I really want to be living in a world where bitcoin is the default currency.  But to start small I’m going after all the people that I know.  That way if any of us owe each other money or are hiring each other or splitting a bill at a restaurant it’s just a quick swipe on our screens and we’re square.

But I can’t expect you all to geek out for the past 9 months waking up every morning to coindesk & reddit.com/r/bitcoin over breakfast like I have.  It’s got to be simple and spelled out and something that takes you just a few minutes to get into.  

But is it worth your time?  There are some things one must learn to intelligently use bitcoin.  And why mess around if you’ve got a bank account and pay your bills and everything is already working for you?  The answer can’t be “fancy numbers are that do fancy things are cool.”  They are but I know you need a real reason that’s closer to your reality.

Why should people use bitcoin?

Because when email was invented we stopped needing to use fax machines and cut down trees.  Because when the computer was invited we stopped needing to use typewriters and futz with white out.  Because when car was invented we stopped using horses and engaging in mass animal slavery.  Because when we discovered fire we stopped being monkeys hiding in the trees at night and started our path of evolving to who we are today.

We have a history of embracing better ways of doing things so I’m completely confident that in time we will see bitcoin technology replace our use of traditional banks to store and send money.  

Horses and fax machines still exist so I’m not saying banks will go away completely but we will achieve a more peaceful and productive society when the control of the money system is removed from those who have proven to abuse that control.  So this isn’t about clever technology, it’s about ideals.  If you’ve ever been to an Occupy Wall st event and wish there was something we could actually proactively do beyond shout at the top of our lungs then you’ve found it.  If you’ve ever been moved by a film to care about people in far away countries but wish you could do something more then simply share the link online then you’ve found it.  If you’ve ever wanted to see art and culture be better financed and wish you could do more then just donate to individual projects then you’ve found it.  Bitcoin has the power to break up the financial systems strong hold that’s keeping the world the way it is today.  You think we don’t know how to end poverty?  How to innovate politics?  How to finance the creation of new culture?  Designs and innovations for all of the above and much more will be empowered by bitcoin and it’s associated technologies.

So let’s withdraw our support for a system we no longer believe is serving us.  Remember this idea every time your at the ATM asking them for your money.  “Withdraw.”  Because if we don’t withdraw our support then we are in effect endorsing their actions.

The first step in a world built on top of bitcoin is all of us using it for anything that we can.  So I’m here to show you how.  You probably also have other friends who can show and after this blog post you’ll be up and running and able to teach people you know and together we can all learn this.

BITCOIN 101

What is a bitcoin?  It’s a monetary unit.  At the time of writing it’s worth around $625 US dollars.  You spend bitcoin like you spend any other currency.

MILLIBIT

There are 1,000 millibits in 1 bitcoin.  It’s often easier to describe prices in millibit.  Right now 500 millibit is worth around $300.  However you don’t type “500” you type “.500” because that’s how the number is accurately sent with a bitcoin application.  To deal in bitcoin you have to wrap your head around the exchange rate just like dealing in Thai baht or any other currency of a different value then your local currency.  Right now $500 dollars is worth .3 bitcoin.  So I’d say “300 milibits” when reading that number.  The exchange rate is easy to do in your head.  Try it.  What is 5 dollars in milibits at the current exchange rate?  Answer = 3 milibits.  How would you type that into the computer to send it to someone?  Answer= .003

BLOCKCHAIN

What the heck is the blockchain?  Well it’s exactly what what the name implies.  A chain of blocks.  What’s in the blocks?  Data.  About what?  Transactions.  

The blockchain is the key invention that is bitcoin.  It’s a giant database of transactions people have made and it’s stored on tons of computers that all check each others copies to insure they are the same and every 10 minutes they all update each other with any new additional transactions that have just occurred.  Each transaction takes up very little space and older transactions get shrunk down to just the essential data that validates all previously spent bitcoin so that everyone’s balances can be calculated.  It’s like the spread sheet you try to keep your checkbook info in except it’s actually accurate and real time and it’s got everyones sent and received transactions ever.

WALLET

How do you send money or see what your balance is?  A wallet.  It’s the other main invention that is bitcoin.  It’s a piece of software that looks at the blockchain to calculate how much money you currently have control of.  I say it that way because whoever has your wallet has control of your money.  Since the money is on the block chain you kind of never really have anything.  You just have access to update the block chain and spend the money that’s yours.   Because the blockchain has every transaction ever there is a trail that can be totaled up to produce your current balance.  Your wallet see’s the blockchain and displays your balance which dictates how much money you can spend.  Your wallet is also your tool to spend your bitcoin.  A wallet can be a piece of hardware but is most likely just an app on your phone, an app on your computer or a website set up to function as a wallet.

SEND PAYMENTS

To pay someone you need their address.  It’s like a phone number or email address.  You can get it emailed to you, text messaged or even us a QR code.  Because unlike a phone number or email address it’s a pain to manually type because it’s got a lot of characters.  A QR code is a bunch of blocks on a screen or piece of paper that contain digits and characters and a QR code is the best way to quickly read a bitcoin address with your phones camera.  So checking out at a grocery store a QR code might appear on the register screen and with your phones wallet app you scan that code and then hit “pay”.  Your wallet in that moment sends the payment to get included in the blockchain and what happens next is magical.

CONFIRMATIONS

Your balance is instantly reflected on your wallet but it takes up to 10 minutes to get a confirmation on your payment.  A confirmation means your payment has been added to the blockchain so it’s now officially part of the network and irreversible even by hackers.  This means you spent your money and now only the receiver can spend it.   How?  Fancy math.  I won’t get into that, but trust me, it’s irreversible and becomes more irreversible with each confirmation.  Every 10 minutes another confirmation occurs as your transaction has also made it into the next block in the chain.  Once you’ve made it into 6 blocks on the blockchain and have 6 confirmations you’re transaction is now essentially carved in stone.  So what is happening exactly?  Well the that’s another piece of magic.

MINING

It’s very expensive to be a bitcoin miner and I don’t recommend it.  I’ve done a tiny bit to get a sense of what’s going on and that was enough.  If you’ve got a couple thousand dollars and some time on your hands and are fascinated then please go learn everything there is to know about bitcoin mining.  Otherwise I’d encourage you to ignore this aspect of bitcoin because it’s highly technical and knowledge of it’s inner working offers no practical application to normal bitcoin usage except two pieces of information that are good to know.  Fees.  It really helps your transaction to process quickly to attach a small fee.  Most wallet apps do this automatically for you.  The advantage of paying a fee is that it insures miners are motivated to process your little transaction in the next block because they’ll get that fee.  So without a fee you could be waiting around a long time with no confirmation.  The second thing to know is about the 25 coins given to miners every 10 minutes.  As of this writing there are 12,411,575 bitcoins that the block chain has released per a pre-programmed code that can note be changed because it exists in the block chain.  What this means is that when you have 1 bitcoin it’s a fraction of that number.  I find this very cool because it’s a feature we don’t have with the US dollar. We don’t know what fraction of the whole our money represents because the dollar is an endless infinite sea as far as anyone can tell.  But with bitcoin we know.  We know the exact rate at which the total number of bitcoins will increase and we even know the maximum number of bitcoins that will ever be produced.  It’s 21,000,000.  So we are more then half way there.  This is important to understand because it shows how every bitcoin counts and makes up the whole.  No government can come along and just issue more bitcoins thereby making your bitcoins worth less then before.  Also no bank can come along and loan bitcoin that they don’t really have to all kinds of people thereby increasing money supply and devaluing your money.  So if the world uses bitcoin then banks and governments loose their ability to constantly debase your money.  All of this thanks to the process of mining.

PSEUDONYMITY

That word refers to the idea that an address is like a fake name nobody knows is you.  It’s not anonymous because that would mean a bunch of random strangers are making transactions with random strangers.  That wouldn’t work because the counting of all past spent coins make up the present balances of everyone so there must be a trail of all coins and all addresses at all times.  So the answer they invented was pseudonymity.  As long as you don’t affiliate your name with your wallet then people analyzing the blockchain will have no idea what your spending habits are.  Or if you are a nonprofit or a publicly traded company you can be transparent with some or all of your transactions allowing everyone to see exactly what’s going on in your business and increasing accountability.

TUMBLING

This is a method of making a payment without drawing a connection between you and another person.  It’s like doing a transaction off the record or a back ally cash deal.  Because let’s be honest, there isn’t really a problem with the blockchain knowing you bought some groceries but certain things you just don’t want to broadcast to the world.  Like if you bought life insurance policy with bitcoin than that could freak some people out and you might want that purchase to be a tumbled purchase.  You’d do this by just choosing that option when you make the payment.  BlockChain.Info offers a service to do this that you can see below.  

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EXCHANGE VS EVANGELIZE

An exchange is something to avoid in my experience.  They are services to convert local currency into bitcoin and back the other way.  In my opinion it’s more productive to evangelize.  Make a list of where you get money and where spend money.  Freelance jobs?  Full time job?  Parents? Savings?  Grocery store?  Landlord?  Bar?  Art supplies?  Plane tickets?  Computer gear?  YouTube ads?  Government?

If you google around you’ll see many of the above listed income and expenses can already be done in bitcoin but for those that can’t you can simply explain to them the benefits and do so constantly and eventually you’ll win them over.

SPECULATION

People have bought bitcoin for as little as 1 dollar a piece and sold bitcoin for as much as 1200 dollars a piece.  So money has been made and that has attracted a lot of speculators who have money they want to grow.  These people often loose faith in bitcoin if it takes a slight dip in value and sell off what they own.  What I do is different.  I use bitcoin for my savings.  Since it takes me a very long time to build up savings i’ve found that so far the little bitcoin I own has gone up in value over all even though it generally goes up and down from day to day.  Now normally when I have a savings account it doesn’t last long and I end up spending it the first chance I’ve got.  I made this mistake already with bitcoin and would have made thousands of dollars had I simply held onto what i’d been saving.  So I’ve learned my lesson and my current bitcoin savings are not being touched at all.  For someone who has never been good at keeping a savings account this is a miracle and I owe it to bitcoins deflationary nature.  I don’t want to spend my savings because i know it’s going to be able to buy me much more later then it can now.

MICRO PAYMENTS

This is talked a lot about in bitcoin circles.  The issue is that credit cards charge a transaction fee which makes selling anything less than a dollar not make economic sense.  Credit cards prevent you from spending a quarter for a newspaper or leaving a small tip on a blog or video online.  So micro payments are a way to throw money around like buckets of rose pedals on all of the things you love and are potentially capable of changing the game for media creators.

REMITTANCE

Let’s say you had a job in a foreign country for a while.  You’d need to get that money you made back into the country.  You might also need to do it fast to keep cover your home country financial obligations.   Bitcoin will disrupt the existing industry that takes advantage of people who have this need.  Immigrants having expenses back home can now use bitcoin instead of the costly alternatives.  If they can’t spend bitcoin back home yet then they can either evangelize to win over new users or use an exchange.  Most countries have an exchange that can be linked to bank accounts to move money from bitcoin into local currency and some places like singapore, berlin and Vancouver are even starting to have BTM machines that can do the same.

SECOND AUTHENTICATION

This is a password that you type in every time you go to make a payment.  This way someone needs your password to open your wallet but another password to spend any funds.  I highly recommend this if you have more then 20 dollars you protect your coins and use a second authentication password that’s different then anything else on any other site.  Also beware of security cameras that could potentially follow your fingers as you type your passwords.

BACK UP

Because it’s digital you can back up your money.  You do this by saving the wallet.dat file in a secure location.  Dropbox & Gmail might not seem secure enough but here is what makes it acceptable.  The second authentication.  As long as you have that turned on the chances of a hacker getting into your gmail, getting your wallet.dat file and knowing both of your passwords is very low.  The chances of loosing your phone or your laptop are actually much higher.  So keeping this wallet.dat file is an important step.

COLD STORAGE

When storing something like your life savings or future college tuition you or a big investment in your company you want to use cold storage.  If extremely motivated a hacker can probably break down any wall you put up including capturing your password as you enter it.  The wall that’s hardest to break down is storing your bitcoin off the internet.  This is called cold storage.  There are ways to print out the information that makes up your bitcoin or to even create it on a computer that has never even been put on the internet and then put the data on a USB stick.  Then you can keep on hand the address to that cold storage wallet and send money to it that nobody else can ever spend.  This is a good way to maintain a savings account.  

PAPER WALLET

If you want to store a large amount of money securely you can do so on paper by printing out a couple QR code that contains the entire wallet information.  Put these in a safe deposit box with a service and you’ve now got bank level security to your bitcoins. 

GETTING STARTED

So my favorite wallet is blockchain.info.  Go to that site and click “create wallet.”  Then make a new password, not the same one that you use for everything.  Make sure you write it down and the special pass phrase but guard that info like you guard cash.  Then take a screen grab the QR code once you’re logged in.  Add an email address so that a back up of your wallet can be sent there.  Add a double confirmation code.  It’s important to know that blockchain doesn’t store your bitcoin.  It’s stored by you inside the combination of your identification number they provide you and your password.  Within that information is the data that makes up your wallet.  Some of your wallet is stored in their servers but they have no way to spend your bitcoin and if they ever get shut down the wallet.dat file will work in other bitcoin wallets.  So as long as you keep a back up of that wallet in your gmail or dropbox you are safe.

So that’s it, go to blockchain.info/wallet and get yourself up and running.  You’ll have an address and a QR code and will be able to get some bitcoin from people you know.

Next is to go out to dinner with a friend who has some bitcoin and pay the bill and have them pay their half of the bill to you in bitcoin.  The fact that you are now into bitcoin is worth getting together over dinner to talk about anyway.

Then go to your employer and ask to be paid in bitcoin.  They might like the fact that instead of mailing checks or expensive payroll services they can just type in an amount and click one button and it goes straight to you immediately.  Also this can be attractive to new recruits.  They might say no but at least it starts a conversation.  CoinBase.com and BitPay.com both are potential resources for a company looking to build payroll bitcoin functionality.  

Then talk to your landlord.  They’ll like not having to wait for checks to clear and since they invested in real estate they are also likely into investing in bitcoin by just holding onto the bitcoin you send them.  Especially if the mortgage is already paid off.  A major realtor in NYC called Bond has begun to accept bitcoin.  Others are sure to follow.   

Then talk to you bodega.  Maybe they like the remittance angle or getting away from credit card transaction fees and charge backs.  Just keep bringing it up every time your reach into your wallet for cash or credit.  Just ask.  Do you accept bitcoin?  Now that you have an operational understanding of bitcoin you can now be part of the team spreading the word.

Once it’s all working for you then you can also send me some bitcoin!

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