Fun With Bitcoin For Beginners: Part Five

Well, the past week or so may not have been much "fun" for Bitcoin ("BTC") owners as the price has lost some 50% of its price (at the recent low) since its recent high near $1200.  But, my understanding is that BTC has been subject to huge volatility in the past, 50% losses off highs is pretty normal.  Disclosure: my (total) average cost per BTC is around $770, so yes, I am down a little bit, but that does not account for the purchase I made (see just below).

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I am happy to report two interesting pieces of progress in my education in actually using BTC!  I was able to "shop" for an actual product and I have found a cash-for-BTC guy here in town so that I can buy more (and sell if necessary).

I mentioned that one of my early goals in working with BTC was to purchase some gold, and pay with BTC.  Well, just yesterday I received my 0.25 oz Gold Eagle that I purchased for 0.4301 BTC (the price of gold at that point was about $1240 and the price of BTC was about $860/BTC, that works out to around $369 for the 0.25 oz, which is a fairly high premium over spot, but that DID include shipping and BTC transaction fee) from goldsilverbitcoin.com.  I contacted them on Sunday December 9, and received an email back from Justin saying that, yes, they had the coin I wanted in stock.  (I also contacted amagimetals.com, but since I heard back from goldsilverbitcoin first, I decided to place my first order with goldsilverbitcoin).  I then actually placed the order and paid with my BTC on Monday morning (December 10).  I received an email confirmation of my order as well receipt of payment by email.  I was also told I would be advised upon shipment.

I did not hear anything else for a few days, so on "Friday the 13th", I dropped Justin a line asking when he would ship...  He replied that he had gone to Las Vegas where there was some kind of meeting where he actually spoke, and he apologized for the delay.  He also promised to send along a 1 oz silver coin to make up for it...

Well, yesterday both the 0.25 oz Gold Eagle AND a 1 oz Silver Maple (Canada) both arrived.  Promise made, promise kept.  OK, there was a delay (which IS unnerving for beginners), but he made up for it.  But, I am over $19.00 (price of one oz of silver) ahead of where I would have been otherwise.  Here is a picture of what I got:

The color did not come out very well for the Silver Maple, but if you click the image, you can see that's what it is.  As many of you know, almost all the PM coins I collect are US Eagles.  Hmm, what am I going to do with the Silver Maple?  Hmm......

Verdict:  Yes, they deliver.  You might ASK if there may be any issues that might delay delivery (stock, other delays, etc.), but I got what I paid for (with the ounce of silver because of the delay).

Of course, YMMV...

justin@goldsilverbitcoin.com

I am hoping that my next transaction of BTC for gold will be with amagimetals, as they did get back to me as well.  amagimetals was recommended to me by "Oscar" the local guy who sold me some BTC yesterday (see more details below under "Step 2: Getting BTC") at Starbucks...

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Another issue for beginners is exactly HOW do you get BTC?  The first problem to be resolved is to creat a "wallet".  I was instructed by "Bitcoin Insider" that Multibit was easier to use than some others, and while it does not download the whole blockchain (the public record piece of BTC infrastructure that shows payment information), it is the right choice for people like me: non-experts who just want to use Bitcoin and not worry about the complexity under the hood...

Two steps: get your wallet, and then find & buy Bitcoin!

Step 1: (Getting a BTC Wallet)

I have now downloaded the software on all three of my computers.  Here are some instructions to get your wallet ("wallets hold your money"):

a)  Go to multibit.org, the home page has everything that you will need
b)  You will see options for downloading (Windows, Apple, Linux)
c)  Choose your option (operating system)
d)  Download it!
e)  With an older computer you MAY have to download Java from Oracle

You will then have it on your desktop.  When you open the program, it will automatically connect with the Internet as well as show you price of each BTC (Mt. Gox price).  On the left side of the window, you will see an area where you can create a wallet.  You can "name" it, and it will be created with its own ID (recall that Bitcoin wallets start with a "1" followed by some 25 - 30 (I have not yet counted them) alphanumerics.  You then really should slap a password on your wallet (click on the little yellow block there at your wallet or got to "File" up top), computer people suggest using a password a combination of 12 or more letters and numbers.  Since it will hold "MONEY", play it safe and use a strong password.  Your wallet there will show a balance of 0.00 BTC worth $0.00.  Here is a screen shot of my Multibit program here at the office that I just opened (*click* on the image for a clearer view) :

Note wallet at left with a small balance.  Note the "QR Scanning thingy" at the right.  Note my wallet's official ID near top center.  (Note also what a boring computer guy I am, no multi-media stuff (other than my Nikon camera software), just stuff like Microsoft Access, "S-Plus" statistics software, etc.)

Step 2: (Getting BTC)

There are at least three ways to get BTC:

a)  Find a local who has BTC who will sell them to you (discussed below)
b)  Find (and trust) someone who will sell you BTC if you mail them cash!
c)  Use an "exchange" (like Mt. Gox, probably the one Americans know best)

Let me discuss using an exchange first, although please note that I have NOT used one of them and do not not know of anyone who has (or at least their experiences).  These exchanges apparently require that they operate under typical US banking regulations ("know your customer", etc.).  They operate by being a "site" where payment (buying or selling) BTC is done by bank wire transfer.  If you SELL BTC, for example, Mt. Gox automatically finds a Buyer "at the market" and you send the BTC, and you get (with some delay I would guess) a wire transfer to your bank account.  The only real problem I (personally) have is that you leave a "digital trail", as with any bank transaction.

The first BTC I ever got was by donation!  I later went on to buy BTC for "CA$H by Mail".  I have had uniformly good results sending cash-by-mail (I am about 14/14 doing this, I have lost NO money mailing it).  I bought the BTC I used to buy the gold, for example, with cash that I sent through the mail to the BTC Seller.  Hey, it worked, but, sending cash-by-mail for BTC does not look very secure, even though I go to some lengths to hide/disguise that there is CASH inside that letter...  Use your imagination!  Use at your own risk!

The third method, and the one I can recommend, is finding locals near you who have BTC that they would sell you.  There are two things I have tried.  The first is just "asking around", especially among my acquaintances that know computers...  So far, however, none of the people I know were in a position to sell me BTC, although ONE guy was aware of BTC and actually has a small amount that he owns.  The second is by joining localbitcoins.com, (it's free) and then shopping around among the people you see in your area.  Although you can ALSO go buy (and sell) BTC with other people not near you, by sending or receiving bank wires (those pesky wire transfer issues though...).

Let me walk you through my experience yesterday with "Oscar", the local guy I met up with via localbitcoins.  I saw that he was located pretty close by, so I sent him a private message via localbitcoins' service, I wrote that I was interested in buying $xx...  He got back to me pretty quickly and agreed to meet at a bank (later we decided, of course) to meet at a local Starbucks...  I mean, go with tradition, right?  We met, he was patient enough to explain a thing or two to me (he has an app on his smartphone that used my QR code, and used that to actually make the transfer to me).  And he is an interesting and personable guy!  We have some things and interests in common, and I hope to do business with him again fairly soon and talk about South America and gold...

I would like to thank "Oscar" for his help in me learning more about BTC.  It also turns out that he knows about some software that I own, and that maybe he can help me with (better performance, etc.).  One thing I am learning is that the more effort you put into meeting people, the more likely you will meet people who will add value to your life...

"Bitcoin Insider" ("B.I.") approved of what I was doing (in fact suggested it) re finding a nearby person via localbitcoins.  He is very experienced and knowledgeable about this whole subject.

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B.I. had some more answers (no, I did not pay him for his time, I almost felt like I have been abusing him, like how some people abuse lawyers and doctors in trying to get free advice..., but as I have mentioned before, if I find an EXPERT in something I am interested in, I go for it, ruthlessly, shamelessly...).

One day recently I had a few questions for him.  Here is his response to my first question, about whether I should just destroy or otherwise rid myself of wallets with $0.00 in them:

1. Just confirm that they are indeed empty, then place them
somewhere on a backup hard drive labelled old or empty or
something. Try not to keep them on your primary computer in case
you use them in error. You should still keep them in case someone
sends Bitcoins to one of the addresses in error. Someone might have
sent you Bitcoins, you change your wallet and tell them, they make
a mistake and send to your old wallet. If you can't access the old
wallet, the Bitcoins are essentially destroyed.

From the text alone, you can see he is a careful guy...  My second question does not really pertain to this article (it was about whether I should create new wallets & addresses, but that might complicate my life and that whole matter is still not clear to me...).  My third question involved that idea of a "dry wallet", a wallet not kept on a computer (as mine is in the Multibit image above).  I still do not fully understand this, but it is a topic I want to look at again soon, as I may want to have a way to keep some BTC that not even a determined and skilled hacker could find (slight editing for privacy)...:

3. Exporting takes the private keys out of the computer and renders
them inaccessible to hackers (or the government if they seize
everything). This is what Dread Pirate Roberts should have done
with his $26 Million dollars worth of Bitcoins. This is for more
advanced users, but you're definately getting there yourself. You
transfer the private key alphanumerics to paper with either a pen
or your printer and then delete them from the computer. You can
also use a "Brain Wallet" where you memorize a more human friendly
code. I wouldn't trust my own memory for this. [...] lost /
destroyed a small amount of Bitcoins when he forgot the code for
one of his wallets. I have two pieces of paper with my wallet
password (this is different from the actual private keys): one kept
at [...] and the other [...]. This is a good idea for anyone with over 100 
Bitcoins. The second smaller wallet can be used day to day with an 
ordinary password. You probably need the same wallet program 
running on the computer you wish to reinstall the private keys to. 
I'm not sure if different wallet programs use the private keys in the 
same manner: they probably do,but a bit of low value testing would 
be required first.

In the Mulibit window, there are two little services that you can take a look at after you send or receive BTC (first click on the transaction of interest, then the "Transaction Details"), those services take you to the two below websites that allow you to "take a peek under the hood" of some of the BTC Ecosystem.  B.I. to me:

4. I like both http://blockexplorer.com/  and
http://blockchain.info/  They are great places to gradually learn
more about what's under the hood and how the transactions work.

My last question (discussed here anyway) involved another security-like issue that I had read about at Zero Hedge, namely the increasing size of the Blockchain and whether that may become a problem, B.I. responds:

5. Yes, blockchain size is a definite problem and has been a
primary objection from many critics from the beginning. If Bitcoin
becomes as common as worldwide credit card transactions, then yes
the blockchain gets too big. I download the new blocks about twice
a week. For a new user, it's unreasonable to try without
downloading a torrent, or borrowing someone's external hard drive.
The long term solution is believed to involve nearly all casual
users running a light client (just like you are doing) and letting
all the miners and the wallet hosting servers take care of the
blockchain.

Clarifying one thing, Multibit is a "light client", it does not download the whole Blockchain (it DOES download the part of the Blockchain that pertains to the genesis (original mining) of the BTC you are using), which is perhaps some 10 GB in size, but think about your Internet connection speed...  Note that he does not use a "light client", probably because he actually knows what he is doing!  He can do things like stroll around the Blockchain, things that I cannot do (easily anyway) with Multibit, but I just want BTC to work, I am only somewhat curious about the underlying infrastructure (very complicated).  My *guess* is that the Blockchain is growing pretty fast, and this problem may become a problem in the future, but B.I. cleared this matter up for me by writing to me that "light clients" like Multibit will be better for many (like me) who use BTC because they will have to only download only a small part of the Blockchain.  Lots of light clients, in other words -- and from a macro viewpoint, will keep the transactions moving through the Blockchain for everyone.

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fiatleak.com is gone!  I liked looking at its scrolling Bitcoin transactions, especially when China and the US were most active (at different times of the day, which you might expect considering the time zone differences).

But, the guy running btccast.com is now using Andrew Hodel's BTC-exchange-mapping software (that's written in there somewhere), so I can STILL track BTC flows (through exchanges anyway).  Here is a screen shot I just took (*click* on the image to see it better):

China is once again buying & selling LOTS of BTC (about triple the BTC of US trading, see green BTC totals under CNY and USD for China & the USA) through their exchanges, despite the local crackdown (I do not have details nor do I know WHAT is going on in China re BTC).  The above shows just under 10 minutes of action -- last US price was $722 written  in purple under "USD").  You can see a pair of 26 BTC transactions that happened about 10:10 PM (US ET) just "east" of Argentina (green vertical writing), and a couple of fairly large transactions by China "en route" (large orange circles).