The Complete Guide to Trading Bitcoins

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Contents

Bitcoin Futures Trading: Complete Guide to It

U.Today presents a complete guide to Bitcoin futures trading. Here is an article that will help you to understand the nature of those contracts and how they work with Bitcoin.

What is futures

What are those financial contracts or derivatives? Features is a financial contract that allows to buy or to sell some basic asset within the established dates and for the previously established price, which is fixed in the agreement.

Futures are approved on the basis of standard conditions, established by the exchange. The conditions for every basic asset are established separately, which helps to sell them at a price, which is close to market quotes.

Futures are very “liquid” derivatives because of their conditions. Moreover, all the participants in the transaction are protected by the margin that the parties have to pay before the contract sets up.

Some novice traders and investors think that futures are a kind of speculative trading instruments helping them to gain more profit. However, those derivatives serve to decrease risks and to guarantee the delivery of underlying assets. It is to mention that nowadays almost all futures contracts do not require delivery of goods.

The history of futures

The futures market has a long history. Some think that those contracts appeared in Osaka (former Japanese capital). Rice was the main trading good at that time. Buyers and sellers wanted to protect themselves from price fluctuations and this was the main reason to create futures contracts.

However, some other traders underline that futures have appeared in the Netherlands during the “Tulip mania” period. The bulb cost so much that the buyer had no opportunity to buy it. Nobody could predict the price of the bulb. This was the main reason for those futures contracts to appear.

Let’s give an example. Imagine that there is a farmer who cultivates wheat. He has some spending as he needs to invest into fertilizers, seeds and his employees. In order to conduct his activities, a farmer needs to be assured that his investments will be paid off.

However, he cannot be sure in advance as the price of wheat may decrease significantly in case of high yield. To tell the truth, wheat buyers need to protect themselves from the higher prices in case of low yield.

Bitcoin futures: the main reasons for those contracts to appear

BTC futures are the result of this hype tendency. Bitcoin becomes more and more popular and Wall Street investors want to benefit from this trading instrument.

Nowadays there are futures for different types of underlying assets including weather. Everything that can be measured or calculated, may become the underlying asset for a futures contract. Bitcoin is a good “candidate” for such a mission.

However, this gives no clear understanding of why do these contracts appear? The main reason lies not only in this hype but also in the fact that serious investors do not have trust in those exchanges that we have currently.

Yes, there are already some regulated trading places, but they are not numerous. Bitcoin is an unregulated trading instrument at all and is traded on unregulated exchanges, which sometimes are unable to deal with a high number of traders.

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Another great thing about futures contracts is that their number may be significantly higher, than the number of existing bitcoins. When you deal with futures, you buy a contract and not the underlying asset. It means that you just make a bet on growth or decline of this or that asset.

How do Bitcoin futures contract work

Bitcoin futures works the same way as any other futures contract. This is an obligation to sell or to buy some bitcoins in the future (the price is established in advance as well as the dates). The margin for such a contract is about 10-15 percent. The system works like a leverage in this case and participants may get some kind of credit. They invest less and may rely on higher profits in case of success.

Here is an example of how this works. Let’s say Bitcoin price is $6,000 currently. You expect the BTC price to increase in the future and to reach $7,000. So you buy let’s say 10 contracts expecting the price to grow. The expiry date is two months.

What do you have as the result of this deal? You have bought obligations to buy ten bitcoins at the market price at the moment of the expiry date of the contract.

If the price reaches your established level, you will sell the contract and get the profit. You may hold the contract until the expiry date if you think that the price will go even higher. However, if the price fails to reach the target within those two months, you lose meaning you have to give back your margin.

To tell the truth, you can buy and sell Bitcoin contracts anytime you want. The price of those contracts may significantly vary from the underlying asset’s price. Futures contracts allow you to earn on both uptrends and downtrends.

There is one more thing to mention. Huge exchanges like CME, establish a very high price for those who want to start Bitcoin futures trading, meaning you have to pay at least five BTC to buy BTC futures on CME for example. This amount is not affordable for many retail traders and they choose brokers, which offer more loyal conditions.

How do futures influence the Bitcoin market

There were many talks about Bitcoin’s price after futures launching. Some experts predicted its growth while the other urged the community to be cautious as the results would be unexpected. Anyway, we are now more than half a year after those contracts appeared and we can make some conclusions at this moment.

There is a common opinion that Bitcoin futures have a negative impact on the industry and cryptocurrency price as they allow traders to conduct bi-directional operations and to earn on both of them. This may lead to significant price fluctuations and downtrends.

So-called whales have large amounts of money and they can manipulate the price as they want. I would like to mention here the famous Soros trading operation against the Bank of England on Sept. 16, 1992. Soros is considered to be the man who has broken the Bank of England as he bet on GBP’s decline and earned billions of dollars.

Huge investors can be the reason of great panic on the cryptocurrency market. Cryptocurrency market’s capitalization is billions and even hundreds of billions of USD. However, daily Forex volumes are even higher. Speculative funds that penetrated the crypto market, were one of the reasons for this huge downtrend that we see in summer 2020.

Let’s see a simple example of how it works. Big money can invest millions of dollars in those contracts. When they see that market is hesitating to grow, they can “sell” BTC/USD using futures contracts and make the price decline significantly.

Another negative aspect is that you don’t need to buy Bitcoin in order to participate in those trades. This means that the number of adepts stays the same. Investors are cautious with the cryptocurrency at all. However, they are interested in speculative operations. This means that the number of those who want to benefit from Bitcoin’s price fluctuations but indifferent to this technology development will increase.

However, I also think that there are some positive moments. Bitcoin is officially adopted, which means that more participants may be involved in this network in the future. Moreover, I think that those futures contracts have already played their positive role.

Where can you buy Bitcoin futures? Those contracts are offered on CME. However, as I have already mentioned, the entrance amount is rather high. You can also buy and sell Bitcoin futures with different specialized broker companies.

Bitcoin futures– pros and cons

There are lots of positive and negative aspect that I would like to mention here. The advantages of Bitcoin futures trading are the following:

Instant trading. You lose time or money. All those who have experience in classic cryptocurrency exchanges know that it is hard sometimes to buy or sell a crypto on a desirable price especially when you need several units.

You don’t need to buy Bitcoin or other cryptocurrencies. All trades are conducted in fiat money. You need to deposit them into your account and you are ready to open positions.

Low funds requirements. I have told you already that you need to buy five BTC contract at CME at least in order to participate in trades. However, nowadays there are several brokers that allow to invest even lower amounts and earn more. Some brokers offer micro trading.

Huge leverage offers some great opportunities for traders. You don’t need to invest much in order to get higher profits.

High liquidity. This aspect allows you to sell contracts anytime you want. You don’t need to wait for a buyer to purchase it.

Low commissions. Several brokers take very small fees as compared to traditional cryptocurrency exchanges. You can increase your net profits due to this fact.

High-security level. When dealing with cryptocurrency exchanges, you need to be careful as those trading places are famous for their weak security measures. Yes, they are doing their best in order to increase the safety of funds, but hackers are still able to breach their security systems and take clients’ money away.

You can earn when the price goes both upwards and downwards. I mean traders have an opportunity to sell and to get profits even when Bitcoin declines. This is a great feature for speculative traders.

As for the disadvantages, here they are:

Futures are not suitable for long-term investments. Every contract is limited by several months’ expiry. Futures may be interesting for active speculators who conduct several short and midterm trades in order to get the maximum profit possible.

You need to have enough money on your trading account. Yes, I have told you above about the leverage, but you need money to maintain your margin. When you buy several contracts, you risk to “zero” your investments.

Bitcoin futures are risky. You need to calculate all your risks.

Knowledge required. When trading those contracts, you need the same knowledge that is required for exchanges’ speculative trades. I would say that you even need more skills in order to succeed.

Final words

Bitcoin futures are very popular nowadays among retail traders. They allow participating in Bitcoin trading without buying the very asset. Those contracts have both advantages and disadvantages, but I think they are worth your attention.

About the author

Andrew Strogoff is a skilled Forex trader and technical analyst from Limassol, Cyprus. He started cryptocurrency trading three years ago, and now is fond of blogging, swimming, cars, new technologies. Loyal blockchain adopter.

Beginner’s Guide to Cryptocurrency Trading – Basics

Cryptocurrency trading is more popular than ever and a huge number of investors are looking to jump on the crypto hype to make easy money. But it is very important to understand that crypto trading is no get-rich-quick scheme as most people think.

As a beginner cryptocurrency trader, you have to do your research to be positive about the cryptocurrencies you choose to invest in. You most definitely do not want to put your money into something that you do not believe in. In this article, I am going to examine all the necessary steps you should take as a crypto beginner. However, in the end, it is up to you to take them. But first, let’s start with some basic facts about the cryptocurrency market.

Cryptocurrency market is open 24/7

Unlike fiat currencies, cryptocurrencies can be traded 24/7. Trading volume differs during the day as traders from different countries enter the market at a different time. These changes have, however, a very low significance.

Crypto market is very volatile

The cryptocurrency market can skyrocket or fall down even by tens of percent in a matter of minutes or hours. It is completely different from stock or classic forex markets and it is important to realize that investing in cryptocurrencies puts your capital at high risk. The crypto market is probably the most welcoming one, even for beginners. Nevertheless, you still need to understand that the huge price spikes cryptocurrencies experience on a regular basis do not always bring the desired profit. In fact, they can also have a devastating effect on investors’ capital. Now, I am going to teach you how to significantly reduce the risk. However, you always have to be aware of the crypto market volatility.

1. Find a cryptocurrency broker you can trust

Searching for the best crypto broker is not an easy task. There are many crypto companies and their offers vary. The main aspects you should consider when choosing a broker are the following:

a) Trust & Regulation

If you come from a European country, the broker should be regulated by the CySEC, a regulatory body which oversees all the broker’s activities. They also provide full deposit insurance up to 20 000 dollars. Investors from Australia should be looking for brokers with ASIC license.

b) Fees

The less you pay in fees the more you can earn. So it’s only logical to find a broker with the lowest fees possible. Most brokers charge an amount equal to a spread for opening a position. A spread is the difference between what you pay for a cryptocurrency coin and what you get when you decide to sell it to the broker. Apart from that, many brokers charge a swap when you stay in a position overnight. Such brokers are usually best for day cryptocurrency trading and brokers with no swaps are best for a long-term holding.

c) Cryptocurrencies you want to trade

If a broker does not offer cryptocurrencies you desire to trade, there is no point in creating an account. Therefore, do not forget to check whether the company of your choice offers all the cryptocurrencies you plan to trade.

d) Leverage

Leverage can help you benefit from small price movements of cryptocurrencies. It is a very powerful tool when used by professionals, however, beginners should only use it with great caution or not at all. Fortunately, the cryptocurrency market is volatile enough to make a good profit even without it.

Broker Regulated by Regulatory agencies ensure that brokers operate in a transparent and honest way. They protect the best interests of clients and also feature an investor compensation scheme which protects trader’s deposits up to a certain limit. Some of the major regulators in the industry include the CySEC in Cyprus, the FCA in the UK and the ASIC in Australia. Min. deposit Trading platforms A trading platform is a computer or mobile software program used to execute transactions within the financial markets. Cryptocurrencies Special features A list of features that provide a given broker with a competitive edge. Ad Disclosure The table below contains links to 3rd party websites of our top partners from whom we receive compensation at no additional cost to you.
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Between 76.4-87% of retail investor accounts lose money when trading CFDs with these providers.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

2. Get started with the right cryptocurrency

If you haven’t chosen the cryptocurrency you want to trade, now is the time. Selecting a digital coin with the highest potential is a very important step. You do not want to choose a cryptocurrency you don’t have faith in. When you do your research about cryptocurrencies, there are several things you should look for:

  • Infrastructure (App development, Cloud storage, Virtual Private Networks, funding, etc.)
  • Technology (Quick transaction process, firm and easy to use UI that is easy to adopt, etc.)
  • Development team (Skilled and experienced, solid amount of developers, etc.)
  • Growing popularity (Rising demand for the cryptocurrency, more people using it, media coverage, etc.)

These are the most important general rules when determining a cryptocurrency’s potential. Some of them are more important than others, but the cryptocurrency you select should meet at least 3 of these criteria.

3. Determine where the price is. Is it low or high?

Is the price now at its 45-week low? Or is it at its maximum? You probably know the saying “buy low, sell high”. Let me show you a great example of what I mean on the Ethereum chart which displays the price movement from the beginning of the year 2020 to 12.6.2020.

Wow, that looks really great, doesn’t it? That seems like a really good investment to make…Until…

The price went down to half in one-month time. It is definitely true that there might be situations when the value of a certain cryptocurrency with good technology, funding and media exposure keeps rising for a long time. However, such investments are very risky for beginner traders because it is hard to determine how long the growth can last. We surely do not want to end up chasing highs and go with the excessive optimism when it actually is the only thing pushing the price up.

4. The best way how to approach crypto trades not only as a beginner

One of the best investors of all time, Warren Buffett, once said:

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

And this is a great way to approach the cryptocurrency market. Are others dumping coins for a relatively low price? Great! It might be a good time to buy them. Is the market optimism fake? Well, now might be a good time to lock in those profits and get out of the trade safely.

5. Face the crypto market with an exit strategy

Traders buy cryptocurrency coins when they consider the price to be low. Now, once you are in a trade and the price goes up, you have to think about the best time to get out of the trade (if you speculate on the price growth). You do not want to hold onto it until the end of days. The best time for leaving is when the prices are going too high and the investors are getting carried away. One way to determine this moment is by asking yourself “Do I honestly believe the coin is worth more?”. If you think that there is currently no more space for the cryptocurrency to grow, it is time to get out of the position.

6. What affects the price of cryptocurrencies

There are many fundamental influences that can drive the price of cryptocurrencies down or up. The main of them are as follows:

a) Government Regulations

Whenever any government makes a public statement about the regulation of a cryptocurrency, the market always reacts to it. Do you remember when China banned ICOs? The price of Bitcoin and other cryptocurrencies dropped down rapidly. Therefore, it is very important to keep an eye on such events, whether you are a beginner or a skilled trader.

b) Media exposure and other influencers

Generally, cryptocurrencies gain in value when they receive positive media exposure. It is simply because more people are interested in buying the coins. There are also individuals who can influence the price of cryptocurrencies. Such people are usually extremely well-recognized in the field of finance and investing. So, when the CEO of the biggest American bank J.P. Morgan – Jamie Dimon publicly stated that he thinks that Bitcoin is a fraud that will eventually blow up, it was no wonder that the Bitcoin market took a big hit. Because of this statement, J. Dimon received many negative comments suggesting that his statements were intended to manipulate the price of Bitcoin.

c) Wider Mainstream Acceptance, New firms backing up the project

Has just Amazon, eBay or other huge international firm announced that from now on they will accept payments in Bitcoin? Great! You probably know what that means for the market… Similarly, when big companies like Microsoft, Intel or others provide their name and finance, it is another reason for the price to go up.

d) Technological Changes and Innovations

With every new technological change, there is a high chance that it might significantly affect the price of a cryptocurrency. For example, if a new security protocol that will make the cryptocurrency even more reliable, secure and scalable is scheduled to be released, it might induce a positive response of the market.

e) State of other markets

It should be no surprise that cryptocurrencies react to other markets’ developments as well. In the past, cryptocurrencies tended to benefit from crashes of other markets. Gold and Japanese yen are no longer the only instruments categorized as safe havens investments.

Is that all? Let’s wrap up the crypto guide for beginners & dummies

Here is the deal. The cryptocurrency market is still relatively new and unstable and its trading is complex. You should, therefore, never stop learning. Towards this very purpose, we have here on the website crypto guidepost where we feature crypto news, tips, guides, market’s best brokers and crypto glossary. Here is a selection of 3 articles you might want to read after finishing this guide for beginners.

– 3# Crypto Chart Patterns for Day Trading
– The best Hodling techniques
– How to short any cryptocurrency like a pro

and much more can be found in our crypto section.

The Complete Guide to Bitcoin Scams

May 23, 2020 – Posted by Suraya Zainudin on Guides

As we speak, bitcoin market capitalization is hovering around $6.4 billion dollars. That’s a lot of money, and you better believe scammers know this and want a slice of that digital pie.

Whether you are a bitcoin newbie, or someone who have been torched before, you should keep yourself up to date with the latest scam attempts. This is the complete guide to existing bitcoin scams you should be aware off. Credit to Coin Republic for compiling some of the scams in this infographic as well as to CryptoCoinNews for keeping an updated Bitcoin Scams page.

1. Fake website scams

In January 2020, one Reddit user posted his experience after being scammed out of some bitcoins after accidentally using a fake website that imitated the cryptocurrency exchange service ShapeShift.io. The website looks almost exactly like the actual website, except that it has a missing letter in the URL. ShapeShift was notified and posted a blog post about it to warn other users.

Scams involving fake websites like this is not an isolated incident. There were also fake websites for BitStamp, Bitcoin Foundation, Blockchain.info and others.

These websites make money by stealing login information from users, or mislead users into sending funds into their wallets. Some even go further by taking Google advertisements!

Solution: Do not click from unverified sources, especially from emails to avoid phishing attempts. Always check for correct spelling and SSL certificate – i.e. URL begins with https.

2. Cheating scams

Found someone online who have bitcoin to sell, or accept payments for goods and services in bitcoin? You might be sending your money to scammers and may receive nothing in return. This is one of the oldest tricks in the book, yet it still happens on a surprisingly regular basis.

Scammers try to win your trust in many ways. In order to dupe you, some might send fake IDs or even impersonate a respected member of the local community.

There are many variants of cheating scams involving bitcoin, including:

‘Advertise with us’ scam, where scammers impersonate reputable bitcoin websites and email bitcoin users with advertising opportunities.

Bitcoin for sale scam, where scammers pretend to be both seller and a previous (satisfied) customer in order to mislead. To make the offer enticing, they usually offer bitcoin under market price.

Pre-order mining equipment scam, where scammers collect money for equipment that never came.

Solution: Follow your instinct – if the deal is too good to be true, it probably is. Only use trusted companies or services, and make sure to always double check website URL and email address. When in doubt, contact customer support to confirm. When doing funds transfer locally, try to meet face-to-face or use reputable escrow services.

3. Ponzi (and MLM) scams

Ponzi scams are fairly easy to spot, no matter how professional the website looks. However, because scammers in elaborate Ponzi schemes know how to manipulate human greed and is great at giving sweet promises of easy money, it is easy for a person to be lured into it. Usually, bitcoin ponzi scams operate by:

1) over-promising ROI to the point of ridiculous
2) having an active recruitment scheme

There are many versions of ponzi scams involving bitcoin, but the most common – and most dangerous – are interest on bitcoin deposits scams and bitcoin mining groups scams.

Interest on bitcoin deposit scams operate by offering investors a fixed deposit-type arrangement. Investors are promised high returns on their deposits after a period of time. However, not only the promised returns will never come (or came in the beginning, but stops after a while), unlucky investors will also lose their bitcoin deposits. In 2020, 3000 investors suffered combined loss of HK$3 billion dollars in the MyCoin scandal. More recently in March 2020, 1000 investors lost NT$50 million after promised 250% returns on investment.

Bitcoin mining group scams, on the other hand, operate by offering investors the chance to ‘mine’ bitcoins without dealing with the hardware and maintenance required. Also called bitcoin cloud mining, these companies scam investors by promising fast and easy return on investment. While legitimate bitcoin mining groups do exist, there are very few left that can still turn a decent profit, if at all. They are best avoided altogether. Gavin Andresen even said that many bitcoin mining groups – even established ones with thousands of members – may be Ponzi scams after all because bitcoin mining is simply not sustainable in the long run.

On the same note, there are a lot of MLMs involving bitcoin as well. While not strictly scams per se, they do depend on ‘referral marketing’ and should be approached with caution.

Solution: Avoid anything that over promises. Legit investments will never ‘guarantee’ returns. Others’ testimonies are rarely reliable – some people don’t realise it until too late – so only invest if you are willing to lose the whole amount. Be skeptical of positive reviews of bitcoin companies online. Be extra wary of investment groups that appear cult-ish.

4. Phishing scams

One would assume that members of the bitcoin community are more tech-savvy than others and phishing scams would never work on us. However, phishing scams do and did happen – in December 2020, BitPay lost 1.8 million in bitcoin in a phishing attack. A quick check in Reddit reveals more recent phishing attacks – be especially cautious if you use any of the following services on a regular basis (this list is not exhaustive): Bitstamp, LocalBitcoins, Coinbase, and blockchain.info.

Solution: Don’t click from unverified sources, including from emails. Always check for correct spelling and SSL certificate (ie: https)

5. App & Plugin Scams

This is relatively new and pretty scary development. Scammers have stepped up their game – there are now bitcoin scams that operate as apps and plugins.

In November 2020, the Bitcoin community was warned against a fake Localbitcoin app, available on Android (since taken down) that phished for bitcoins. (image credit to CoinDesk).

More recently, in March 2020, the Bitcoin community was urged to uninstall a Chrome add-on called ‘BitcoinWisdom Ads Remover’ which can steal bitcoins by replacing QR codes in popular exchanges with fake QR codes.

Solution: It’s hard to predict what kind of scam apps or plugins (or something else?) to appear next. The fake app had plenty of (fake) 5-star reviews, so we know that we can’t even trust Android Play Store ratings. Exercise extreme caution – to be safe than sorry, email customer support to verify that the app/plugin is indeed, theirs.

6. Bitcoin Authority Scams

This is one of the hardest scams to see through because the scammers appeared to have high authority among Bitcoin community members. For example, the digital currency exchange platform Cryptsy did not tell its users that it was allegedly hacked out of $6 million worth of bitcoin in 2020. Instead, they simply did not allow users to withdraw bitcoins and ignored support tickets. Before that, the community was shocked by the Mt Gox incident. It was a respected bitcoin exchange, until it suddenly disappeared without a trace, along with approximately 744,000 bitcoins.

More recently, the fake organisers of London Bitcoin Forum apparently got away with thousands of pounds in ticket and sponsor fees. The event, which was scheduled for 23-24 March 2020 promised a lively 2-day event featuring talks from prominent Bitcoin industry leaders, networking opportunities, presentations and much more. Many Bitcoin news websites, companies, and members of the public shared the event and made plans to attend it, until it was revealed as an elaborate scam. By this time, the website and Facebook page were taken down without notice or news. The only silver lining: this particular incident brought to light the lack of proper guidelines for bitcoin news reporting by major bitcoin news websites.

Solution (kind of): We would say ‘only use the services you trust’, but this advice is meaningless here. All of the above were trusted entities (at that point). However, you can reduce the risks. Divide your bitcoin storage across several wallets, or cold storage it. Practice a healthy level of skepticism over any news article and review you read. If the website has a history of sweeping stories under the carpet, proceed future news (especially involving money) with caution.

Conclusion

Bitcoin scams are not doing the Bitcoin image any favors. Is this the natural evolution of a decentralised currency such as bitcoin? So far, the lack of regulation for digital currencies as well as Bitcoin community’s preference to self-regulate is certainly making it easier for scammers to target bitcoin newcomers. It is unlikely that bitcoin scams will stop appearing, so our only hope is to keep ourselves updated and get digitally protected.

Do you have any other scams that we missed? Write to us at the comments section below.

Bitcoins: the Complete Guide

Introduction: Bitcoins: the Complete Guide

In this tutorial, we will cover everything you need to know about bitcoins.

The tutorial starts off with the basics of installing the computer software to make bitcoins work, but moves into the more advanced parts very quickly. After reading this Instructable, you will have learned all the basics for starting your work with bitcoins. Whether you know what bitcoins are, or if you’re just here to start making free money by doing almost nothing, you’ve come to the right place.

Read on to learn what bitcoins are, and how they can be used in a everyday computer-person life.

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Step 1: Understanding Bitcoins

After reading many, many different articles all over the internet, I still didn’t have a good idea of what bitcoins were, how they could be made, and if it was possible for the average person to use them. The first few things I read, they were made out to sound like you had to have a computer science degree to get them.

However, after reading on about them, I learned that they are a type of currency that is 100% virtual. There is no government that regulates the currency, like almost every other single currency in the world. Instead, it is all virtual. The bitcoins that you own are stored on your computer. You can sell these bitcoins for real US or Canadian dollars.

Below is a YouTube video explaining the whole concept of bitcoins. While good for visual learners, some like to read to learn.

Bitcoins are a virtual currency. The currency is stored locally between peers. The currency (bitcoins) is transferred from computer to computer. Every transaction (transfer of bitcoins from one computer to another) is verified by “mining” for bitcoins.

When first learning about bitcoins, you learn that bitcoins are stored directly on your computer. So, does that mean that by doing a bit of computer hacking you can give yourself thousands of dollars worth of bitcoins? The answer to this is NO! The system is worked out so well that hackers cannot do this. The reason is because for bitcoins to be transferred from computer to computer, the transaction has to be verified. This verification is done by “mining.” Mining is a process where everyday people like you and I install some software onto their computer This software is very advanced and hard to understand, but basically it does some high-level computing (SHA256 decoding) to verify transfers of bitcoins.

The next question that often comes up is: Why would anyone want to just give up their computer to help decode these encryption things? Well, the answer is that you get paid to do it. Well, you don’t get paid, but you get free bitcoins for letting your computer work for you. This is almost the same as being paid, as you will learn in later steps. This is the ONLY way that new bitcoins are created. They can’t just come from nowhere, making the system hacker-proof.

Mining can be very simple, but it can also be very complicated. By following this Instructable, you will learn one of the easiest ways to mine bitcoins and gain money.

For more information, check out the Wikipedia Article, as well as the Official Bitcoin Website.

Step 2: Setting Up a Wallet

This step walks you through the process of installing the “Wallet” software. This software functions as a real wallet: it stores all of your currency, which in this case are bitcoins.

The first part of this step is to download the software. Go to the Official Bitcoin Website. In a box at the top of the page, click the software version that applies to your given OS. The steps are the same for both Mac and Windows users, other than installing different software. Open the file and follow onscreen instructions.

When it is done, open up the software from the Start Menu. It will take a few hours to download all blocks to your computer. You must just sit and wait during this time (see pictures).

When it is done downloading the blocks (don’t worry about what this means; it’s not important), go over to the “Receive coins” tab up at the top. Right-click on the one existing list item, and click “Edit”. Give it the label “Main” and hit OK. Right-click on it again and click “Copy Address”. This is the unique address that your wallet was given. It is where you receive coins in later steps.

The next step tests out your bitcoin wallet and shows you what a transaction looks like.

Step 3: Test Your New Bitcoin Wallet

This step is for testing purposes only. Go to Daily Bitcoins (www.dailybitcoins.org). Near the middle of the page, paste your bitcoin address that you copied earlier. Uncheck the “Delay payment to minimize transaction fees” check box. It is to trick people. Enter the captcha (they are very simple ones on this website), and click Send. It will tell you that it was successful. If it didn’t, reenter the captcha properly.

Wait ten minutes and then open up the Bitcoin Wallet software again. Go to the “Transactions” tab up at the top. In the list, it should have a single transaction of 0.00001 bitcoins (approx. This value goes up and down). You now have gained a small amount of bitcoins. The general conversion of bitcoins to USD is times 10, meaning that one bitcoins is ten US dollars (easy for mental math; this number varies greatly over time). Congrats! You just made one tenth of a cent!

This is a valid way to gain money. However, you can only get coins sent once every hour, so it is very slow. You won’t make any money fast with this method.

Step 4: Understanding the Types of Mining

Now that we understand what bitcoins are, have a wallet set up to store them, and have made a small amount of bitcoins to test our wallet, we’re set to start making some real amounts of bitcoins.

The way we do this is by mining for them. Mining, as stated before, is a way of verifying bitcoin transactions made by other people in return for new bitcoins (given right to your wallet).

There are two main types of mining: solo and pool. Solo mining is done on your own. With the hardware of an everyday person, it would take years to get earn acutal bitcoins. But once you succeed, you get 50 bitcoins (worth about 500 US dollars). This takes too long, so in this Instructable, we are not going to cover this method.

The method we are going to use is called pool mining. It involves signing up for an account with any one of many different companies. Using their own software and hardware, they group together the mining efforts of lots of people’s computers. Every person gets a small number of bitcoins (quite often decimals of a bitcoin). As a person with a modest computer, this is the only way to go.

Step 5: Setting Up a Mining Account

After trying a few different mining pools, the one that I really liked was BitMinter. It is, by far, the easiest to use. It comes with its own software, making things so much easier. Below are the few parts that involve the creation and setup of your account.

1) Open up a web browser and navigate to the BitMinter log in (https://bitminter.com/login).
2) Choose your account you’d like to link with BitMinter. Log in with this account. BitMinter uses a log in service called OpenID, which is a futuristic way of logging in with an already-existing account to eliminate the need to remember yet another password.
3) Set the main settings as according to the picture:
– Set your email address.
– Set your auto cash out threshold to a reasonable amount. Mine is set to 1 BTC (approx. $10). This means that when I mine 1 BTC, I will receive it into my bitcoin wallet, just like the test, but with a higher number of bitcoins.
– Set your “Pay to address” to the address that we used in the Step 3 to test the wallet. This is the address that all of your bitcoins are sent to, in case you haven’t figured that out yet.

Step 6: Setting Up the Workers

Each computer needs its own worker to connect to on the BitMinter server. The software (in the next step) on each computer will each be set up to a different worker so that the BitMinter server doesn’t have trouble transmitting and receiving mining work.

While still logged into the BitMinter website, hover over “My Account” at the top of the page. Then click on “Workers”.

Near the bottom of the page, there are two fields under the “Name” and “Password” headers. Give your new worker a name like “Laptop”, or “New Dell”. Create a short password. Remember the password for the worker. Then click “Add”.

Click “Home” in the navigation bar at the top of the page.

Step 7: Install Java

Most people already have Java installed, but if you don’t, follow this step.

1) Go to www.java.com/download.
2) Click “Free Java Download”.
3) Click “Agree and Start Free Download”.
4) Depending on your opperating system, a different version of the file will download.
5) Follow the onscreen instructions to continue installing the software.
6) Click finish and be done installing. Continue on to the next step to set up a miner.

Step 8: Set Up a Miner

Go back to the BitMinter homepage. Click on the “Engine Start” button. This will download a Java Web Starter, which will download the actual program and install it.

Use this file to start the program in the future. When it starts, you will see a program that looks like the first picture.

Set up the software by linking it to your worker created in Step 7. “Click Settings” > “Account. “. Beside “User Name:” use the username you created when creating the BitMinter account. Beside “Worker Name:” and “Worker Password:” enter the worker name and worker password you created in Step 6.

If the window is small, click the button in the bottom right corner of the screen. Then click the “Engine Start” button beside each of the devices you want to use. For reference, I get about 65 Mhps (million hashes per second). 1000 Khps = 1 Mhps. Test all of your devices, but you should really only bother running devices that get you 25 Mhps or above.

You will also want to change a few settings regarding automation. I leave my computer on all day and all night. I normally turn off the mining as soon as I get home from work (around 6:00) and have the miner start on its own at night incase I forget to start it when I’m done with my computer.

Go to Settings > Options to change these settings. Look at the fourth picture to set it up like how I have it set up. The picture has expainations.

Automated devices are a list of devices that you set so that you can start them on their own automatically when the software starts. I have selected one of my devices as automated so that when the software starts, only that device starts. See fourth picture for more details.

Step 9: Mine!

Let your computer run while it mines! Running it at night is a good idea as it will double the amount of money you make. Good luck making money!

Step 10: Spend Your Bitcoins

What good is a currency if you can’t spend it? The answer is it’s not. There are lots of things you can do. Below is a list:

– Gamble
– SatoshiDice
– Bitzino
– Peerbet
– RoyalBitcoin
– And many more
– Buy various merchandise
– Some online vendors are starting to accept bitcoins as a way of purchasing items
– Buy Coffee (http://bitcoincoffee.com/)
– Trade it for PayPal money
– Mt. Gox Bitcoin Exchange

The last one I want to talk about it Mt. Gox. It is the most common website used to trade (buy or sell) bitcoins for dollars or any other national currency. You can receive this money through PayPal or many other online currency transfer services. I am not going to go through the details of this, but to send bitcoins to anyone or any service, follow the instructions in the next step.

Step 11: Send Bitcoins to Someone

To use bitcoins, you must send bitcoins to another address. To send bitcoins, the service will give you a specific address to send bitcoins to.

Copy this address. Open up your bitcoin wallet. Click on the “Send coins” tab.

Enter the address you want to send the coins to in the “Pay to” field. If you are going to send coins to this person or group multiple times, you can enter a label for this person so that you can find them in your address book again. Enter the amount in the next field (for easy math, remember that 1 BTC is $10). Click send when you are done.

If you just want to practice sending bitcoins to someone, you can test sending them to me. Just send 0.01 BTC to me (approx. 10 cents). Good luck!

Step 12: Done!

And that is just about all the basic information about bitcoins. If you have any questions, or there is something really obvious and important that I had missed, drop me a comment. I’ll try to respond as quickly as possible. If you want to donate, send me a bitcoin or two at 16bVf7XX3dKN2zW6ut8FRSQaGZZBHAFYZt. Any donations, no matter how big or small, will be appreciated.

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