Bitcoin 101: Security of your Wallet – Part 6

For part six of the Bitcoin 101 Series, I want to go more in detail about Security and Wallets.

I started this series talking about Wallets because understanding Wallets and how they work is a good building block for explaining how bitcoin works. It is a fairly simple idea and everything explained after that can build on each person’s knowledge of wallets and the role they play in the bitcoin ecosystem.

I want to start by talking about an example I encountered recently:

A girl named Abby wanted… no… she NEEDED a wallet. She had heard about bitcoin and wanted to get started, but she didn’t yet fully understand a wallet. She got some help from her friend named Tom.  She talked to Tom and told him all about a trip she wanted to take and how she knew a bunch of people around the world that wanted to support her. All of her supporters wanted to send her bitcoin, but she didn’t have a wallet. Tom knew how to create a wallet so he gladly helped her out and they created a wallet together.  Once Abby had her wallet, she told everyone she knew about her brand new wallet.

A few days went by and Abby heard from so many people that were excited for her trip that was coming up. She went to look at her new wallet and – shockingly – her balance said:  BTC 0.00000

Abby was very confused. She knew people had sent her funds but the balance said zero?  How could this be?

The story goes similar to this:  Tom had a friend named Brian. Brian knew that Tom was setting up a wallet for Abby. Brian wasn’t very good friends with Abby but they lived in the same neighborhood and they both talked to each other every so often. The truth is that Brian wasn’t actually a very good guy. Brian had been in trouble before and he was always needing money. Somehow Brian had oversaw an email that Tom had received regarding Abby’s bitcoin wallet. Brian was able to use Abby’s password to her online hosted wallet and he logged in under her account and sent the bitcoin to a brand new wallet that no one else knew about. From that wallet he sent the full balance of bitcoins even further long to some more wallets that he was in control of. Before long, the trail was so long it was almost impossible for anyone to track down Abby’s original bitcoins.

The lesson here that Abby had to learn is that even though she trusts Tom, there are some people that Tom knows that aren’t very good people. They may seem helpful and friendly, but human nature tells us that if a person can take money and get away with it, then they might do that. You have to protect yourself.

Here are the two biggest items that you MUST protect if you want to keep your wallet secure:

(1) Password – if you sign up at a site like blockchain.com or coinbase.com or some other Online Hosted Wallet, then your password is going to be VITAL. The other password you will want to keep secure is your email password. If you lose your password on your hosted_wallet_account, you can request a password reset. They will send that to your email.

DO NOT SHOW or TELL ANYONE EITHER OF THOSE!  If you have to, start a new email address!

(2)  Bitcoin Wallet Private Key – every wallet has a public key and a private key. They mean exactly that:  Private and Public. The public key is the one that you give out to other people. That is how they send you money. Just like your email address is how people send you email. Your bitcoin public address is how people send you bitcoin. However, your private key should only be seen by you and only you.

If someone else should see either of these, your wallet is at risk of losing all of your bitcoin.

On a related note, since bitcoin is a decentralized network there are more and more applications being developed for bitcoin that revolve around the security being on the individual level. This is a change in shift from banks and other centralized institutions that have always had hosted servers sitting under their control. One of the big ways that the focus is shifting to users is by putting all of the responsibility about security on each bitcoin user. That is vital to understand:  wallet security is of the highest importance in the bitcoin ecosystem. This cannot be said enough. You can ask anyone familiar with bitcoin.

On final note:  if you want someone to show you how to create a wallet – then have them show you – but do not use that wallet. Go and make a brand new one… after you learn how… all by yourself. I highly recommend doing this by yourself. If you have anyone around you, then you could be putting your funds at risk. This is more than just trusting another person. There is no fallback like traditional financial systems. There will not be any help if someone else knows your private key or password. The funds will just be gone.

I hope that this helps you further understand Wallets and Security in the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

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Bitcoin 101: Exchange and Exchanges – Part 5

For part 5, in the Bitcoin 101 series, we are going to look at another part of the bitcoin world:  Exchanges

When you hear the word exchange you will probably think that someone could give you something and then you will give them something in return. That is basically what an exchange is. Previously in history, there was a system of bartering where a farmer would sell some of his chicken’s eggs in exchange for some corn from a different farmer. However, as different goods have different values, the system of currencies and money developed over time.

Now, when you go to the store and you buy some milk it may cost you $2.00. You would exchange your two dollars for the gallon of milk.

A modern day currency exchange is normally reserved for the exchange of currency from one fiat currency to another. When I recently traveled from the USA to Mexico, I exchanged some US Dollars for some Pesos. There was a fee involved, but in the end I got the equivalent value of pesos for what amount of dollars I had.

Bitcoin is different

In the world of bitcoin, it is different than most other currencies you are familiar with. Bitcoin is digital and global. That means that you won’t ever really need to exchange bitcoin into another currency just because you are crossing a border to a country. Bitcoin can be used in almost all countries. (I say almost because there are some countries trying to outlaw it. But overall, it can be taken anywhere.)  It is digital so it isn’t like you have to hide the paper money from anyone. All the bitcoins are stored inside your bitcoin wallet so you only need to make sure that you secure the private keys to your wallet.  I would also suggested adding a password and/or PIN and other security measures to protect it.

Bitcoin Exchanges

There are a large number of exchanges on the internet. When you go there you can do a lot of things. On Coinbase, you can create a wallet, buy and sell bitcoins, check the history of the bitcoin price, and a lot of other things. On shapeshift.io, you can exchange one digital currency for another one.  A good exchange will have a lot of good features for you to use.

Personal opinion:  I would recommend Coinbase because I have used them myself.

Here is the list of all exchanges and what features they provide.

Buy and then transfer

Exchanges – in my book – are meant for only 1 thing:  buying or selling currency. When you go to a site, they may want you to create an account. Even if you create an account and/or a wallet, once you have bought bitcoin at that site, be sure to transfer your entire balance to a secure wallet that you are comfortable with. Do not leave any bitcoin in an exchange account that you aren’t willing to lose. That is what happened to many people with Mt. Gox. At the time that Mt. Gox froze everyone’s accounts, they held about 70% of all bitcoins in circulation. It caused a big black eye for anyone using bitcoin at the time as well as new users that just entered the bitcoin world. It was a very sad point in time for the history of bitcoin.

On a personal note, I started learning about bitcoin around the time that Mt. Gox was so big and popular. They were the biggest exchange in use at that time (mid 2013) and if I had known more about bitcoin and how to set up a wallet there, I may have also been a victim. I have sympathy for anyone who used Mt. Gox because it was horribly managed and in the end caused so many terrible things to happen to the entire history of bitcoin.

One of the problems that made Mt. Gox such an easy target for hackers is that they tried to do too many things:  wallet service, exchange, payment processor and other processes. If a company wants to do all of those things now, they have a team of people to handle each area. A lot of sites are focused on being either an exchange or something else – like a hosted wallet service.

DO YOUR HOMEWORK!  

Be sure to read up on an exchange before you do anything. Look at their history and talk to other people that use the site. Sometimes even a quick google search can reveal a lot.

Exchange Rate

For a quick look at what bitcoin is worth, find a good exchange site that is interactive and applies to your countries’ currency. For USD, I use preev.com.  It allows me to put in partial amounts and then convert in real-time what it is worth.

For a look at what the exchange between USD, BTC, and the Ghana Cedi is, I created the follwoing chart:

Picture1

It shows what the smallest unit is for each currency is and what the value was in October 2015.

Conclusion

Thanks for stopping by, If there are any of these points that need clarification, feel free to shoot me an email or use the Contact form. Be sure to stop back and see other postings in the Bitcoin 101 series.

 

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Bitcoin 101: The Blockchain – Part 4

In part 4 of the Bitcoin 101 series, we are going to dive into the Blockchain. We are going to answer all of the important questions you might have:  What is it?  How is it used?  Why is it important?

Editor’s note:  this may become too big to put all in one blog post so it may be spread out over a few different posts.

What is it?

The blockchain is a public ledger of transactions.

That is the simple answer. In truth is that the blockchain is a lot of things all combined into one giant moving system. In order to keep this simple, I will only include specific details to start and then grow on this topic until everything is covered.

When I talk about “the blockchain” I am referring only to the Bitcoin Blockchain. There are many other blockchains out there, but the bitcoin blockchain is the one that started the blockchain movement and it has been around the longest. For now I am going to stay away from talking about other blockchains out there and only focus on this one.

The blockchain is a series of blocks that are connected – one after another – starting from the genesis block all the way up until present day – which is the block that was just formed within the last ten minutes.

Taking a step backwards, you should by now know what a transaction is. (If not, see this previous posting about it.)

How does it work?

When a bitcoin user sends a transaction out to the bitcoin network to get confirmed, a miner takes it and puts it into a block – along with hundreds of other transactions. All the transactions that are in the “winning” block are confirmed  – on the network by all the other miners – and that block is added to the blockchain. That is the newest block in the blockchain. The software that runs on the miner’s computers (called bitcoin core or bitcoind) can see that the next block is correct and automatically starts trying to confirm the next block in line. The software also knows that a new block needs to be confirmed every ten minutes. If it is taking the miners too long to solve the math equation, the difficulty is lowered. If the blocks are being confirmed too fast, the difficulty is increased.

I’m not going to get into mining or miners right now. That will be in a different Bitcoin 101 post.

Hope you are still with me. I want to tell you everything, but I am trying to pace myself so that I don’t lose you. If you are about to get lost, take a break and come back to where you are at. There is a lot to understand this and I will do my best to tell you everything you need to know without losing you along the way.

OK so where is this blockchain? Can I see it somewhere?

The blockchain exists all over the world. By now it is in almost every country. (They are also trying to put it in space.)  This is what everyone means when they talk about how the bitcoin network is decentralized. It means that no one person has control over it. It is running independently on thousands of computers all over the world. It does still communicate to other miners and nodes through the internet. Inside of this software is a copy of the entire bitcoin blockchain. In fact when it first is turned on – before the software can do anything – it loads all current blocks/transactions from other nodes. Only when it is completely up to date is it able to move on to the next process that is coded to run.

You can see it out on the internet at various sites like blockchain.info or Block Explorer. Go take a look for yourself. Find the latest block number. See if you can look inside of a block and find some transactions that took place. It will help you to understand better.

When someone talks about Full Nodes they just mean the same software that the miners are using except it doesn’t confirm the blocks, it just relays the blockchain information. It is a smaller version of the same Bitcoin Core software.

That is a high level overview of some of the pieces to the blockchain. There will be more posts coming out in the Bitcoin 101 series that will go into more detail.

Thanks for stopping by!

 

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Bitcoin 101: Money and the Unit of Measurement – Part 3

In the first two topics that I have covered, I discussed wallets for holding bitcoin and I explained transactions and how they work within the bitcoin ecosystem. For the third topic, I need to explain some more basics about money so everyone can further relate how money works. Based on what is explained, you should be able to understand how to translate all of the terms over to the bitcoin way of thinking.

Before bitcoin started, everyone used fiat money to buy things. A merchant that was selling a hat – for example – would set the price of a hat at a certain price. For this example I will say that the hat cost $5.00.  If the buyer saw this price as acceptable, they would give the merchant the five dollars in the local currency. (I will use US Dollars for this example.)  The buyer would get the hat and the merchant would get the five one-dollar-bills.

 

The Six Truths

There are six truths that applies to any currency:

1. scarcity – supply cannot be manipulated like fiat money which causes the boom and bust cycles in the economy

2. durability – gold and silver will not rot which makes them a great store of value

3. fungible and divisible – they can be divided into small, interchangeable amounts which make them ideal for trade.

4. portable – Their high concentration of value allows you
to carry and store substantial value

5. proven – gold and silver have been used as money for over 6000 years of recorded history.

6. use value – both gold and silver have tremendous use value in industry. The highest use value though is in their role as money

 

 

Value

Each dollar represents one US dollar. Everyone that uses the dollar (or your currency) understands what the value of that dollar is and what it can buy.

The smallest unit of measurement in USD is the penny and has a decimal place of 0.01. It is the smallest unit needed for that currency.

Now I am going to translate all of that into the bitcoin way of thinking.

Exchange Rate

The price of one bitcoin can move up and down so much, it is a good idea to keep an eye on the exchange rate. Yesterday it might be worth $250. Today it may be worth $300. It is hard to predict for the average user. (Here is the site I use for viewing the exchange rate.)  Knowing what a bitcoin is worth helps merchants set the price of goods and it helps buyers/users understand what one bitcoin is worth.

Since the price of bitcoin can change so rapidly, when you go to buy or sell bitcoin, there will be a specific buy and sell price. Exchanges do this because they anticipate the currency moving in a certain direction and try to minimize the difference between what the value is when it is first agreed-upon-purchased and when it is actually purchased. When you go to buy bitcoin for the first time, you will see that difference.

Unit of Measurement

The smallest unit of measurement in bitcoin is called a Satoshi and in decimal format it looks like this:  0.00000001. There are a total of 8 decimal places.

Having eight decimal places is a really good idea because this currency is global and it can represent much smaller units of measurements in currency where they have small value.

USD            BTC                 CEDI (GHS)

0.01 =    0.00004038   =   0.0381

Shown here is what an American Penny looks like across all three currencies. Instead of having a standard 2 digit unit after the decimal place, it can go all the way to eight places and is more accurate to show value.

This concept of measurement in bitcoin can be a difficult one for most people to understand. I wanted to have one of my blog posts about this because when this is understood, you can start to understand bitcoin better overall.

Physical vs. Digital

Bitcoin is a digital currency so there is no physical money to hold on to. This is also something that can be difficult for anyone to understand. Bitcoin is held in wallets and the value is shown as the balance on your wallet. For some older people, it will not make any sense that you cannot hold any piece of paper or coin.  There are some companies that still do produce a physical coin, but that is not very common. Since all transactions are digital and users within bitcoin do not normally use physical coins, the whole idea is more for having souvenirs then for any real purpose. Bitcoin – as a digital currency – means it is made to exist inside of the digital world. Not physical.

It is a similar thought from when people would move from writing physical letters to people to then using email to write letters to people. There was no longer a stamp needed to send the letter. You didn’t have to put the letter into an envelope so that is would stay private. Email is free to send and receive and it is basically private between the two users.

Summary

Some of these concepts translate easily and some are harder to understand. For further explanation, please contact me and I can further explain in better detail. Understanding these basics will help to further your knowledge of bitcoin. That will help you feel more comfortable when you start to use bitcoin in the real world.

Thanks for stopping by and stay tuned for our next topic in the Bitcoin 101 series!

 

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Bitcoin 101: Transactions – Part 2

In part 2 of the Bitcoin 101 series, I am going to go over a very simple view of what transactions are in Bitcoin.

If I was going to send you 1 bitcoin, that would be 1 transaction. It would consist of me – the sender – sending bitcoin over to you – the receiver.

Here is 1 view of what it would look like:

Untitled

That picture is rather silly. But it is the starting point to understanding transactions. (txs)

Bitcoin is a currency that has value. The payment of 1 bitcoin to you would be in exchange for a good or service with a related value. Knowing what a bitcoin is worth at any point in time is very important – so be sure to look at a good exchange rate site if you ever need a reference to that.

All transactions are recorded on a public ledger. All txs are public and can be seen by looking at the bitcoin blockchain. My favorite place to look is at www.blockchain.info.

Whoa whoa whoa you say. Going too fast Brock ….

OK let’s step back a minute. Transactions happen because a certain amount of bitcoin is moving between people. A better way to think about it is that bitcoin is moving between two wallets. (If you need to know what that is, see my previous post about wallets.)

The owner of the wallet sends bitcoin to another wallet. So in this case, I would be sending 1 bitcoin from my wallet to your wallet.

All good wallets should have the ability to send and receive bitcoin. Once I put in your wallet address and hit send, there should be a notification to me that bitcoin was sent from my wallet. If you have a good wallet, then it should also notify you that there is a transaction headed your way. That transaction is considered unconfirmed.

 

Stay with me here… I will try to wrap this up very soon…

The unconfirmed transaction goes from my wallet and it lands on the next closest NODE that is in the bitcoin network. Once the transaction has been added to the next block on the blockchain by miners, it becomes confirmed and you see the bitcoins show up in your wallet. They are now yours!

Editor’s Note:  For more details on each of these, follow any of the links above. (Trying to keep this post short)

Important Points:

  1. New blocks are confirmed (on average) every 10 minutes, so you may have to wait that long before the transaction is confirmed.
  2. When you get ready to SEND bitcoins to another person/wallet, keep in mind that YOU CANNOT REVERSE BITCOIN TRANSACTIONS!  You just can’t. There are no chargebacks. This is a good and bad thing. It is the same as cash in the fact that if you give a stranger a dollar and he or she walks away, you cannot get that dollar back. Same goes for bitcoin. So just be sure you are meaning to send that money when you are hitting SEND.

 

Here is what a confirmed transaction looks like:

confirmed-transaction

There are a lot more details, but for now that is a high level overview of what a transaction is and how it moves from one wallet to the next.

Thanks for stopping by and stop back soon for more Bitcoin 101 topics!

 

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My First Hardware Wallet

I have read up on hardware wallets and understood them to be a good “cold storage” way to store bitcoins. (Cold storage is one of the most secure ways you can store bitcoins.)  After looking at a couple different options, I went with the Ledger Wallet as my first hardware choice.  They have a few different options and since I don’t have a lot of money to put into it, I went with the Nano selection.  It was only $29 which was good for my price range.

After I received the package, I inspected all the contents. Besides the USB wallet, it also had a plastic security card inside a leather case, an instruction card, a recovery card with a place to write the 24-word pass-phrase, and a lanyard so that you can have the option to wear it. It seems to me that they thought of everything.

Setup was fairly quick and simple. The computer I used was my own computer – which they suggested. They want to use your own PC for security reasons. There is a Google Chrome extension that needs to be installed. It asks for you to plug in the USB wallet and you set a PIN. There is also an option to set up a connected smartphone so you can get alerts when transactions are made on your wallet.

I would recommend this wallet to anyone that does not want to spend a lot but wants all the features that a secure, simple hardware wallet should have.

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Bitcoin 101: Wallets – Part 1

Welcome to the Bitcoin 101 Series!  Here we will explain – in very simple terms – what terms are being used in bitcoin, what they mean, and how to understand them better.  This will be an on-going series and each post will build on the one before.

Let’s start at the beginning:

If I was going to explain to someone what Bitcoin is, I would select a small handful of keywords that I would want to carefully explain to them.

One of those keywords would be WALLET.

Bitcoin – the currency – is like digital cash that is stored digitally in a user’s wallet in order to be spent later on. There are a lot of details about wallets that every bitcoin user should understand.

You can think of a bitcoin wallet somewhat like a normal physical wallet. You store money in your wallet. When you want to pay someone, you reach into your wallet and “spend” money. When someone gives you money you “receive” it into your wallet. Also, you can look into your wallet and count how much money you have. That is your “current currency balance.” Those are all basic concepts that you already understand.

Let’s get a little deeper…

The next thing to know about wallets is that they are normally either one or the other of each of the following points:

-hardware or software

-hot or cold

-paper or electronic

-standalone application, web-based, mobile, or a combination of these

I will explain each of these and what they mean.

Here is one example of an electronic, hot wallet:

wallet

(click to enlarge)

A software wallet is one that you can install – like software – on your computer or cell phone. You use it just like software and it should have all the functions of a normal wallet. A hardware wallet is a physical device that is outside of your computer. It can be disconnected from your computer and it is its own device. In order to transfer funds or send a payment in bitcoin, it will need to be connected to a computer/device that has the ability to connect to the internet.

KEYS

Before the next explanation, I need to explain to you about the keys. There are two types of keys that every wallet should have:  a private key and a public key. They mean exactly like the word says:  Public keys can be given out to anyone that wants to send you money. Private keys should only be seen by you. (Just like your ATM PIN.)  If someone else sees your private key to your wallet, there is a good chance they will steal your entire balance of your wallet.

I cannot state this enough:  YOUR PRIVATE KEY is the most sensitive piece of your wallet. To keep your bitcoin secure, hide your private key. Guard it with your life. Most good wallet software does a good job of hiding it for you. Be extra careful if you decide to print out a paper wallet because the private key and public key are sometimes close to each other. Cover it up right away!  Just ask this reporter.

A hot wallet is a wallet that is directly accessing the internet. A cold wallet is either a hardware wallet that is disconnected from the internet and computer or it could be a paper wallet that you print off your computer and keep in a safe deposit box.

Finally, I will explain to you one of my web-based wallets. It is one that the company has built an app for for my cell phone. If I purchase something from my phone, it updates my balance. When I go back to my desktop PC, and log in to the website, and send bitcoin from the website, it also updates my balance. The wallet is both an app for my phone and web-based on my computer. Each wallet is different. You have to find one that suits your needs best.

One other small note:  When I was first learning about wallets, no one told me that I could have more than one wallet. I had one wallet for a very long time. Then I got a 2nd one. Now I have about 10 different ones that I am trying out. It gets to be a little tricky keeping track of all of them. Start with one, and then if you don’t like it, “send” all your bitcoins to a new one. But only start by sending just some of your bitcoin balance and try it out first.

For more details, take a look back at my old website about bitcoin wallets and it will fill in more information for you.   Or you can always go to the main bitcoin wiki too.

Thanks for stopping by. Stay tuned soon for my next Bitcoin 101 topic. Feel free to leave me comments on Facebook or I can be reached by going to the Contact page.

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Hello Bitcoin World!

I am starting this website with the goal of educating and training people about Bitcoin.

Bitcoin is a protocol. It is a network. It is a currency. It is a lot of things. I enjoy talking about bitcoin and all the technology that surrounds it.

A lot of people hear about it and think “its just a techie thing and it will go away.” Well, it isn’t going away. It is becoming more well known around the world with emerging markets in developing countries. There are over 3 billion people that are un-banked or under-banked with no real access to financial services. Bitcoin changes all of that.

I started a website a while back explaining Bitcoin so if you get bored you can check that out.

Also, for looking at the exchange rate, I use this site.

There are a lot of different topics I will be blogging about, so stay tuned

Donate any amount to this address to help fund this site:

www.coinbase.com/brockton