Posted on 06/01/2011 3:01:37 PM PDT by logicalthinking
Recently I wrote an article entitled The Most Dangerous Creation In The History Of Man. The article covered the emergence of Bitcoin; an electronic peer-to-peer currency that has no central banking server, is untraceable, and essentially can not be taxed through coercive measures. The article makes the point that if a currency can not be taxed and controlled, eventually it will topple the coercively funded fascist control grid you call the modern State. Read more about it in this Bitcoin forum post that explains it in more detail.
I’ve received several requests for more information about how people can put Bitcoin to work for them. Most articles on Bitcoin, and even the Bitcoin site itself, don’t give a clear top to bottom description of how common users of Bitcoin can put the currency to use.
It is a tad confusing if you are not familiar with how currency markets work, but not to worry, it is not as intimidating as it sounds. Bitcoins are generated on a logarithmic scale by dedicated “miners” who run software that generate the complex hash codes which make up a Bitcoin. Bitcoins can not be artificially inflated and require real resources (electricity and time) to produce.
Here are a few reasons why I think Bitcoins are superior to gold as medium of exchange:
1. It is impossible to artificially inflate the supply of Bitcoins in existence. They are produced at a known steady rate, the supply of which will eventually top out. The nature of Bitcoin transactions makes it so that no bankers, nor anyone else, can use fractional reserve accounting to artificially inflate the money supply. Clearly this means governments, nor anyone else, can use artificial credit expansion to make more of them.
2. Bitcoin transactions are made for the web! It is impossible to actually ship gold across a wire. The best one can do is use a medium that represents gold, such as shares of GLD, and trade those as a currency. Clearly this leaves room for inflation of the money supply by unscrupulous bankers. When a person transacts in Bitcoins, it is the equivalent of actually sending gold across a wire. The unreproducible currency itself is transacted with, unlike a paper currency that represents a commodity.
3. Bitcoins can not be confiscated since the files they reside on can be replicated and hidden in USB keys or anonymous servers.
4. The peer-to-peer nature of Bitcoin makes it as impossible to stop as BitTorrents. Governments would have to shut down the web to stop it.
5. It is impossible to create salted Bitcoins or “shave the edges” off of them. There are wide spread rumors that the supply of gold that central banks are holding is loaded with tungsten bars coated in gold.
6. Obviously they are lighter, easier to transact with, and far easier to secure than gold bullion.
That said, lets go through the process of a common user setting up a Bitcoin account in an electronic bank and then purchasing some Bitcoins with US Dollars. Then we will buy an item using the Bitcoins we just purchased.
Step 1: Setting up a Bitcoin wallet.
There are a few ways to set up a wallet. One way is to install the Bitcoin client on your PC. The client will automatically create a wallet address that you can accept payments to or send payments from. The easier alternative is to simply visit the site InstaWallet and it will generate a wallet address for you as soon as you enter the site.
A wallet is simply a datafile that stores your currency. Transactions to and from a wallet are sent via encrypted peer-to-peer network and are processed across the network, meaning there is no central banking server that a person needs to log in to.
The datafile that stores the wallet information is worth its virtual weight in gold. If that datafile is destroyed or compromised, the money you had in that wallet will be destroyed. This is why many people chose to store the file on their home PC rather than entrusting it to some other site owner’s care. There are advantages and risks to storing your wallet on someone else’s site. Storing it on someone else’s site opens your wallet up to possible confiscation by government or abuse by the site owner, but it does offer the advantage of easy access and the redundancy/backups that most site operators employ. On your local PC, using Windows 7, the datafile is located in the hidden folder “AppData” that is under your user directory:
C:\Documents and Settings\YourUserName\Application data\BitCoin (XP) C:\Users\YourUserName\Appdata\Roaming\BitCoin (Vista and 7) A good idea is to have multiple wallets and multiple backups, so if one wallet is compromised or destroyed on accident, your remaining money will not be effected. But let’s continue on using the InstaWallet example for now.
So you’ve visited InstaWallet and bookmarked your wallet’s address. Obviously giving out the web address to a wallet on this site would give a person total access to the wallet, so don’t do that. On the wallet page, you’ll see a public address listed that can be used for sending payments to this wallet.
My address is: “17C3iPNMyz5dPELJUc6NbYYarSzPY6gS9M”
People using Bitcoin can send Bitcoins to that address by entering it into the “Send Payment” field on InstaWallet or by entering it into their local PC client wallet which has tab for sending payments.
It’s that easy to create a wallet and use it!
Step 2: Adding Bitcoins to your wallet
Getting Bitcoins to spend is touch more complicated, but it is still a fairly straight forward process.
To get Bitcoins to spend, the most common way is to purchase them on the open market. Since there is no central banking server or exchange, one must purchase them on a private open market exchange. Two of the most popular exchanges are Mt. Gox and Bitcoin Market.
Using Mt. Gox, we first create a user account on the site. Then we need to add some funds to it in order to purchase some Bitcoins.
After you’ve created an account and logged into it, click on the “Add Funds” button.
In order to add funds to your Mt. Gox exchange fund, you have a few options. I will be using a Dwolla account for this example.
After creating an account on Dwolla, you can add funds to your Dwolla account directly from whatever bank you chose to bank at by adding a bank account to your Dwolla account. You’ll need to verify the bank account by entering in the amount of the penny transactions Dwolla sends to your bank to verify that you actually own the account in question. It may take up to 72 hours for Dwolla to send the transactions and for them to show up in your bank transaction history. Bookmark this page and return later if you don’t already have a Dwolla account.
Clicking the “812-649-1010” link on the Mt. Gox “Add Funds” page will automatically bring up Dwolla with the appropriate transaction to Mt. Gox already formatted. All you have to do is enter in the amount you wish to add to your Mt. Gox exchange fund and complete the transaction.
After you’ve got some funds in your Mt. Gox exchange fund, you’ll be able to buy Bitcoins on the open market.
On the Mt. Gox site, click the “Buy Bitcoins” link on the main page. The easiest and fastest way to get coins is to simply purchase them at the current asking price, which at the time of this posting was $9.28001 USD for one Bitcoin. Mt. Gox explains how the trade transactions work here.
When buying Bitcoins, your Mt. Gox account will be debited the amount your order filled at and the Bitcoins will be sent to the address of the wallet of your choice.
Congratulations, you now have some Bitcoins to spend!
Step 3: Buying an item with Bitcoins
Let’s visit the site squarewear.biz and buy a t-shirt. Once you’ve added a product to your cart and have gone through the checkout process, you’ll see the total calculated in Bitcoins at the bottom of the checkout page:
As you can see, the site automatically calculates the price of the product in terms of Bitcoins for you. At the time of this article, a $15 t-shirt is worth 2.15 coins.
Simply enter in the address they provide you into your wallet’s “send” field and ship them the coins they require.
Transactions through Bitcoin are non-reversible. So make sure you enter the correct amount to the correct address. Obviously a reputable business will refund any accidental over-payments and refund any coins for merchandise returns, but unlike a credit card, there is no middleman to complain to if you get scammed. All transactions are final.
Step 4: Securing your wallet
Your wallet.dat file is not encrypted by BitCoin. Anyone who can access it can easily steal all of your coins. Use a file encryption program if there is any chance someone might stumble upon your wallet.
A good practice is to keep at least two wallets, one as a “current account” for everyday transactions and one as a “savings account” where you store the majority of your Bitcoins.
The “savings account” wallet should be backed up in encrypted form only, and all plain text copies of this wallet should be erased. In case someone gains unauthorised access to your computer (either by physically stealing it or by exploiting a system vulnerability via the internet), they will only be able to spend the coins in your “current account” wallet.
In most operating systems, including Windows, Linux, and Mac OS X, simply deleting a wallet.dat file will not generally destroy it. It is likely that advanced tools can still be used to recover the wallet.dat file, even after it has been deleted.
For Windows, the built-in command cipher /W will shred all previously-deleted files. Rwipe or CyberShredder can securely delete individual files.
If you chose to keep your wallet on your local PC, I recommend encrypting your main wallet file that holds the bulk of your savings with TrueCrypt, and keeping an unencrypted wallet file for everyday use. I like the idea of keeping the everyday wallet on InstaWallet, and keeping your main bank on your local PC, encrypted by TrueCrypt, and backed up onto a thumb drive. Wallet sites like InstaWallet are still fairly new and they have not had a lot of time to prove their trustworthiness. Use them at your own risk.
Make sure your TrueCrypt password is at least 12 characters long. 8 character passwords can be cracked easily by brute force hacking attacks.
Other Odds And Ends:
There are other ways to acquire Bitcoins as well, such as mining for Bitcoins or purchasing them directly from other holders using sites like PayPal. You could literally put up a post on an internet forum and ask people if they will sell their coins to you for a direct transaction through PayPal.
Mining for Bitcoins is a bit more complex and your average user shouldn’t even worry about it. For more information on mining for Bitcoins, look here.
Reason Magazine comments on Bitcoin:
http://www.youtube.com/watch?v=yYTqvYqXRbY
Almost reminds me of a version of hawala... =.=
Saran Wrap.
I’m inclined to like stuff like this, but have one big problem:
“They (bitcoins) are produced at a known steady rate, the supply of which will eventually top out.”
So a couple computer geeks have invented money. They create it out of thin air, and then trade it for valuable goods and services. Those they traded with hope some other fool will want them.
I could create some unforgeable plastic tiddlywinks and call them money, and hope others will take them.
These guys don’t even bother to pretend that their money is backed by value (in contrast to the fiat currency issued by governments).
So, who is the issuer that gets the money for the bitcoins?
This is an internet version of a very old scam, typically inflicted on libertarians.
The naivete of his assumptions about their stability and security is remarkable.
Buy land!
“Send me $9 for a digital thingy I made up out of thin air. I guarantee you w
I do confess that I have had one seller (of a domain name I bought) suggest I pay them in bitcoins.
Hmmm. They urge the use of bitcoins instead of money. Wonder what they are taking in when someone wants to buy a few bitcoins?
Au contraire, my friend. The author specifically states that "Bitcoins can not be artificially inflated and require real resources (electricity and time) to produce."
Thus, they are backed by "value."
Of course, we're talking about the value of the electricity used (most likely measured in microwatt-hours), and time (measured in milliseconds at most)...
Even grocery store coupons (1/20 cent value) have greater value, but still....
(snort)
If a bitcoin was created by your helping to create a vast distributed computer network and you were compensated for your part in creating some value in that cloud, so far so good. But then the article suggests that the number of these coins is going to be capped and that you then hope for appreciation in value - that sounds like the tulip frenzy from centuries ago. WTF??
You thought it was important enough for everyone to see this crap
that you created an FR account just to post it?
HA
welcome to free republic yada yada yada...
If a bitcoin was created by your helping to create a vast distributed computer network and you were compensated for your part in creating some value in that cloud, so far so good.
How does one for close on that network if needed?
logicalthinking
Since Jun 1, 2011
I think I’ll stick to Nigerian Nairas.
Ponzi Pimp abuse reported.
You give libertarianism a bad name. Remember, on of the key tenets is prevention of fraud. You are promoting what is clearly a fraud.
Libertarian News falling for Bitcoin.. lol.. suckers..
Sure, so we simply use Dwolla to get Bitcoins. LOL
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