Chapter 1: Buying Bitcoin
The simplest and most efficient way to get yourself some Bitcoin is to buy it. There are many reputable exchanges that serve over a hundred countries around the world.
Kraken, Coinbase, and Gemini are U.S.-based exchanges that serve dozens of countries worldwide. Binance is one of the top exchanges by trading volume and is available just about everywhere except the U.S.
Many of these exchanges offer institutional-grade custody and top quality payment security. There are often two different interfaces: one for those who are simply looking to purchase Bitcoin as easily as possible, and one for those who want to trade between Bitcoin and fiat or other cryptocurrencies.
ther exchanges, however, have been hacked and lost customer funds and/or sensitive information. Mt Gox is the most infamous case, though there are countless others: QuadrigaCX, Coincheck, Cryptopia, and even major exchanges like Bitfinex and Binance.
When you’re trusting an exchange with sizable sums of your own money, it pays to do your research before signing up.
An alternative to centralized exchanges are peer-to-peer (P2P) exchanges. LocalBitcoins, Paxful, and LocalCryptos are some of the main P2P exchanges.
With their wide range of payment options, P2P exchanges are particularly useful for those who may not have access to a bank account, social security number, or other forms of identification that most exchanges require.
They also have the benefit of not storing your sensitive personal information in centralized databases that are ripe for the picking by hackers.
LocalCryptos, for example, runs off smart contracts and encrypts all communication between buyers and sellers. The keys to your messages are only accessible by the operators in the event of arbitration, and are otherwise destroyed 30 days after completion of the trade.
The platform keeps no records on users. Transactions are conducted off-platform between you and the buyer/seller, with no link between the cryptocurrency and fiat transactions once the keys to your chat are destroyed.
Takeaway: Centralized exchanges often have the lowest fees and allow you to benefit from the convenience of linking bank accounts and debit cards to set up recurring buys. As their name implies, however, your personal information and Bitcoin holdings are held in centralized accounts. Despite the security measures taken by exchanges, these are still prize targets for hackers.
Peer-to-peer exchanges are decentralized and offer just about any payment method that you and a buyer or seller can agree on. Your personal information is not held by any centralized entity and P2P exchanges are non-custodial, meaning you retain the keys to the Bitcoin you purchase
Chapter 2: How to Earn Bitcoin
As a Bitcoin is a cryptocurrency, you may be wondering if it’s possible to actually be paid in Bitcoin. Luckily, there are a number of ways you can earn Bitcoin.
How to Mine Bitcoin
While in the very early days of Bitcoin some people earned hundreds or thousands of Bitcoin by mining it on their home computer, this is no longer economically feasible for the average person.
Initially, you were able to mine Bitcoin using just your desktop or laptop computer’s CPU. However, this was soon eclipsed by miners using more powerful GPUs (Graphics Processing Units).
More recently, ASIC (Application Specific Integrated Circuit) miners have become the gold standard of Bitcoin mining. These are highly specialized pieces of hardware that are optimized for the task of solving the complicated mathematical problems that Bitcoin mining requires.
Small-scale miners compete with huge organizations located in areas with cheap energy and with millions of dollars worth of specialized hardware at their disposal.
That doesn’t mean that it’s a worthless endeavor, though. You can still learn a lot about the nuts and bolts of Bitcoin and contribute to its decentralization by running your own full node.
While you can mine Bitcoin using a desktop or laptop computer, if you really want to learn about how the major operations do it you should consider buying an ASIC miner.
The next step is to select a mining pool. Mining pools combine all their participants’ hashing power and greatly increase their chances of successfully mining a block. The block reward is then distributed to all participants in the pool.
Otherwise, it’d be your hashing power against everyone, including the biggest miners in the world. This makes your chances of successfully mining a block on your own essentially zero.
After choosing the hardware you’ll be using to mine and selecting a mining pool, the next step is to install mining software.
Mining software does the job of synchronizing your mining hardware with the pool and contributing hashing power. Some programs promise better efficiency and higher returns than others. There is mining software for Windows, Mac, and Linux operating systems.
Once you’ve configured your software, linked it to your mining pool of choice, and entered the address where you’ll receive payouts, you’re ready to start mining Bitcoin.
How to Get Bitcoin for Free
Unfortunately, the days of getting Bitcoin for free are largely gone. Now that Bitcoin’s value is widely recognized, not many people are keen to give them away for free. This wasn’t always true, though.
Bitcoin Faucets
There were a number of Bitcoin faucets that gave away Bitcoin for free.
Gavin Andresen - founder of the Bitcoin Foundation - set up a Bitcoin faucet in 2010. Visitors could earn five whole Bitcoins (then worth just a few cents each) by entering their wallet address and filling out a captcha.
This amount was gradually reduced down from 5 BTC, to 1, to 0.05 before the faucet was turned off completely in 2013. There are still a number of faucets in operation, but nowadays they pay out just a few satoshis (0.00000001 of a Bitcoin).
Being Paid in Bitcoin
While it’s not technically free, there are jobs that pay in Bitcoin.
Being paid in Bitcoin means you save on the fees you would incur from converting fiat to crypto.
It also means you’re being paid in a currency that has appreciated over its lifetime, in comparison to all fiat currencies which have lost value. Gavin Andresen’s six-figure salary for his work at the Bitcoin Foundation was paid in Bitcoin… in 2013.
But don’t need to be a software or blockchain developer. There are people willing to pay in Bitcoin for graphic design, videography, copywriting, and many more skills.
Sites like CryptoGrind are a great place to find this kind of work.
Alternatively, many crypto companies and publications are open to paying in Bitcoin. It’s worth asking if you can receive some or all of your wages in crypto.
Chapter 3: How to Store Bitcoin
You may have heard about the hacks of Mt Gox, Bitfinex, Quadriga, or Coincheck and be (rightly) concerned about keeping your Bitcoin on an exchange. There are a number of ways to store your Bitcoin that are much more secure than an exchange. Read on to find out more.
All cryptocurrencies are stored in wallets. A wallet is exactly what it sounds like: a place to keep your currency. But instead of being kept in your pocket, wallets exist on a blockchain.
The term Bitcoin wallet refers to the public address of your Bitcoin holdings. Think of this like a locked mailbox: anyone can send you mail but only you can retrieve it. You do this with your private key. Keeping your Bitcoin in an exchange wallet is the equivalent of receiving your mail in your neighbor’s mailbox. It’s great if you forget your key, as all you need to do is have your neighbor verify who you are and they can give you back access to your mail. But if they don’t keep their mailbox secure, or if for some reason they decide to no longer let you access it, you’re out of luck. For these reasons and many more, it’s important to safely store your own Bitcoin. Bitcoin held on an exchange is not Bitcoin, it’s an I.O.U. for Bitcoin. There’s a popular saying that goes: Not your keys, not your crypto. Non-exchange wallets allow you to hold onto your own private keys.
How to Get a Bitcoin Wallet
There are as many ways of getting a Bitcoin wallet as there are different types of wallet. Let’s take a look at the three main types.
Hardware Wallets
Hardware wallets have a well-deserved reputation for combining security with ease of use.
A hardware wallet is an electronic device that stores your private keys in a secure chip. This chip isolates your private keys from the vast majority of attack vectors. Your keys cannot leave this chip in unencrypted form.
This means that you could plug a hardware wallet into the most virus-ridden computer you can find and you’d still be able to transact safely.
Ledger, Trezor, and KeepKey are three of the biggest hardware wallet manufacturers. All three offer software that lets you check your balance, as well as send and receive Bitcoin and other cryptocurrencies.
Additionally, a number of browser wallets including Metamask allow you to connect a hardware wallet. This lets you take advantage of the security of a hardware wallet while benefiting from the convenience of a browser wallet interface.
Some models support a greater range of digital assets than others, so if you hold anything other than Bitcoin it’s worth checking to see that any device you’re considering purchasing is able to store your holdings.
Many hardware wallet makers open-source their code, meaning the community can audit it and check for any bugs or weak spots. Ledger is a notable exception: their source code is proprietary.
Software Wallets
Software wallets - also known as hot wallets - are programs on computers or devices that are connected to the internet.
Software wallets are very convenient as they allow you to connect with web-based platforms and apps. Many have slick interfaces and offer in-app conversion functionality, meaning you don’t even have to send your coins to an exchange to trade.
Some wallets - such as Exodus - let you sync between your phone and computer.
The problem with software wallets, however, is that your private keys are stored on your computer. They are usually encrypted with a password, but a dedicated hacker could make use of a keylogger to steal your password and unlock your wallet.
By contrast, your private keys never leave a hardware wallet. Instead, you sign a transaction using this key on the device and this message is then broadcasted.
Some more advanced software wallets such as Electrum allow you to create secure cold storage wallets. These are view-only, meaning you can check your balance but not send any funds. You can also create unsigned transactions on the computer connected to the internet, transfer it over to a secure computer to sign it, then send it back to the first computer to broadcast the transaction. This way, your private keys don’t leave the secure computer.
It does mean having a computer that you trust to be at least as secure as a hardware wallet. For most people, a hardware wallet will achieve the same level of security with much less effort and less possible mistakes along the way.
Paper Wallets
Paper wallets are the ultimate in offline storage. Other physical wallets such as steel wallets and anything that stores a seed phrase in physical form are included in this category.
A paper wallet is a print out of your public and private keys, often with a QR code for each which makes for easy scanning.
As there is no way to connect a paper wallet to the internet, the only way anyone can get their hands on your Bitcoin is for them to take possession of your actual paper wallet. It’s simple to conceal a piece of paper in your home or even secure it in a safety deposit box. When you want to spend the funds on your paper wallet, you can import the private key into a wallet client and transact as you wish. You should never reuse a paper wallet once you’ve exposed its private key to an internet-connected computer. Any wallet whose private key you have copy-pasted or entered into any online machine should be considered compromised. Paper wallets are more complicated to set up than other types of wallets, but they are one of the best solutions for long-term cold storage.
Chapter 4: Watch for Scams
The cryptocurrency space has seen its fair share of scams. As there are a decent number of people who did make astronomical returns on their investments, it’s easy for scammers to point to these cases and promise similar returns to new investors.
Whether it’s a Ponzi scheme, phishing attack, or fake giveaway, fraudsters are developing new ways for duping unwitting investors out of their money.
It’s important to remember, however, that the problem lies not with Bitcoin but with the unethical people behind the scams. If you buy a car that turns out to be a lemon, you don’t blame the cash you handed over for the deal, you blame the person who misrepresented it to you.
Bitcoin gives its users control over their money, which means it’s up to you to keep it safe and spend it wisely.
With that in mind, let’s take a look at some of the most common scams so you can know what to look out for.
Ponzi Schemes
At face value, a Ponzi scheme can look very similar to a legitimate hedge fund. Portfolio managers tout their proprietary investment tactics and attract investors with promises of market-beating returns on investment.
This is the first warning sign: never trust anyone who offers you guaranteed returns. There’s no such thing as a free lunch, not even in such a rapidly growing asset class as Bitcoin.
For a while, though, a Ponzi scheme can sail along just fine, at least on the surface. This is because instead of actually growing their investors’ money, the scheme’s operators pay out dividends to early investors with the money of those who come later to the party.
Eventually, this model becomes unsustainable when there is not enough new money to cover payouts to older investors, or when someone smells a rat and starts an investigation. This can take time, though: Bernie Madoff’s infamous Ponzi scheme operated for at least two decades.
Bitconnect was one of the largest Bitcoin Ponzi schemes. It promised investors up to 40% monthly returns, with a minimum return of 1% per day. These fantastic returns were the result of Bitconnect’s proprietary Price Volatility Software.
The results were great while they lasted, pushing BitConnect’s token into the top 20 in terms of market cap. Promoters (or educators as they called themselves) raked in hundreds of thousands of dollars in commission.
But following cease and desist notices from a number of jurisdictions, BitConnect’s management announced they were ending their exchange and investment offerings.
The price of the token dropped 96% in a couple of minutes. Many BitConnect users lost all the money they had invested in the blink of an eye.
Fake Giveaways
Fake giveaways are another type of Bitcoin scam. These often take the form of live YouTube videos where scammers claim they will double your Bitcoin if you send it to their address.
In order to build trust the fraudsters may show themselves doubling a few deposits before abruptly taking off with all of the funds that viewers were unlucky enough to donate.
This was the same model that the perpetrators of the Great Twitter Hack of 2020 used. They compromised over 100 accounts of some of the most high-profile people and companies in the world, including Barack Obama, Elon Musk, Kanye West, Uber, and Apple.
Phishing
Phishing involves an attacker disguising themselves as a legitimate entity in order to obtain sensitive information like passwords or payment details.
This is dangerous when someone gains access to your email, but it can be devastating if they take control of an exchange account or wallet where you store your cryptocurrency.
The problem is that it’s easy to fall prey to these kinds of attacks if you overlook just one or two details that are off. Phishers often use custom domains that are almost identical to the original you’re used to seeing. The hacking team behind the 2016 DNC email leak used accounts-google.com instead of the legitimate accounts.google.com.
Cryptocurrency exchanges are aware of the risk that phishing poses to their customers and have implemented a number of features to combat this risk.
For example, Binance’s login screen reminds you to check the URL of the site you’re on.
Many exchanges also support the creation of a withdrawal whitelist. This limits the addresses to which you can withdraw funds to just the ones you have pre-approved.
If a hacker gained access to your account, they would only be able to withdraw your balance to address you (presumably) control. If they tried to add a new address to the whitelist using your phished details, there is usually a 24 hour waiting period during which time you could hopefully regain control of your account.
One final feature that’s worth mentioning is an anti-phishing code. This is a code of your choosing that is included in any official email from your exchange. If you receive an email that claims to be official but doesn’t include this code, you can assume it’s a phishing attempt or at the very least investigate further.