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Starting out in Bitcoin

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Following my article on Bitcoin Cloud Mining, @darfuria on Twitter asked

These are all good points and so, here’s the answer!

Naming Conventions

Bitcoin is one of a number of cryptocurrencies which all follow a very similar naming convention. Bitcoin is abbreviated to BTC so, in the same way that you’d have £1 for one pound, one Bitcoin would be written 1 BTC. Bitcoin are then further broken down into little pieces (think pence for pounds, cents for dollars) into Satoshi. One Satoshi is 0.00000001 BTC – the smallest amount of Bitcoin that can be sent. The other units that you might see are:

  • 1 BTC = 100,000,000 Satoshis
  • 1 BTC = 1000 mBTC (millibitcoin)
  • 1 mBTC = 100,000 Satoshis
  • 1 μBTC (microbitcoin) = 100 Satoshis

For pub quiz fans, a Satoshi is named after the bloke that invented Bitcoin Satoshi Nakamoto (and if that ever wins you a pub quiz, you can send me a thank you using the link below!)

Starting Out

As I mentioned in the previous article, physical mining using your own kit is possible but it is slow and expensive – unless you have your own specialist kit in which case it is fast and expensive! I am using CEX.IO to cloud mine Bitcoin and you can find more information about that here.

However, to start out cloud mining you need two things – a wallet to keep your Bitcoin in and some Bitcoin to buy the mining power.

There are lots of wallets about and they all offer similar services. I use Blockchain.info which is a web based wallet. You can also get software wallets that run on your local computer but, be aware, if you are going to run one of these, it will take about a day of processing to set up.

For buying BTC, you need to take a look at the various markets and decide which is best for you. When I did my research, as I am based in the UK, I found BitBargain to be a good choice – at the time, the sellers on BitBargain were trading at a discount to the main markets (such as MT.GOX) and the fact that I could buy and sell in pounds sterling was good for me as it meant that transferring money was easier. They also offer no fees on buying BTC which also ticked a box! However, if you leave your BTC in their wallet for more than a week, they will start to tax it (only a small amount) – so move it out as soon as possible (for me that meant moving it directly to CEX.IO so I could buy mining power and get it earning!). One other thing with BitBargain that you can take as a positive or a negative is that they do require you to send over scans of a couple of documents for money laundering purposes. Not all markets require that and some of you may think that it is a bit of a PITA but, to be honest, I like the fact that they are going that extra mile – it makes it feel safer to me. Again, it’s up to you to take a view.

Other BTC markets that you might like to take a look at are:

BitStamp - based in Europe
CoinBase – based in the US

 

Valuing your BTC

Well, there’s the 67.7287BTC (currently $64000) question!

There are a number of ways of looking at BTC. One is to look at it in terms of its instant return and, to do that, you need to be looking at the markets to see what level people are buying at and what you can realistically sell at. Over the past year, it has traded at over US$1200 to the BTC and is currently (as I write on 16 January) at about US$950. BTC is a notoriously volatile commodity where a 10% value fluctuation in a day is not out of the ordinary – and if you can ride the wave, that can be a good thing!

Another way of looking at it is to consider it a longer term bet. There will only ever be 21m BTC – the protocol only allows for that much – so, if it has a future, there is a school of thought that it will increase in value so that each BTC and Satoshi have their appropriate value in the BTC economy… which brings us on to point three.

You could value it by what you can buy with it – physical stuff or services. There is a BTC economy with real world businesses willing to accept BTC for everything from gold to beer (yup, in the UK, we have a pub chain that will accept BTC over the counter! WOOOP!)

Questions?

Feel free to ask questions in the comment section below and I’ll do what I can to answer them! There’s more information on my experience so far of Cloud Mining in this article. Thanks for reading!

 

 

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Please note that the links provided do not necessarily represent an endorsement – you need to check that the relevant market or service is right for you – and I am not responsible for any loss that you may suffer as a result of using any of the above.
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Written by James

January 16th, 2014 at 5:19 pm

Posted in Bitcoin