Bitcoin is also actively traded in exchanges all over the world against other currencies. The latest prices can found in many places; this place is comprehensive: http://www.bitcoincharts.com/markets/. Once there you probably want to click on the currency that you are used to and see those.
The terminology we use here is simplified as well. The actual technical terms are presented later.
Viewing Bitcoin - in ACCOUNTs
Just like money is held in bank accounts, Bitcoin is also held in ACCOUNTs.
Here is an example ACCOUNT: 1FyeXjNhFWBaqwTNQavdjJBVDWBn5HZPwg
ACCOUNT numbers are long, but you never have to remember them. Since they are all public, they are transmitted like public data.
1. Emailed.
2. Online retailers show it on their websites at checkout. The customer can copy it from there and paste it in their Bitcoin wallet (=software)
3. Shown as a QR code. If your smartphone has a barcode reader app, it can read it. Better yet, if your smartphone has a Bitcoin wallet app, your cellphone will know what to do. Here is the QR code for this ACCOUNT:
All Bitcoin in all ACCOUNTs is visible on the web at all times.
This ACCOUNT 1FyeXjNhFWBaqwTNQavdjJBVDWBn5HZPwg has been funded with 5BTC, the prizes for the wallet contest.
You can see the balance of this account here:
or here:
or other places.
To watch Bitcoin transactions as they are happening in real time you can go here
or here
http://btc.blockr.io/ (and scroll down)
or other places.
All Bitcoin transaction in all ACCOUNTs are also visible on the web at all times, forever. Where it came from can be traced to other ACCOUNTs. This is why Bitcoin is a bad idea to use for illegal purposes.
Securing Bitcoin - with PASSWORDs
Securing Bitcoin - with PASSWORDs
PASSWORDs are paired with ACCOUNTs
You give it to the people who pay you, so they can pay to it.
The PASSWORD is PRIVATE
It is required to spend the Bitcoin.
The PASSWORD is used to create the ACCOUNT
The formulas for this creation are public and also in the wallet spreadsheet here (see contest).
What about protection?
No worries!
1. The formulas cannot be reversed. (Do try!)
2. The passwords are too many to be able to be guessed at random. See the technical section for more details.
Administering Bitcoin ACCOUNTs
Bitcoin differs from regular banking in some key ways:
1. In usual banking, the bank assigns to the customer a valid ACCOUNT and PASSWORD pair.
In Bitcoin everyone creates their own ACCOUNT and PASSWORD pairs.
In Bitcoin everyone creates their own ACCOUNT and PASSWORD pairs.
2. In usual banking the ACCOUNT stays constant for a long time, and all the related transactions go into and out of that ACCOUNT.
In Bitcoin, while that is do-able, it is an unsafe practice: It is best to create one ACCOUNT / PASSWORD pair for each transaction, invoice, payment, etc. The software makes that very easy.
In Bitcoin, while that is do-able, it is an unsafe practice: It is best to create one ACCOUNT / PASSWORD pair for each transaction, invoice, payment, etc. The software makes that very easy.
3. In regular banking the customer can change the PASSWORD, but if they forget it, the bank can reset it for them. In Bitcoin, if the password is lost, the Bitcoin in the corresponding ACCOUNT is also lost forever, because while we can all see it, nobody can never spend it.
4. In regular banking there are also exist shared or joint accounts. In Bitcoin joint ACCOUNTs can also exist but are more rare. In practice they are sometimes created temporarily as an alternative way to move Bitcoin from one person to another.
Obtaining Bitcoin
Since Bitcoin is used as money, it can be obtained the same way as money can be obtained. Here is a partial list: By selling goods for Bitcoin, or providing services for it, or working for an employer who is partnering with a provider who converts a portion of your salary to Bitcoin. You can also buy Bitcoin from other people at an exchange such as http://www.bitcoincharts.com/markets/, or directly from other people from places such as https://localbitcoins.com/. Bitcoin can also be obtained by a complex, expensive, and highly technical process called mining; find more information about that on the web.
Holding Bitcoin
Bitcoin is held in ACCOUNTs.
ACCOUNTs are held in special software called wallet software, or simply wallets.
Some of these wallets are online (“hot”); some offline (“cold”).
Some wallets work on computers; other on cell phones; others are online.
There are providers who will hold your bitcoin for you, some online and offline.
You can learn more about wallets here: https://bitcoin.org/
You can learn more about wallets here: https://bitcoin.org/
Receiving Bitcoin
In order to receive Bitcoin you use your wallet software to create an ACCOUNT/PASSWORD pair to store it in (more details in the wallet section).
Once you have created the pair, you send only the ACCOUNT to the sender in an email or text, so the sender can copy it and paste it in their desktop wallet software, in the payee field.
Alternatively your wallet software could also show the ACCOUNT as a QR code (which you can even print), so the sender can read it in a cell phone wallet.
The sender will connect to the Bitcoin network on the web, and initiate the send process to the ACCOUNT.
After a while you will see the Bitcoin in your ACCOUNT. Since there is no central authority, and every network node knows every transaction, the transaction will be confirmed over time, usually about 1 confirmation every 10 minutes. After 6 confirmations you are statistically certain that this Bitcoin has been sent to you and only you (more on that later).
If the sender only has a cold wallet, they might do something else: Create a one-time ACCOUNT/PASSWORD pair, put the Bitcoin there, and give you both the ACCOUNT and the PASSWORD. This has effectively created a temporary joint account. You then create a new ACCOUNT/PASSWORD pair, and move the Bitcoin from the joint to yours, while they wait. After the network sends you 2-3 confirmations you can be certain that this pair has not be shared with anybody else.
Since you have kept the PASSWORD a secret, you are now the only one who can spend this Bitcoin. Never use this joint ACCOUNT again.
Sending Bitcoin
There is no credit in BITCOIN: You MUST own it in order to send it. PERIOD. (And this is why bitcoin will never compete with most credit card purchases.)
If you have an online wallet, you can send the Bitcoin directly from your wallet: the recipient will make available their ACCOUNT to you, either as a set of letters and numbers, e.g. 1FyeXjNhFWBaqwTNQavdjJBVDWBn5HZPwg, or as a QR code that translates to these same letters and numbers, which your cell phone can scan and process. Your software will guide you through sending it.
Alternatively, you can create a one-time ACCOUNT/PASSWORD pair, send the appropriate Bitcoin to that ACCOUNT, and give the recipient the PASSWORD. You have effectively created a joint account: either of you can spend the Bitcoin. Wait very politely until they import that PASSWORD into their wallet, and move that Bitcoin out of the joint account into one of their ACCOUNTs. Never use this joint ACCOUNT again.
Beware: In this respect, Bitcoin is like cash. If you receive faulty goods or unacceptable services, you have do not have the protection that you would from a credit card company. You cannot cancel the transaction. NO RECOURSE. This is yet another reason NOT to use bitcoin on large purchases.
COMMON SENSE
If you are buying Bitcoin and intend to store it for a long time, consider "cold" storage. this would be with a wallet that is completely offline. Create there the PASSWORDs, and ACCOUNTs. Copy out of that storage only the ACCOUNTs on to a USB drive, or print them and their QR code image on a piece of paper. If the amount is sizable, consider receiving the Bitcoin in multiple ACCOUNTs.
NEVER EMAIL the PASSWORD. The email can be scanned along the way, and someone else can spend your bitcoin.
NEVER STORE the PASSWORD in a safety deposit box. You just do not know who can see your belongings.
ASK your tax professional about tax implications of Bitcoin.
Sometimes you may buy from/sell bitcoin to strangers, usually through localbitcoins.com. If you do, take these basic precautions:
1. Meet in a public, well-lit place. Agree on the price and amount upfront. Do not take much cash; create several meetings if needed. Women should NEVER go to such meetings alone.
2. If you are buying bitcoin, create the ACCOUNT in advance, and email it to the seller. Take with you a web-enabled cell-phone, and store the the URL to see the balance for that ACCOUNT. Do not take the PASSWORD with you. Once you meet, put the money on the table, and ask them to initiate the transaction, You should see the transaction instantly, and unconfirmed. Wait until you get at least two confirmations from the network ON YOUR PHONE. (The seller will be looking at theirs).
3. If you are selling bitcoin from a hot wallet, ask for the ACCOUNT in advance via email from the seller. When you meet, after you see the money, send the bitcoin. Expect to be asked to stay for a couple of confirmations, so they can confirm that you did not also send the same Bitcoin to someone else (doublespend).
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