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Author Topic: What are Bitcoins, and how do i start?  (Read 912 times)

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Offline TheOurax

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What are Bitcoins, and how do i start?
« on: February 08, 2013, 07:41:52 AM »

Bitcoin's provide a way to make transactions without having to use a bank as a mediator, that means no central authority issues new "money" or tracks transactions. These tasks are managed collectively by the network.

"Bitcoin is designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities" - Bitcoin.org

Starting up.

First off before we start mining you'll need a "Wallet" to store your currency in! Using the Original Bitcoin wallet available here is recommended for starting off.
However other kinds of wallets such as, Client based and eWallets are also available.

Types of Wallets

Client based wallets are accessible from your PC and connect from your address to the Bitcoin Network. considered to be more secure but that's only if you know what your doing.

A list of Client wallets here: Click me!

Below are two Bitcoin eWallets:

eWallets are accessible from a website and connect to the network through that service, however they CAN be less anonymous. (If you care about your identity)

CoinBase - "Coinbase is the simplest way to buy, use, and accept Bitcoin."

BlockChain - "We make paying with bitcoins easy and secure available anywhere on your phone or desktop."

Basic's of Mining.

What is mining? it's the process of adding transaction records to Bitcoin's public ledger of past transactions. This manifesto of past transactions is called the "block chain" as it is a chain of blocks. The block chain's job is to confirm transactions to the rest of the Bitcoin network as having taken place. This is then used to validate transactions throughout the network so that the same coin cannot be used more than once.

When a block is discovered using a miner, the discoverer is awarded a certain number of bitcoins for their find, this however is again controlled by the network, the current rate being 50 bitcoins. However this can be a very long process as mining a block becomes more and more difficult, individuals found that they were working for months without finding a block and not receiving any reward for their mining efforts. Thus they started organizing themselves into "pools" so everyone in the group got a share.

Difficulty on finding a block goes up using a formula which you can view here.

Using GUIMiner is a good choice, as it's recommended for beginners.

Bitcoin mining isn't cheap as your using your GPU's processing power to find blocks and break through them to get to the next one, clearly the quicker you can do this the more coins you will receive. However this process puts alot of strain on your GPU, to somewhat alleviate this, people have made purpose built PC's to carry out this task more efficiently, known as Mining Rigs.

You must also bare in mind that electricity costs are a KEY factor before you start mining, because it's not cost effective if your not making a profit and having to pay huge electricity bills.

The Bitcoin economy.

In the real world if you wanted to change $10.00 USD into it's equivalent value in GBP, then you would go to a Bank, and your money would exchange at a rate set by the market. The same process is used when dealing with Bitcoins.

You have a Real Trading exchange where the price goes up and down depending on the rest of the market, meaning you could get more money for your coins or less depending on the market.

Image taken from Bitcoin.it

There's also a Fixed Rate exchange where the rates are set by vendors.

Image taken from Bitcoin.it

As you can see on the charts, some also act as a wallet and offer the ability to transfer money to your bank account however at a small cost.

"The cost to mine bitcoins is based on how much they are worth. If bitcoins go up in value, more people will mine (because mining is profitable), thus difficulty will go up, thus the cost of mining will go up. The inverse happens if bitcoins go down in value. These effects balance out to cause mining to always cost an amount proportional to the value of bitcoins it produces. " - Bitcoin.it (Bitcoin Wiki)

Where to spend your Bitcoins.

Since Bitcoins exist mainly on the internet there are TONS of online stores available to you that will take your coins!

The most popular being Web service's, particularly VPN's, VPS's, DNS and Domain name Hosting, Bitcoins are perfect for this as you can generate and pay completely anonymously.

List of Web Services:

Web Hosting.

VPS Hosting.

Domain and DNS Hosting.


There's many more stores out there, ranging from key chains to cupcakes so have a look. But be smart.

If you have any question's or feedback for me you can PM me via the forums or post below and ill try to answer the best i can.



« Last Edit: February 08, 2013, 07:44:51 AM by TheOurax »