What Is Bitcoin & How Does It Work?

I suppose you already heard something about Bitcoin. Very simply said – it is one of so-called cryptocurrencies with an independent decentralized payment system. But how does it really work?

The very basics

Very important to note is the fact, that any part of any Bitcoin unit is essentially by design bound to the Bitcoin payment system. Any Bitcoin unit in any wallet exists only as a data part of a so-called blockchain. It represents a data layer of a decentralized payment transaction system and contains information about all Bitcoins and transactions ever made. No single Bitcoin unit can exist or be spent without this payment system. A proposal of a decentralized payment system was originally the key idea, that the original design of the Bitcoin introduced.

Transactions

Let’s have a look on blockchain. It is a database shared between more or less independent nodes with computing power that confirm Bitcoin transactions. So it is “only” a public chain of special data blocks. What do the blocks contain? First of all, a suitable block has to be found. The block must fulfill very restrictive conditions. A new block must also “fit” to previous blocks in the chain in order to additionally verify all transactions in previous blocks. If a new block is found (approximately every 10 minutes), it is publicly announced to other nodes in the network. Now actual Bitcoin transactions are added to the new block and confirmed. You can imagine blockchain as a big shared accounting book with a lot of pages where a new page can be added only if it meets really special requirements allowing increase the undeniability of all previous pages. It is suitable to emphasize that each new block increases the security of all transactions stored in previous blocks!

Wallets

Where exactly are your own Bitcoins located? How does this work with blockchain? The answer is again – everything is in the blockchain. It contains all transactions (Bitcoin transfers) between different Bitcoin wallets (public addresses with corresponding private key pairs). If you consider a common bank account, you will very simply get information about its actual balance. A Bitcoin wallet balance information is not stored in a single point like this. You must get through all actual blocks and find all Bitcoin transactions (incoming and outgoing) related to your wallet addresses and dynamically count the actual sum.

Network

How and why does it actually work? Who will pay those guys for confirmation of the transactions? Who will search for new blocks? Well, searching for a new block requires a lot of computing power and requires also some luck. Each new valid block is rewarded by a sum of completely fresh Bitcoins. Currently, it is exactly 25 pieces. Nice. This number will be lowered to 12.5 Bitcoins in 2017. In the future, there will be no new Bitcoins emitted at all. Nevertheless, mining network nodes must still search for new blocks and confirm transactions in order to keep the currency live. Therefore each transaction may and should contain a transaction fee for the Bitcoin network. This is the motivation for miners to record and confirm your transaction in a current block. In the future, only the transaction fees will motivate the network to keep working.

Getting Started With Bitcoin

Bitcoin is sometimes called “virtual” currency. Let’s drop a few words about how to start with Bitcoin. Its actual value is mostly expressed by USD. Bitcoin has some pretty advantages that make it considerable for future speculations. Its role in the common trading transactions is up to now quite low but the number of merchants accepting Bitcoin still grows… Investing in Bitcoins for profit is risky. The biggest Bitcoin price jump is probably gone. Nevertheless, you can still start using it for both profit and trading transactions.

Get a Bitcoin wallet

If you want to use Bitcoins for any reason you need a wallet first. Bitcoins are stored in special wallets – you can imagine it as a bank account. Anyone knowing your wallet address can send Bitcoins to you. Only you (or anyone knowing your wallet key) can send (or steal) your Bitcoins to other wallet(s). You can have as many different wallets as you want. Anyway – if you lose the key to your wallet, all the Bitcoins inside are gone. Forever and for everyone!

A Bitcoin wallet might look like a special app that you install on your desktop PC, it might be provided as a cloud service or a smart phone app… Get more information about a suitable Bitcoin wallet. Once you got a wallet, you can send and receive Bitcoins.

Get Bitcoins

Now let’s discuss the most common ways describing how to get some Bitcoins.

Buy Bitcoins

Having a new and secure Bitcoin wallet, you can get some Bitcoins. You can get or buy Bitcoins directly from another person that knows your wallet address. You should buy Bitcoins this way only if you really can trust your partner. In this case you will send real money to your partner bank account (no wallet) first and then you should get your Bitcoins to your wallet from him. Some servers are trying to mediate personal Bitcoin deals, you can try LocalBitcoins.

Do you want some Bitcoins in physical form? You can buy some special coins or cards embedding a Bitcoin wallet. These are then secured by a private key. So it is more a special physical Bitcoin wallet than a real coin. You can buy it for example on Casascious or BitBills. Anyway we do not recommend this option unless you want give some Bitcoins as a present for somebody. The reason is simple – any physical coin or token has to be produced – you have to pay for this. The conversion of “physical” Bitcoins to the common data form might be also tricky.

If you intend to buy larger amounts of Bitcoins, use an exchange. You should definitely check the Bitcoin spot prices at common exchanges and consider time needed for money transfer. Do not use obscure or unsecure exchanges. We recommend Bitstamp which is located in Europe. Other considerable exchanges are BTC-E also in Europe or Kraken in USA. A very convenient way how to buy some Bitcoins is a new exchange platform Coinbase located directly in USA. But there are much more possibilities.

Earn Bitcoins

If you provide some services or products, you can accept Bitcoin as a payment currency. Why not? It is a sexy and hot way how to do business. But remember that Bitcoin is still very volatile. We recommend the usage of Bitcoin in payments only as a marginal option unless you pretty know what you’re doing. There are also already some support on-line services for merchants available. You can try BitPay which is a global Bitcoin payment network service. It allows you to fix exchange rates of Bitcoin to your local currency and use local bank transfers for reasonable fees. We should also name merchant services provided by Coinbase. The provided services are really helpful and useful, remarkable are micro transactions without fees.

Sometimes it is possible to earn some Bitcoins as a reward for free! You have to “only” fill some questionnaires, buy some stuff or be very very patient during some bonus programs… This is no option if you mean it with Bitcoins seriously. Nevertheless you can get some small amounts that might be used in your first steps. Good luck!

Mine Bitcoins

You can get some Bitcoins also by “mining” them. It may sound really strangely but it is possible. This way of getting Bitcoin requires deeper technical knowledge. We will discuss this technique in more detail in another article.

Use Bitcoins

If you already can pay by a credit card or via an on-line payment system like PayPal, you can also pay by Bitcoins. Every time you want to pay someone or simply transfer your precious Bitcoins to another wallet you will need only recipient Bitcoin wallet address – simply send desired amount of Bitcoins to it. As already said – number of merchants accepting Bitcoin rapidly grows. Find some merchants accepting Bitcoin for example on Coinmap. You can give some Bitcoins as a gift in physical form as we already discussed. You can support some organizations or individuals by donating some Bitcoins. You can even donate some Bitcoins to us

You can also buy Bitcoins first and simply hold them if you expect that the price will grow. Keep such Bitcoins in an off-line wallet – copy it for example to USB stick and keep the password safe. Do not keep larger amount of Bitcoins in an on-line wallet for longer time period untouched.

If you want to actively trade with Bitcoins for profit, see our article to get more information about options you have. Now start with Bitcoin already!

The Advantage of Bitcoin

We already talked about Bitcoin shortly but what advantages does the Bitcoin really offer?

Decentralization

The Bitcoin brought us unseen currency feature – it is not controlled (cannot be) by any single authority like central bank or a government. The amount of fresh Bitcoins is strongly predefined and cannot be changed on demand. Forget about devaluation or “expected” inflation… Even states and big banks may bankrupt, Bitcoin could be banned in some states but can always survive.

Long term stability

The total amount of Bitcoin is limited and cannot be changed. If the supply of the currency is limited, the value of currency must appreciate when comparing with other common currencies with unlimited supply (fiat currencies and crypto currencies with unlimited supply). Therefore in long term the possession of a Bitcoin should be a stable investment instrument. I wrote “should”. Why? Well this is true only if Bitcoin became respected and trusted currency. Do not put all eggs in one basket!

Robustness

Consider for example payment gates for credit cards – unavailability of one server might result in inability to process payments. Bitcoin network does not have single point of failure and thus has potential to survive much bigger outages of the network nodes without any customer discomfort.

Transparency

Each Bitcoin transaction is publicly known because it becomes a part of the block chain. Merchants and customers can control transparently successful transactions. No one can manipulate public database in order to get control of Bitcoin payments.

Swiftness

Did you ever try to send money abroad? What did you use? SEPA? Wire transfer? Or did you try to send money only to another bank account in the same state? How long did it last? One day? You are a lucky guy. One week? Yes, it might be. But how long does it take to send Bitcoins between individuals in New York? Or to send Bitcoins from Paris to Sydney? It does not matter. The distance between trading parties is not important. The time end fees are always the very same. Anytime, everywhere. The exact transaction time depends on transaction fee and amount of Bitcoin you want to send but mainly you can expect the money in one or few hours.

Costs

Again. Is your bank account completely free? Ok. May be. But anyway try to imagine, that any single Bitcoin transfer costs you only a voluntary (but recommended) fee. Currently common amount is 0.0001 Bitcoin. If you send 1 BTC it makes 0.01%. Check your bank’s conditions for international money transfers and compare it…

Flaws?

Nothing is perfect. Bitcoin is no exception. It is still very volatile and thus not yet very usable for merchants because of currency risk. Its acceptance by merchant is also so far not too broad… It is still a very young idea and for many people hard to accept and believe…

How Bitcoin Wallets Work

What is the best Bitcoin wallet? Well, it depends on how you intend to use your Bitcoins…

Classically, we are used to living with some cash for everyday expenses, with our checking accounts to pay for our rents and to receive our sallaries and finally with our savings and term deposits for preserving value of our surpluses. In the Bitcoin realm it works basically the same way.

Bitcoins as “cash”

Cash is so popular because it is incredibly convenient. So is coinbase.com. This web service will take care of your Bitcoins in the most intuitive and simplistic way. Not only you can store your Bitcoins there but you can also quickly exchange some Bitcoins for USD or EUR. This service has a very nice feature – it enables you to email some Bitcoins to your friends. They also have handy mobile apps for IPhone and for Android.

This site looks and feels awesome. It is really a great place to get started with Bitcoin. It has, however, some inherent security weaknesses and vulnurabilities. Store there no more than you would store in your cache wallet.

If you are an Android freak, you might consider as an alternative Mycelium app. It is really well done, super-clean and still pretty safe.

Bitcoins as “checking account”

Very good place for medium sized sums of Bitcoin is blockchain.info. It is also a web service but designed in a way that sensitive data is stored just in your head or a piece of paper, not on their servers. Their security level is very high and you can even turn on some extra protection layers such as one time password, confirmation emails, trusted extensions or various wallet back-ups. Yet, this site is still pretty intuitive and easy to use. They also have mobile apps for IPhone/Android. These apps can be extra protected by PIN codes.

If you consider yourself computer capable, you might rather choose to install an open source wallet directly on your computer. We recommend Electrum as it guides you through secure installation, operates fast and is still fairly easy to use.

Bitcoins as “saving account”

Having large sums of Bitcoins require special measures where top security is paramount. You should prefer an offline “cold” storage to any web service. An option is to install stand-alone Electrum on your USB key, get your Bitcoins there and than remove the stick from your computer and safe-keep it as it was gold. Electrum will guide you during the first launch how to type down a “seed” for emergency accessing your Bitcoins. Store this piece of paper in a different room as it enables to access your Bitcoins even if the USB key gets lost or malfunctioned.

If you consider yourself very tech-saavy, you can go even further with Armory which is considered the safest bitcoin wallet. Alternatively, you can simply create several plain paper wallets with an assistence of bitaddress.org.

As we said, it is hard to name the best Bitcoin wallet as it depends on your intentions. However, if you woke me up at 5 a.m. and put a gun to my head with the same question, I would say Blockchain wallet as this wallet is really great both for beginners and advanced users.

If you want to know about other possible wallets not mentioned here, feel free to visit our tutorial how to store Bitcoins.

What Are Bitcoin Transaction Fees:

Sometimes you can hear that Bitcoin transactions are free, or “almost” free. What is the truth?

Why the transaction fee?

We already talked about the Bitcoin network with nodes that searches for new blocks and confirms Bitcoin transactions. Each new block is rewarded by 25 Bitcoins. This is nice motivation to keep the network alive. In the future the reward will be lower and lower and lower (it will be halved every 4 years so in 2017 will be the reward decreased to 12.5 Bitcoins). How to reward miners in the far future? How to prevent somebody from sending 0.00000001 Bitcoin to milion addresses just because of fun? How to motivate the mining nodes to process your transaction as soon as possible? A reasonable transaction fee should solve all of these issues. If you send your Bitcoins to another address a transaction fee may be required. It is mandatory for amounts smaller than 0.01 Bitcoin, in this case a fee of 0.0001 Bitcoin is demanded. Any amount larger than 0.01 should be processed and confirmed for free but it might also freeze in a queue forever without being ever processed… Another factor is the age of Bitcoins that are transferred and overall complexity of the transaction. The miners prioritize transactions with older Bitcoins and with lower number of inputs and outputs. The exact behavior is a matter of Bitcoin protocol implementation and is beyond this article. The fee rules might slightly change with each release of Bitcoin software. As the value of Bitcoin grows, is the fee getting slowly lower. What is now reasonable fee? Well, again, it depends. It is a part of a concrete implementation. You should count with 0.0001 Bitcoin for a typical transaction. It might be more but this is a usual amount for a fee – no matter how much Bitcoins do you send.

The Best Bitcoin Tools:

In the Bitcoin realm are many useful tools. We will show you the best of them.

This tutorial for rather advanced users. If you are a Bitcoin newbie, you might find useful to read how to start with Bitcoin before this article.

Monitor of Bitcoin transactions

Would you like to know how many and how large transactions are happening every second? Do you want to see it live when a block is generated? Then visit www.bitcoinmonitor.com. It is a spectacular show (at least for us nerds).

Information about blockchain

Do you want to look more under the hood? As Bitcoin blockchain is public you are free to look at transaction history of any chosen address. Just place an address into the search box and you can see all the moves on the ledger even though you don’t know who the address’ owner is. This really is an advanced tool! You can get some very interesting information here as well as a headache.

Bitcoin address offline generator

Do you feen a little bit paranoid? Then you definitively need to use www.bitaddress.org to create yourself a paper wallet. Go to that site, get your computer off the Internet and generate yourself a Bitcoin address. After some random moves with your mouse your new wallet will be created on your screen. Then type down the Bitcoin address as well as the private key (which is basically a password to your Bitcoin “account”) down on a piece of paper, close the window and reconnect to the Internet. Keep the paper safe. Now, you can send your precious Bitcoins to this paper wallet and no one can hack it from you ever.

How can that site work off the Internet? Well, it uses JavaScript which is downloaded to your browser and is run from there even without a need of an Internet connection. But the address creation must require an Internet connection, right? Wrong. There are so unimaginable many possible addresses that there are no checks whether an address already exist or not.

Market charts

The most popular Bitcoin tools are various full featured charts. Anyone interested in Bitcoin price trends and history should know about bitcoincharts.com. If you want to watch a cool looking real time charts witch some bells and whistles, go for bitcoinity.org. We have actually written a whole article about Bitcoin market charts.

Bitcoin mining profitability calculator

Are you serious about Bitcoin mining? Then you need to decide what type of hardware to buy and how much can you expect in return. A useful tool for developing your own mining strategy is Mining profit calculator.

Bitcoin Charting & Bitcoin Market Charts:

When we say Bitcoin market charts we mean much more than just a site you can check out current price of Bitcoin (check that for instance at coindesk.com). It si about studying historical prices and future trends, comparing prices across various realtime exchanges or checking trading volumes which is something you really need as an investor, trader or an arbiter. We will guide you through all the best possibilities out there.

Best Bitcoin real time chart

Bitcoinity.org is as pretty as just a chart can be. It allows you to watch out for price development in time which could give you some cues about the right time to buy or sell Bitcoins. You can easily switch between charts for several exchanges in various currencies.

This site is great for getting some perspective but do not expect any precise historical data.

Most advanced price charts

Bitcoincharts.com has many very useful and interesting features. At the most rudimentary level, you can compare actual Bitcoin prices across various exchanges. However, it get much more interesting as you plunge deeply into historical charts – selecting periods to examine prices and volumes and even getting minute to minute historical data of various exchanges (look for “Load raw data”). This is really handy as a source data for a subsequent deep analysis in Excel. There is no other place with such rich set of features.

This whole site is run and managed by a single person only (to our knowledge) so it has some issues relating to that. It sometimes lags. It does lacks data for some newer but very important exchanges (such as kraken.com or bitfinex.com) and some estabilished exchanges from time to time mysterously disappear (e.g. btc-e.com).

Bacause this site can be a bit overhelming at first, you may consider a lite version of it at bitcoinwatch.com.

Crypto currency market data

Cryptocoincharts.info is a very promising site with current prices and day volumes in various currencies (USD, EUR…) across all the major Bitcoin exchanges. Beside Bitcoin prices, you may find also interesting to check out other cryptocurrencies such as Litecoin or Primecoin.

As bitcoincharts.com is sometimes omitting very “existence” of some important exchanges you can find data for all them here.

Bitcoin economy charts

Blockchain.info offers several very useful services. Various Bitcoin charts is one of them If you want to have a broader perspective on Bitcoin, you might find these charts very helpful. Here are charts such as development of Bitcoin network difficulty, a trend of transaction count, growing interest of people in Bitcoin economy etc. If you are a data junkie prepare yourself to get stuck here for a while.

How To Buy Your First Bitcoin:

There are several ways of buying the Bitcoins you just need to choose the one that suits you best. Your location might play an important role here.

In person:

Do you prefer to buy the Bitcoins in person? In case you are located in the place where there is a big enough bitcoin community this way might be the fastest one. Except of the speed you will appreciate that your local currency can be used.

There are lots of individuals all around the world who are willing to buy/sell the bitcoins by meeting you in person. These people can be contacted e.g. via site localibitcoins.com.  It is always good to check the reputation of such person to avoid being scammed.

Alternatively you can buy the bitcoins via bitcoinATMs that are being spread slowly all around the world recently..

To find out more, visit How to buy bitcoins with cash section.

Online:

If you prefer buying the bitcoins without leaving your couch you can do it online. But count with the fact that based on the chosen service getting the bitcoins might take from a couple of hours to several days.

Except of selling the bitcoins in person as mentioned earlier, some users of localbitcoins.com site prefer getting the payment by direct transfer from your bankaccount and sending you the bitcoins to your wallet once they receive the money.

Instead of contacting the individual seller directly and buying the bitcoins from him/her you can use alternative option and set up an account in some of the exchanges (mtgox.com, bitstamp.org, btce.com or others) to buy bitcoins there. This will require to get verified (copies of your ID and proof of residence need to be provided) which might take a few days. Also since bitcoin exchanges handle deposits a withdrawal using several methods from which some can annoyingly slow the process  you might need to wait even longer to get your desired bitcoins.

To find out more, visit How to buy bitcoins online section.

CreaditCard/PayPal:

It is not recommended to buy bitcoin with credit card or with Paypal and it is especially because of the fact that credit card/Paypal transactions are reversible unlike bitcoin transactions so you can possibly be scammed.

Before using any services is strongly recommended to look for the reviews and feedback from previous customers.

How To Start Investing in Bitcoin:

Investing in Bitcoin may yeald very interesting profits. Good news is that it is even easier than buying some stock shares.

Before we tell you how to invest in Bitcoin, we want to be sure that you understand the risks. Still want to do it? You have basically two options: investing via funds or on your own.

1. Investing in Bitcoin via funds

The most convenient as well as the least recommended way of investing in Bitcoin is via dedicated funds. The most known at the moment is Bitcoin Investment Trust.

Pros:

The fund is quite transparent. It is run by a company Second Market which directed by well known Barry Silbert. It is an acredited investor and the whole fund derives it’s value solely on the price of Bitcoin. It is also quite simple to get into it. You just send them some money to buy shares. They will guide you through all the paperwork. Once you are happy with the price development, you sell your shares and get the profits (if they are any). Basically, it is very convenient as you do not have to worry about buying Bitcoins or their safe-keeping.

Cons:

You have to trust 3^rd party that they do not misuse your money and also pay it handsomely just because of your laziness. Their fees are really high (about 5%). The minimum size of investment is 25000$ which is not little.

2. Investing in Bitcoin on your own

If you decide to avoid funds, you will have to set up your Bitcoin wallet (at your best interest please follow at least first two steps of the tutorial). It is free of charge and it is quick. This is going to be the place you will store your Bitcoins.

Once you have done it, you will need to sort out how to buy Bitcoins. When your Bitcoins are bought, send them to your wallet. This is all you have to do.

Security concerns

In the case you want to invest really large sums of money, you will possibly want to have the most secure storage of Bitcoins possible. In that case please follow a bit advanced tutorial how to secure Bitcoin wallet.

Getting profits from you investment

Regardless you chose funds or not, you will probably want to watch Bitcoin price. You can do it online or via a mobile app such as Bitcoin paranoid. When the time comes that the price is favourable, simply sell those Bitcoins in the reversed way as you bought them or get inspired with other options in our article how to sell Bitcoins. Then get a good dinner.

How to Send Bitcoin To Another Wallet:

The Bitcoin network has been designed with one thing in mind – to make sending Bitcoins as easy as possible. It is less costly, faster, and more convenient then sending money from your classical internet banking.

Step 0: Get some Bitcoins

In order to send anything, you will need to get some Bitcoins first. Before that, you will have to open a free Bitcoin account (called a “wallet” by majority). This wallet will allow you to store, receive and send your Bitcoins.

We demonstrate sending Bitcoins with Blockchain wallet and we recommend it to everyone. You are, however, free to choose any other wallet and this tutorial will work for you as well.

Step 1: Request a Bitcoin address of your recipient

There is a Bitcoin address in Bitcoin realm which is an equivalent to an account number in our obsolate banking system. You will need to know the address of your recipient before you can send her anything. The Bitcoin address can look like this:

1LG5NgPU24R8xmuJEUcNPVSihodwbaN4MV

or like this:

They are equivalent and you can use either. If you are sending Bitcoins from a computer, you will probably find more useful the first option (the string of numbers and letters) as you can easily copy and paste it. The latter option (the QR code) is particularly useful when sending Bitcoins from your smartphone. It is simply more convenient to scan the code than to type down the address manually.

Bitcoin addresses are public therefore your recipient might have it publicly on her site. She can also send it to you via email without any fear of being compromised.

Step 2: Send Bitcoins

Sending Bitcoins is a piece of cake. Choose “Send Money”.

Fill up the “Quick Send” form. Simply paste the address of the recipient and select the amount of Bitcoins to be sent (BTC field). That’s it.

Your recipient will recieve Bitcoins within seconds. After that, the Bitcoin network will have to publicly confirm that transaction so it gets accepted across the whole network. This might take some time but mostly less than an hour. What does it mean? That you can transfer for instance money from Germany to New Zealand in less then an hour and free of charge!

Be aware, however, that Bitcoin transactions are not reversible and cannot be charged back. If you send Bitcoins to a wrong address, there is no power in the world to force the recipient to return Bitcoins to you. You may just politely ask her to send it back (provided that you know the real life identity of the person). On the other hand, good news is that it is almost imposible to make a typo while pasting a recipient address. Why? Well, it is mathematically near to impossible as there are very strict rules for addresses to comply. If you try to send Bitcoins to an address that does not compy, your wallet will not allow it. Bitcoin is a smart technology

(Optional) Step 3: Pay as little fees as possible

Transaction fees are always paid by the sender and they are mostly voluntary. There is currently a minimum fee of 0.0001 Bitcoins (about 10 cents) when you send less then 0.01 Bitcoins. If you send more, you can send it free of charge. Higher fee might make your transaction processed with higher priority. However, transactions  without fee are also delivered (by experience mostly within the same time frame). So unless you are an idealistic nerd, why to pay more than you have to?

Get to your wallet “Account Settings“. You will be asked to type down your password again.

Then select section “General” and choose “Frugal” fee policy.

Navigating Your Bitcoin Wallet:

A Bitcoin wallet can be seen as a international Bitcoin Internet banking. It’s main purpose is to store Bitcoins, send them to other people (respectively to their Bitcoin wallets) and also receive from them. There are also some advanced ways how to use a Bitcoin wallet.

We demonstrate all the usages on our favourite Blockchain wallet but other wallets have often similar functionalities as well.

If you don’t have a wallet yet, follow our tutorial how to open a Bitcoin account. If you are not an advanced user, learn first how to send and receive Bitcoins before any advanced usages.

Sending and receiving Bitcoins

Sending and receiving Bitcoins is the most fundamental usage of a Bitcoin wallet. It is so essential that we wrote a tutorial for each of a usage.

1. How to receive Bitcoins
2. How to send Bitcoins

Storing Bitcoins

Beside sending and receiving, a good wallet has to store your Bitcoins in a safe way and allow you to create backups of your wallet. We have written a separate tutorial that tackles this topic – how to secure a Bitcoin wallet.

Advanced usages

Sending Bitcoins to an email

A nice feature of some wallets (namely Blockchain wallet and Coinbase wallet) allow you to send Bitcoins to an email. This is a very nice way how to introduce a friend to Bitcoin realm.

All you need to do is to select “Send Money“, choose “Send via Email” and fill up the form.

The recipient of this Bitcoin transfer will get an email with an invitation to claim these Bitcoins along with the guide about Bitcoin FAQs.

Sending Bitcoins anonymously

Bitcoin is not as anonymous as one would think. If you really want to hide your identity, Blockchain wallet allows you to use a very smart anonymous transfer. Just select “Send Money“, choose “Shared Send” and fill up the form.

An interesting experimental alternative is to try out “Send Money” – “Shared Coin“.

Usage of several Bitcoin addresses

Every wallet gives you a possiblitity to use more then one Bitcoin address if you want to. Why would you do it? Well, beside some advanced reasons, some people like to to have a Bitcoin address for every sender to make their transaction history tidy.

If you wanted to create another Bitcoin address, select “Receive Money” and click “New Address” button. Do not forget to label the address properly.

Analyzing your transaction history

Analyzing your transaction history might give you some useful information as well as some insights about how Bitcoin works. Check that out at the “My Transactions” section.

You may also get some useful information about the transaction by further clicking the record (not the Bitcoin address).

Advanced sending

If you like to have a full controll, you will enjoy an advanced send option. This will allow you to set parameters such as a transaction description or a transaction fee. It will also allow you sending to many addresses at once or from several addresses. This option is definitively advanced.

Select “Send Money“, choose “Custom” and fill up the form.

How To Safely Store Your Bitcoin:

There are just 3 ways how to store your Bitcoins. On your property (computer or smartphone), on a web server or offline. These approaches have their pros and cons and you should definitively know about them.

1. Storing Bitcoins on your property (computer or smartphone)

This is the most prefered way for advanced users as management of your Bitcoins is just in your hands. You need to download a software wallet from the Internet and install it on your computer or mobile.

Pros:

This approach combines high levels of safety and usability. You should choose only among open source and well tested software with very high level of trust. Sticking with open source for your wallet is very important as they are always paranoid nerds out there making sure that every line of code of such software does not do any harm. Having your Bitcoins on your smartphone is very practical for payments but less secure.

Cons:

Having Bitcoins on your own property is for advanced users only. If you forget your Windows password, get your smarphone stolen, break your hardrive down or get your computer hacked, you might easily loose all your Bitcoins. For that reason is no way of having such Bitcoin wallets without proper offline backups and encryption.

How to do it:

Download and install one of following open source software on your computer:

• Electrum (to start using Bitcoin right away with clean yet very secure wallet)
• Bitcoin-Qt (if you are an idealist who wants to support Bitcoin network regardless of higher consumption of processor resources, huge harddrive space requirements and much much slower first start-up. This is THE software originally written by mysterious Satoshi Nakamoto)
• Armory (if you are a person with great technical skills and extraordinary demands for security)

Or download and install one of following open source software on your android mobile:

• Mycelium (to start using Bitcoin right away with cool looking and simple yet secure wallet)
• Bitcoin (if you like nerdy looking stuff with various alternative features)

2. Storing Bitcoins on a web server

Using a web server as a storage of your Bitcoins is a very popular and quick way how to start with Bitcoins. It has, however, some innate problems.

Pros:

Using a web server as your Bitcoin storage is very convenient. You basically need just a browser and you are ready to use Bitcoins. As you do not have your Bitcoins stored on your harddrive, you do not need to worry about its malfunction or hackery. This is now a problem of the server provider.

These servers usually have also quite nice apps available for your IPhone and Android. However, never forget that your Bitcoins are actually stored on the server, not your mobile.

Cons:

Storing your Bitcoins on a web server is inherently risky. Firstly, you need to trust 3^rd party that they are honest and won’t  misappropriate your Bitcoins. Secondly, even if they are honest, you need to trust them that they do their job well. These Bitcoin banks attract a lot of attention of hackers and there have been many cases of cyber robberies in the past.

How to use it:

If we didn’t put you off check out these Bitcoin “banks”. You can access them directly from your browser and set up working accounts in seconds.

• BlockChain.info (very solid open source web wallet with very sophisticated security features and nice mobile apps)
• Coinbase (simple and cool looking site with ability of sending Bitcions to emails and simplified buying of Bitcoins for USD. Works great for everyday transactions)
• Bitstamp (totally fee-free wallet as a part of Bitcoin exchange account. Top security measures)
• CoinKite (if you don’t mind paying something extra for having hired hardcore hackers to guard your coins)

3. Storing Bitcoins offline

Probably the safest way of storing your Bitcoins is storing it offline. Simply on the paper or in the form of physical coins. How can anyone store Bitcoins on the paper? Well, Bitcoin realm has many interesting advanced fearures. We write about it in an article where are Bitcoins stored.

Pros:

It does not matter if your computer is hacked or your harddrive breaks down. Your Bitcoins are still safe.

Cons:

Bitcoins in the physical forms are as vulnurable as anything else in physical form. They can be burned, lost or stolen (however not many thieves are interested in a folded piece of paper). As Bitcoin is primarily Internet currency, they are also quite hard to work with in the offline world.

How to use it:

You can either buy some physical coins from Casascius or create a paper wallet. The second option is definitively a safer way how to store Bitcoins offline and we describe it in the article how to secure Bitcoin wallet.