Getting Started with Bitcoin or Ethereum
The exponential growth of digital currency has attracted a significant following in recent months, however for those without the technical background or insight, joining the revolution may seem somewhat daunting. Bitcoin and Ethereum stand as the two most popular cryptocurrencies of choice within the virtual world at present, with a total combined market capitalization of $385 billion as of December 2017. Bitcoin, the original and still the ‘de-facto’ currency of choice, was created in 2009 by an individual known only by his pseudonym identity ‘Satoshi Nakamoto’. The ideology of Bitcoin is that due to its de-centralized framework, it is not controlled by any single authority or central bank, nor is it governed by any nation state. Instead, the system relies on a trustless, peer-to-peer network that is able to verify transactions transparently by the community, without requiring an intermediary.
Since its introduction, the value of one Bitcoin has soared to an all-time high of $20,000, awarding those who joined the phenomena in its early days with a substantial windfall. Bitcoin’s success has spurned a new wave of cryptocurrencies to enter the market, with Ethereum its nearest competitor. Ethereum built on Bitcoin’s blockchain technology by offering additional features and applications, such as the ability to create smart contracts, and it is also emerging as the most requested cryptocurrency for new business start-ups when raising capital. This article will present a step-by-step guide on how to engage with the digital economy for the first time, from buying your first coins, to spending and receiving them. Once you have followed these simple instructions, you will be well on your way to engaging with the future of money!
Step 1: Obtaining a Wallet
The initial process of engaging with the de-centralized cryptocurrency system begins with obtaining a wallet. A digital currency wallet follows the same principle as a real world wallet or purse – it is a protocol that allows a user to safely store their virtual funds. There are three main primary wallet protocols available depending on the level of control the user wants, however for a first time user looking to blend convenience with security, a desktop or mobile software wallet would be a good place to start. You will be cryptographically provided with private keys, which is similar to an ATM pin number. It is important to remember that only you will have access to these keys, so do not give them to anyone – otherwise your funds are at risk. There is a large selection of wallets available, with most being completely free. It is well worth conducting independent research if you are unsure which wallet to choose, however to help you on your way, here are some of the most respected and trusted on the market, in no particular order.
- A popular software wallets that is available for download to either desktop or mobile, free of charge. A private key is cryptographically generated, and this provides access to your wallet. Electrum have no access to this key, therefore users can remain safe in the knowledge that their funds remain secure.
- Bitcoin Wallet. The first mobile Bitcoin app to enter the market. This particular wallet is perfect for the first time user, with a very simple design and interface. Furthermore, it allows the user to pay by scanning a unique QR code.
- Available on both Android and iOS, users are offered an open source wallet with full control over their private keys. Moreover, sending and receiving funds is made easy with a simple to use platform.
- A fully functional, multi-currency desktop wallet with visual pie chart graphics that show you your complete portfolio. Private keys never leave your device, adding a layer of security on top of the easy-to-use software.
- Much like the aforementioned wallet, supports several other cryptocurrencies all on one platform. An elegant design with stringent security features, and as expected, only the user can access the private keys. Available on both desktop and mobile.
- Allows users to store and send Ethereum through a desktop, as well as access de-centralized Ethereum apps. Private keys are password encrypted and stored locally on your device.
As your crypto portfolio grows, and becomes more valuable, it might be worth looking into different wallet options. A popular way to improve security and add ease of use, is to get a hardware wallet. A hardware wallet is a small device which, together with proprietary software adds a very solid security layer that is easy to use for anyone. In addition to this, a hardware wallet lets you store multiple cryptocurrencies in one place. The most popular ones are the Trezor and Ledger Nano.
Step 2: Purchasing Your Cryptocurrency
Now that you have obtained your desired wallet, it is now time to go and purchase your first coins. It is important to recognise that handing over real world fiat money is not the only way to obtain digital currency, as miners who have the capacity to use their computing power to validate the peer-to-peer network are awarded with coins for their efforts. However, for the complete novice it is best to start with a trusted online exchange. Again, much like selecting a wallet, there are thousands of cryptocurrency exchanges to choose from, however to point you in the right direction, here are three well-known options to consider.
- By far the most popular online exchanger in terms of active users, with a reported 13 million at the time of writing. Moreover, the website claims to have processed in excess of $50 billion in transactions. Users based in 31 countries can purchase both Bitcoin and Ethereum using a variety of payment methods, including debit/credit cards and bank transfer. Furthermore, the website offers two-factor authorizations to ensure user logins are secure.
- Kraken’s security features are also highly robust, such as offering Google’s 2FA app to sign in, as well as having their reserves cryptographically verified for complete transparency. Much like Coinbase, users can purchase both Bitcoin and Ethereum, as well as a plethora of other digital currencies. The website also makes it easy for beginners to buy their first coins by offering various payment methods.
- An alternative to the two aforementioned suggestions is LocalBitcoins, a peer-to-peer exchanger that matches buyers and sellers. Those that are selling their Bitcoins advertise the rate they would like to sell them for, as well as what payment methods they are happy to accept. This could range from PayPal, a bank transfer or even a face-to-face meet. Both parties are protected as the website offer a secure escrow service, subsequently taking a small fee for their efforts. At this time, only Bitcoin is available to trade.
Step 3: Sending Your Coins to Your Personal Wallet
To give yourself total control over your newly acquired digital funds, it would be wise to then send them to the personal wallet you obtained in step 1. Head over to your wallet and carefully copy the unique public address.
Example of a Bitcoin address: 37t42r1VE34X3gUwP9K2nLUNUmmBqTH9Xm
Example of an Ethereum address: 0x32Be343B94f860124dC4fEe278FDCBD38C102D88
As you will quite clearly see, the addresses contain a large number of alphanumeric characters and as such, it would not be difficult to make a mistake. This is why it is highly recommended to copy the address, rather than attempting to write it down.
Step 4: Storing and Spending Your Digital Funds
Congratulations, you are now the proud owner of cryptocurrency! At this stage, your funds are safe and secure. You can either decide to leave them untouched if you would like to save them, or alternatively you may decide to spend them online. Let’s say for example you wanted to deposit some funds in to an online casino that accepts cryptocurrency. The simple process begins with obtaining the casino’s public Bitcoin/Ethereum address (remember to copy it!). Then go back to your personal wallet and decide how much you would like to deposit. All you would then need to do is insert the casino’s address along with the amount of coins, and submit. Due to the public transparency that cryptocurrency affords, this particular transaction would be available to view on the blockchain within minutes. After enjoying a bit of online gambling, you can then easily withdraw your winnings back to your public address. All you need to do is notify the casino operator of your unique Bitcoin/Ethereum address, and the funds will quickly be returned to your wallet.