How to use BitCoin?

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Bitcoins
Bitcoins

Getting a BitCoin wallet:

The first step to getting started with BitCoins is to get yourself a BitCoin wallet. Just like a real wallet, this is where your BitCoins are stored. It is far more tangible than money stored in a bank account – the wallet file you create is a file just like any other document. It can be moved around and stored on different devices. You can even duplicate it to have multiple copies (obviously this doesn‟t duplicate the money inside, though!).

Your BitCoin wallet is comprised of two parts: the wallet file, which stores the BitCoins, and the wallet application (also called the BitCoin client), which opens those wallet files. This means that it is possible to store the wallet file on a USB drive (for example) and open it on any computer that has the wallet application installed. As there is a version for most operating systems, it‟s possible to open the BitCoin file pretty much anywhere.

You can download the official client from the BitCoin website (www.bitcoin.org). There you can get the right version for your operating system.

For Windows and OS X, installing the wallet application is just like installing any other application for your platform. I‟ll assume that you already know how to do this. Opening the application will generate the wallet file and assign you your first receiving address (more on this in a bit).

For Ubuntu, downloading the client gives you a .tar.gz file which contains four different versions: the main application and the windowless server in both 32-bit and 64-bit flavours. You can put this folder anywhere and then click on bitcoin to start the program.

Alternatively, instead of installing the BitCoin client, you can choose to use an online service such as Instawallet (www.instawallet.org). This site generates a wallet file and ties it to a specific URL which you can save as a bookmark. This allows you to access your BitCoins from pretty much anywhere, but means that you have to trust the service with your BitCoins.

Filling your wallet:

Now it‟s time to put some „Coins‟ in that wallet. There are three main ways to add BitCoins to your wallet file: donations and free BitCoins, currency exchange, and BitCoin trading (or becoming a BitCoin merchant). Each one is fairly self-explanatory, but we‟ll go a bit more in-depth anyway.

Before that, though, it‟s time to introduce some new terminology. BitCoins are sent to your wallet via a receiving address, which is a long string of randomly generated characters that points to your wallet file. The process is similar to the sender writing a cheque for a certain amount, although the process is all automatic and the cheque doesn‟t need to be manually cashed in.

Interestingly, you don‟t need to use a single receiving address forever; on the contrary, it is generally recommended that you create a new receiving address for each expected transaction so that it is easier to track individual payments. All previous receiving addresses remain valid and active, so it is possible for old receiving addresses to be reused again and again.

You can also fill your wallet through BitCoin mining.

Currency Exchange:

Although free BitCoins are awesome, it doesn’t give you a whole lot to work with.

The easiest solution is to exchange your currency for some BitCoins. There are a number of websites you can use to do this, though you‟ll need to make sure that the website you choose will handle your particular currency (otherwise you‟ll end up exchanging money twice, with transaction fees and all)!

For a list of the BitCoin exchange sites and the currencies they support, there‟s a page over at the BitCoin wiki (https://en.bitcoin.it/wiki/Trade).

There are two main types of currency exchange: real time and fixed-rate. Real time trading is where the buyer lists the maximum price they are willing to pay for each BitCoin, while the seller lists the minimum price they are willing to sell each BitCoin for. Trade instantly happens when these two prices overlap. In this scenario it is possible to get a great exchange rate, although this can require some patience.

Fixed-rate exchange, on the other hand, is much closer to your standard foreign exchange transaction: a company will offer a rate which is fixed for a certain period of time, and will exchange any quantity of fiat currency for BitCoins at a standard rate. While you won‟t get as good a deal as if you‟re patient in real time trading, fixed-rate exchange is more reliable and instantaneous.

The most popular exchange website by far is Mt Gox (www.mtgox.com), which is responsible for over 80% of BitCoin transactions using the real time model.

BitCoin Trading:

The other main way to get BitCoins is to earn them by providing goods or services online and accepting BitCoins as payment. From obvious things like web design and app development to crazy things like ordering pizza for someone, dictating 500 words or writing a song, pretty much anything can potentially earn you BitCoins.

Spending BitCoin:

Funnily enough, finding something to spend your hard earned BitCoins on is just a case of going to the same places you can use to earn BitCoins.

All BitCoin transactions involve a sending address and a receiving address. When you earn BitCoins you give somebody your receiving address; to spend BitCoins, you‟re provided a receiving address to send BitCoins to.

Sending BitCoins is easy. Just click on the “Send Coins” button in the client window. Then, in the resulting “Send Coins” window, enter the Receiving Address you want to send the coins to, specify an amount and click “Send”. That‟s it!

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