bitcoins and willing to help. It is sometimes good to connect with the community in real time. There are several Bitcoin chat sites, but I find CoinChat to be the best quality.

Getting Started

The first thing you need to get started with using Bitcoins is to get a wallet. You can download the official client at the official Bitcoin website for this. However, if you’re very new and don’t want to deal with public and private keys and keeping your private key secret, you can just get a wallet from a number of online services that will hold a wallet for you. I personally use Coinbase that recently got a $5 million venture funding from some heavyweights in Silicon valley and it has a very clean and nice interface that I like. I would recommend using their service for holding your online wallet especially if you’re new to Bitcoin.

If you’re outside the US or need more options, then Vircurex is the best option out there. A great feature of this is that it also enables you to easily trade other crypto-currencies (Litecoin, FeatherCoin, PPCoin, etc.)

Once you have a wallet, you can visit the section on Linked Accounts and you’ll see your wallet address. This is pubic information that you can use whenever you want to get paid in Bitcoins. The private key is kept safe with Coinbase (if you hold the wallets on your computer yourself with involving Coinbase, you are responsible for keeping the private key safe). Coinbase also acts as an exchange, so you can buy and sell Bitcoins if you wish by linking your bank account.

After this stage, you should try to get some Bitcoin into your wallet to see how the whole thing works.

Earning your First Bitcoins

Earning your first Bitcoins is exciting and the beginning of a journey. Since Bitcoins are divisible into 100 million parts, each part called a satoshi, it shouldn’t be hard to earn a few of these, considering they are not worth very much. However, this will be a great way to get introduced to the world of Bitcoins and the businesses and economies behind it. Each category below is unique in it’s own way and a great way to be introduced to the world of Bitcoin.

For all the cases below, you can use the wallet that you get from Coinbase or any other online wallet service.

Bit Visitor: This is perhaps the simplest and easiest way to get paid in Bitcoins. It is just like a traditional Paid-To-Click but without any minimum payout – you’ll get paid no matter how low the payout is. You visit an advertiser’s site and after 5 minutes, click on Next to be recorded. You can continue the process as long as you want – they have quite a few advertisers. No annoying minimum payouts and payment is quite fast.

Free Digital Money: This is a site that pays you in Bitcoin to do things like watching videos, filling out surveys, downloading apps/games, etc. It isn’t hard to reach payout here if you spend a few minutes doing the things they want you to do. Payments are also immediate.

Coin of Midas: Similar to Bit Visitor, but the payout is usually lower and there is a minimum payout of 2mBTC that can be hard to reach. Definitely inferior to Bit Visitor above.

Other ways to get some free Bitcoins is through faucets.

Free Bitcoins with Bitcoin Faucets

Bitcoin faucets are a uniquely Bitcoin feature that utilize the micro-payment system that is possible in the Bitcoin economy. The idea is simple – visit a website, enter your Bitcoin wallet and you’ll get free Bitcoins. No catch. The usual payout is a few uBTC which is a few millionth’s of a Bitcoin. These can add up though, and are completely free (no, you are unlikely to get rich by this method, but it is a great way to understand the system).

In the earlier days, Bitcoin faucets worked through donations. Now, it seems like many sites have figured out a way to make it profitable using advertising. Most Bitcoin faucets pay you very little, but again, it can actually add up, mostly because you can repeatedly request your free Bitcoins at most of these sites (some faucets you can request daily, others like BTC4You, every 30 minutes). All units below are in uBTC which is a millionth of a BTC.

Daily Bitcoins: Payout is 10uBTC. You can enter your wallet every hour. At certain times in addition you will get 5 times this as Peerbet credits. Peerbet is a peer to peer betting platform with no house edge (you compete against other players). More about Peerbet under the Gambling section. As of today, this faucet is the highest paying one out there.

BunnyRun: This isn’t technically a faucet but works the same way. You can get at least 4uBTC/day and up to 10uBTC/day. You need to pick a ‘bunny’ out of four, and depending on where it is placed in the race, you get the payout. You can only enter once a day.

Coin Ad: This gives you anywhere from 2uBTC to 10uBTC per day. If you create an account, you can get this every hour.

BitCoiner: This gives you anywhere from 4uBTC to 12uBTC per day.

CoinReaper: There are a bunch of faucets that payout 1uBTC and deposit this in coinbox.me. Once you reach 55uBTC there, you can request a payout. This doesn’t seem like much but it can add up fast, especially because a number of faucets allow you to get Bitcoins every half an hour. You can use Coin Reaper that keeps a list of all the sites you can earn quickly from or just find them yourself (or if you’re really interested, contact me and I’ll send you my list).

Make Money with Bitcoins for Bloggers and Webmasters

Bitcoin is especially conducive to make money online if you have your own blog or website that gets a decent amount of traffic. Since Bitcoin and Bitcoin based businesses are just taking off, there are plenty of opportunities to make money through advertising. Several forms of advertising are gaining in popularity – CPM/CPC and other innovative forms.

Anonymous Ads: I recently used a-ads and is the only ad block on my blog currently as I am still experimenting with it. It took my blog about 5 days to reach their minimum payout of 0.01 BTC (about $1.3 at this time) which isn’t great but isn’t terrible either. If you are a publisher or blogger of any kind, this could be a good addition to your ad blocks. This is a CPM offer – you get paid for the impressions. The payments are automatic. This is the site through which I have had the most luck, but it does require that you own a blog or website. The others mentioned below don’t.

Coin URL (link shortener): I have mixed feelings about Coin URL, but it is a very popular service in the Bitcoin community. The main use of Coin URL is as a URL shortener. However, each time you click on a Coin URL link, you’ll first be directed to an advertiser’s site and after a few seconds, you can skip the ad and then go to the main site that you intended to go to. This is how the publishers make money off this service – each time you, the reader, visit a Coin URL, the advertiser pays Coin URL for the hit and that is shared with the publisher. This is similar to adf.ly but you get paid in Bitcoins.

The down-side of this should be obvious – the user is one step away from what he’s looking for and it provides for a bad user experience. In general, when blogs and websites provide a list of resources, they usually encode these in Coin URL links to get some Bitcoins from people wanting to visit these sites. If I did that in this post, you’d probably be gone by now and not reading this post. This is why I stay away from Coin URL links but it’s entire up to you to use it.

The way to use it is simple. For example, if I want you to visit Google, I’ll redirect you there through here. Once you click on the ad, instead of being redirected to Google directly, you’ll visit a random ad page and when you click on ‘Skip ad’ on the top right, only then you are redirected to Google.

Coin URL (ad unit): Coin URL also provides ad units that are very similar to Google Adsense ad units. Webmasters and bloggers can make money through this route. Currently, most advertisers are businesses and websites build around Bitcoins, so these are especially profitable for those webmasters who get Bitcoin related traffic. Of course, things could very well change in the future.

Puppy Twist: This is a new CPC based advertising network, similar to Coin URL above. This is newer and not as popular yet, so I don’t have too much information to share. I am currently trying this out, and will update the post with what I find.

Bitcoin Mining

Bitcoin mining is a post twice the length of this article in itself. Mining is essentially verification of transactions that happen and get added to the main Block Chain. This requires a lot of computing power. At current rates, it is only profitable to mine if you don’t pay for your electricity and if you have a very powerful GPU (yes folks, CPU mining is dead). Instead of talking at length about how you can mine for Bitcoins, I’ll refer you to a TechCrunch article that outlines the steps.

Mining is extremely competitive today. In fact, the entire Bitcoin network is more powerful than the top 500 supercomputers COMBINED! You can only hope to be a small part of this. I personally don’t mine Bitcoins because they aren’t profitable in my case, but if you do want to end up mining, make sure you take into consideration all the costs (everything from direct electricity costs to cooling costs – you are going to end up with very hot GPUs!)

Accepting Payments and Donations in Bitcoin

eCommerce in Bitcoins is only just beginning to flourish and if you’re in the game, you’ll be one of the early adopters, even though big names like WordPress and Reddit already use Bitcoin donations. Since Bitcoin is a currency that completely lives online, it is very straightforward to set up a payment/donation system. All you need is your public wallet.

There are a lot of APIs – websites that make this even simpler for you. For example, there is a Donate Bitcoins button on my blog through which you can donate any Bitcoins to me (yes, they are very appreciated!) I am using the CoinBase plugin for this button, but there are plenty of more popular options, like Bit Instant.

Do note that you don’t need to run an online-only business to accept Bitcoins. There are a few traditional businesses that allow you to pay in Bitcoin and you can do the same for your offline business. The concept is the same. All your customers have to do is whip out their smartphones, scan a QR code and the payment is sent. No hassles, no swiping.

Bitcoin Gambling

No Bitcoin guide is going to be complete without a mention of gambling. I don’t advocate gambling, but if it’s your thing, then the Bitcoin gambling sites are far superior to the alternatives online.Why? Because the Bitcoin gambling sites have provably fair odds, and most likely, the good folks at BitcoinTalk gambling forums would have already figured it out for you (as a general rule, always check for the Bitcoin gambling sites in the BitcoinTalk forum and see what people are saying). It is possible to verify the house edge for each Bitcoin transaction/event that happens, which is very useful because you know that you didn’t get ripped off by manipulating the odds.

I don’t want to delve too deep into Bitcoin gambling, but I’ll mention a few sites that are really popular and unique in their category.

Satoshi Dice: This is probably the most popular Bitcoin gambling site. However, it is closed for US based computers.

Bit Bet: This is similar to Intrade for Bitcoin economy. You can bet on real world events.

Peerbet: The most popular gambling site with NO house edge. Peerbet is a peer to peer gambling network. Peerbet seems to make money only through advertising. You are only betting against other users and there is no house edge/house fees to play.

My Thoughts on Bitcoin’s Future

My guess is as good as yours when it comes to predicting the future. However, one thing is for certain – Bitcoin has shown what a truly digital cryptocurrency would look like. Sure, it might not stand the test of time, but has opened the doors to great possibilities. Here are a few things that the future of Bitcoin and cryptocurrency hold, in my opinion.

  • Transfer Money: Anyone who has tried to make payments around the globe would know the hassles involved in the process. True, certain services like PayPal make it convenient to use, but there are severe limits in some countries, it is unavailable in some countries and the fees can be quite high. The fees comes from two sources – a flat % fees and the exchange rate fees. There is also a significant delay in the transfer of money. With Bitcoin, all of these are eliminated. There is no transaction fees you need to pay for larger blocks (worth even a few dollars today) that you want to transfer. The payment is quick and immediate, as soon as it is verified in the blockchain. This is a vast improvement over the current infrastructure of transferring money.
  • Ease of Use: As businesses start adopting Bitcoin for payment of goods and services, the whole process of paying becomes extremely simplified. All you need to do is scan a code on your phone and the transfer is completed. You don’t need to swipe credit cards and wait for authorization. Merchants also don’t need to pay fees to companies like Visa and MasterCard for providing this service. This is again a great improvement over current methods.
  • Micro Transactions: The smallest unit of transaction for Bitcoin is a satoshi, which is a hundred millionth of a Bitcoin. This provides great flexibility in terms of crowdsourcing jobs and it can span a whole new economy of micro-transactions where everyone and anyone and plug into the Bitcoin economy for a few seconds/minutes/hours and earn some money. This could be similar to Amazon’s Mechanical Turk but at a far grander scale. Enabling micro-transactions can enable a number of entrepreneurial ideas.
  • Store of Value: Bitcoin is a non-inflationary currency. This means the total supply of Bitcoin at any point of time is capped, quite unlike other currencies like the Dollar or even gold. This makes Bitcoin a great store of value (until of course quantum computers break RSA but we got bigger things to worry about in that case I guess).

The future is an exciting place for Bitcoin and other cryptocurrencies. Lets see how things pan out.

Photo Credit: mises.ca

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