Bitcoin is the most common type of cryptocurrency we will cover. Units of bitcoin are expressed in decimal exponents such as BTC ("bitcoins"), mBTC ("millibitcoins") and μBTC ("bits"). In order to send, receive, or store bitcoins you must have a bitcoin address and a place to store your bitcoins. There are three main choices:

Store your bitcoins online. In order to buy or receive bitcoins, you first need to create a storage site for your bitcoins, and this is the first step to purchasing bitcoin. Currently, there are two ways you can store bitcoins online:

  • Store the keys to your bitcoins in an online wallet. The wallet is a computer file that will store your money, similar to a real wallet. You can create a wallet by installing the bitcoin client, which is software which powers the currency. However, if your computer is hacked by a virus or hackers or if you misplace the files, you may lose your bitcoins. Always back up your wallet to an external hard drive to avoid losing your bitcoins.

  • Store your bitcoins via a third party. You can also create a wallet by using an online wallet via a third party site like Coinbase or blockchain.info, which will store your bitcoins in the cloud. This is easier to set up, but you will be trusting a third party with your bitcoins. These sites are two of the larger and more reliable third party sites, but there are no guarantees about the security of these sites.

Create a paper wallet for your bitcoins. One of the most popular and cheapest options for keeping your bitcoins safe is a paper wallet. The wallet is small, compact, and made of paper that has a code. One of the benefits of a paper wallet is the private keys to the wallet are not stored digitally. So it cannot be subject to cyber attacks or hardware failures.

  • Several online sites offer paper bitcoin wallet services. They can generate a bitcoin address for you and create an image containing two QR codes. One is the public address you can use to receive bitcoins and the other is a private key, which you can use to spend bitcoins stored at that address.

  • The image is printed on a long piece of paper that you can then fold in half and carry with you.

A hard-wire wallet to store your bitcoins. Hard-wire wallets are very limited in number and can be difficult to acquire. They are dedicated devices that can hold private keys electronically and facilitate payments. Hard-wire wallets are usually small and compact and some are shaped like USB sticks.









 
 

My original interest in blockchain was based on greed, I watched the price of bitcoin rise from $175 when I first started watching it to it’s present level of just under $1200. Not only does it seem like a good investment but like gold and silver, it is a separate asset class, one that is non-correlated to the stock market, which all the finance wizards tell us is set to topple any day now.

We will start with the basics. If you are one of the smart guy’s that already knows stuff, please check back in a few weeks and see where it’s going. In the meantime please help by providing any information or suggestions.

Here we go, blog style so please comment. I’m seeing a lot of crazy terms and will attempt to add definitions as I run into them. I will also point out any information on possible investment opportunities, although I am not recommending that you put any cash, real or crypto into any of them.

Paraphrasing Greg Maxwell, CTO of Blockstream, blockchain is transformative for society. But you have to sort through the hype. Blockchain and bitcoin mean different things to different people;

  • it’s a form of money
  • it’s a chance to operate under a different regulatory regime
  • an opportunity to refresh technology
  • a way to improve security
  • can fix some of the systemic risk in the internet by decentralizing and minimizing trust.

Bitcoin is peer-to-peer electronic cash that exists independently of any 3rd party or any centralized or issuing authority. This is what makes it distinctive and is different than anything that has come before.

It’s a revolutionary idea and is still experimental. It may be gone in the future although it has been around for 8 years. It is a fiat money whose value comes from network effects. In other words, like the $50 bill in your pocket, it has no intrinsic value, it’s value comes from the fact that people are willing to accept it.

How does Bitcoin use Blockchain

Zoko Wilcox of ZCash explains it very simply. Think of bitcoin’s blockchain as a replicated spreadsheet with a column for sender, receiver, and amount sent. Whenever a transfer occurs a new row is added to the spreadsheet. All the computers in the network inspect whether the sender’s address had enough bitcoin to cover the transfer and that the bitcoin had not been committed to someone else. In order to do this each computer had to be able to see the whole history of that bitcoin. You can’t lie or change your story. There is also no privacy in these transactions. ZCash is currently working to add encryption to the fields, but we’re getting ahead of ourselves.

I’m starting to get the picture. Today’s transaction networks are all centralized, a central authority like PayPal, Visa, or your bank needs to be in the middle to certify ownership and clear transactions. Bitcoin’s blockchain uses a distributed ledger which requires no 3rd party. Distributed ledgers can be open, verifying anonymous actors in the network, or they can be closed and require actors in the network to be already identified. Bitcoin is the best known existing use for the distributed ledger. There will be plenty of others.