By cutting out the middlemen, transactions become much cheaper too, especially when it comes to international payments.
Bitcoin also takes on the role of government central banks (eg. The Bank of England). Governments traditionally have control over the supply of currency which is open to manipulation and corruption.
The Bitcoin Blockchain is completely open. It isn’t owned or controlled by anyone, it’s run by a network of many computers around the world.
Of course the young cryptocurrency is not without its critics. Mainstream media, traditional banks and financial commentators all warn against a ‘bubble’ set to burst, and the opportunity for Bitcoin to be used by criminals.
12 key things to know about Bitcoin
As a total novice, I spent days researching the ins and outs of Bitcoin, its benefits and risks. Here’s my distilled list of the key points.
- Trust – Fills the ‘trust gap’ between two parties (currently the role of banks)
- Secure – Transactions encrypted within a Blockchain which is impossible to hack
- Decentralised – With no one body in control, it can’t be taken down, hacked or manipulated
- Unregulated – There’s no guarantee of protection if a payment is made in error
- Transparent – Both code and all transactions (imagine knowing where every tax penny went)
- Low cost – Removes institutions and friction, especially for international payments
- Speed – Complete digital network (and no more loose change!)
- Limited supply – Capped at 21 million Bitcoins
- Truly global – Doesn’t geographically exclude people
- Privacy – Institutions don’t hold your data
- Virtual – Despite its name, Bitcoin has no physical coins. All 1s and 0s
- Volatile – Bitcoin value fluctuates wildly as it’s still relatively new.
Ultimately Bitcoin promises to democratise money, whilst removing almost all of the friction and cost in making a secure payment.
You don’t need to understand everything.
Under the bonnet Bitcoin is an incredibly complex technology, which makes it so secure. Most people don’t really know how card machines or even the internet works but still use them everyday.
We’ll dig deeper into the background and implications of Bitcoin later if you’re keen to learn more
Should you buy Bitcoin?
Firstly, you don’t need to buy a full Bitcoin. That would be preeetty expensive now! A Bitcoin can be divided all the way down to a one hundred millionth. You can buy as little as £5 if you wish.
If you can’t spare £5 or are in debt please don’t buy Bitcoin as you could lose money.
There are 3 types of people buying Bitcoin:
- Speculators – the value has risen massively, but it’s still very volatile making Bitcoin a risky investment
- Actual users – what it’s all for! Spending and even earning in Bitcoin is slowly gaining traction
- The curious – Bitcoin’s an exciting new technology, and many want to just understand the future of money and be part of the conversation.
Everyone has their own motivations, but the purpose of this guide is for the third type. I bought a small amount of Bitcoin myself to understand and appreciate this new technology and the opportunities it brings.
Once you actually give it a go by buying and sending some Bitcoin, it becomes a whole lot simpler to understand!
So yes, I believe everyone would benefit by buying a tiny bit of Bitcoin just to educate themselves on what could quickly become part of our future.
I do think Bitcoin is the first cryptocurrency that has the potential to do something like change the world – Peter Thiel, Co-Founder of PayPal
How to buy Bitcoin tutorial
I’m going to walk you through the exact steps I took to buy my own Bitcoin. I bought some for the sole purpose of going through the motions.
There are plenty of other (potentially questionable) methods and websites you could use – which could be slightly cheaper – but this was all about minimising risk and complication for myself as a total newbie.
You need just 5 things before buying Bitcoin:
- Bitcoin address – A string of numbers unique to you, that allows you to receive Bitcoin (acts like a bank account number). Also known as a ‘public key’.
- Bitcoin wallet – A secure place to store your Bitcoin (acts like a bank account).
- Bitcoin exchange – A website to convert old-school cash into Bitcoin (acts like a bureau de change).
- Payment method – A debit or credit card to buy Bitcoin.
- Form of identity – You’ll need your passport or driver’s license to hand.
7 steps to buying your first Bitcoin
After some lengthy research, I decided on using Coinbase
as a ‘one stop shop’. They set me up with an address, a wallet and the conversion of pounds to Bitcoin itself.
I also like their intuitive website and mobile app, which allows me to send and receive Bitcoin on the move. The whole process took me less than 15 minutes.
Create a Coinbase account
for a special promo page inviting you to join.
Complete the short form and hit “Sign up”.
With this link you’re able to receive a bonus amount of free Bitcoin if you buy or sell over $100/£74 (you don’t have to). Once you’re on Coinbase you can invite your friends in the same way
Verify your email
Head to your inbox and click the verification link. It may take a few minutes to arrive (check junk folder if longer).
Connect your phone
To secure your account, you’ll now be asked to link up your mobile phone.
This is known as 2-factor authentication and means no one can access your account without knowing your password and holding your phone.
Coinbase will immediately send you an SMS with a code. Enter this in the box, and your account’s created and secured
Verify your identity
You’re now looking at your dashboard, but before being able to buy Bitcoin you need to verify your identity.
Scroll down and click the “Verify your identity” block (bottom left).
Select an ID type. Now decide how you want to take a photo of it (webcam or mobile).
The live verification check only takes a minute or so.
Add a payment method
Back on the dashboard, scroll down and now click “Add a payment method”.
For the purposes of this tutorial, I suggest using a debit or credit card. This allows you to buy Bitcoin instantly, but note there is a small fee.
Bank transfer is an option, but that takes several days to setup. Also when I tried it had to be made in Euros (which for the small amount I bought would have cost me more in bank fees than a card).
Run through the card authentication process and now you’re ready to buy your first Bitcoin.
Click “Buy/Sell” in the top menu.
Ensure “Bitcoin” is selected and your payment method should be pre-loaded.
Enter in the amount of money (or Bitcoin) you wish to buy. I bought £100 but it could be as little as £5 (£74 is needed for the £7 signup bonus).
The conversion will be automatically shown. The box on the right shows the full transaction, including the fees.
Click “Buy Bitcoin Instantly” and the Bitcoin will be added to your wallet immediately. Congrats!
In my example, I purchased £100 with total Coinbase fees of £3.41. The remaining £96.59 bought me 0.01603666 Bitcoin.
Check your Bitcoin wallet
Click “Accounts” in the top menu.
Under “BTC Wallet” you should now see your Bitcoin amount and the transaction.
This is also where you’re able to send and receive Bitcoin.
Sending and receiving Bitcoin
Sending and receiving Bitcoin is all managed from your Coinbase Bitcoin wallet.
To receive Bitcoin from someone else, they just need your unique Bitcoin address. You can find yours by clicking the “Receive” button. It’s also in a QR format that’s very convenient on mobiles.
To send Bitcoin, there are a couple more steps:
- Click the “Send” button
- Enter the BTC address of the receiving person or wallet
- Enter the BTC amount (to be sent from your wallet)
- Write a message (acts like a payment reference)
- Click “Continue” to confirm the transaction
Download the app
The Coinbase app allows you to access your wallet on the move.
This of course opens up the ability to spend and transfer Bitcoin locally using QR codes, for example in shops or between friends at dinner.
Remember there is a log of all transactions within your Bitcoin wallet.
Bitcoin transfers are also stored in the publicly available Blockchain, but they’re completely anonymous because there’s no way to associate the addresses with people.
Just for kicks, click here
to see an example transaction I sent to a friend’s wallet. Again, don’t worry about understanding it, but we’ll come back to Blockchain technology later if you’re interested.
What can you buy with Bitcoin today?
From local London pubs to global retailers, businesses of all sizes are starting to accept Bitcoin as payment.
You can even pay tuition fees at Cumbria University
with Bitcoin, and there have been rumours that Amazon
will soon be joining the party.
Here are some examples of well-known brands currently accepting Bitcoin online:
Where you can spend Bitcoin
Growth of Bitcoin across the UK
You may also be surprised by how many places near you now accept Bitcoin.