How to buy and sell Bitcoins -- Part 2: Practical

How to buy and sell Bitcoins -- Part 2: Practical

Summary: So you want to buy and sell Bitcoins, but how is it done? In the second part of this two-part series, I'll show you how to transfer money from your bank to a Bitcoin exchange, how to use your wallet, and how to buy real things.

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TOPICS: Security
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In this two part series I'm looking at the practicalities of buying and selling Bitcoins.

Off we go

As I mentioned in Part 1, "mining" is no longer a practical way to get into Bitcoins because of the requirement for specialised hardware and because it's very difficult for small scale operations to get any money to drop out in that way.

The easiest way to get started is to send some "proper" money to a Bitcoin exchange.

There are a few of these, the most famous being Mt. Gox. I used Bitstamp -- my method of selection being "random". I went to Bitcoin Charts to find a list of exchanges, and went through a few until I found one that made me feel in some way vaguely confident.

You can't get started on this journey with a credit card -- you need something more like hard cash. I had to phone my bank to incept a wire transfer to Bitstamp's bank. This happened to be a bank located in Slovenia.

The problem with credit cards is that they can be clawed back on the lightest suspicion of fraud. Everyone involved wants Bitcoin to feel and act like cash -- if you have Bitcoins, the premise is that they are definitely yours. (Plus, if you could use credit cards, the whole system would be absolutely slapped to pieces by credit card fraud.)

Thus the first step on this journey was to wire EUR 200 (USD 260) to a company I'd never heard of in a country I'd never been to. But I guess it's my problem that I'd never been to Slovenia.

This did, I should say, work and within a couple of days my Bitstamp account showed some USD.

Screen Shot 2013-04-05 at 09.19.44
My Bitstamp account showing a USD balance as a result of the wire transfer.

Next step was to buy some Bitcoins. I spent my whole allowance, and Bitstamp took a small commission. Notice the amount in BTC. This isn't really a system where you buy round numbers of units -- everything is done to eight decimal places. 

Screen Shot 2013-04-05 at 09.20.01
Placing an order to buy Bitcoins.

And there we have it. The trade went through almost instantly and I had some Bitcoins.

Screen Shot 2013-04-05 at 09.21.02
My Bitstamp account now showing a Bitcoin (BTC) balance.

 

Wallets

So now I had to have something to do with them. In order to spend them, you have to download them to a wallet. I used Bitcoin-Qt, for the simple reason that this is the one that is listed on the official Bitcoin site.

Wallets are slightly odd things in that in this era of put-everything-in-the-cloud, this is very much a "device local" arrangement. You end up with a "wallet.dat" on your device that contains the references to your Bitcoins. Lose the wallet, lose the Bitcoins.

Sending money requires an address. Each wallet comes configured with one address, but you can create as many addresses as you like. This is to get around some of the issues with regards to lack of anonymity -- creating multiple addresses against one wallet supposedly makes it harder to trace transactions back to real people.

Anyway, I initiated a withdrawal from Bitstamp and after some time, the money appeared in my wallet. 

Screen Shot 2013-04-05 at 19.35.02
The money now showing in my local wallet after being transferred from my Bitstamp account.

I should stress "some time". This actually took ten hours. The wallet has to synchronise itself with the Bitcoin network. This seemed like it too an oddly long time -- I'm not confident it would always take this long.

Part of the issue appears to be that every wallet downloads the entire transaction history for every Bitcoin transaction, ever. That's useful, I suppose, upon the eventual coming of the zombie apocalypse. If you happen to have a wallet on your laptop, you're in a position to reboot the world's Bitcoin currency should you be asked to do so.

The next thing I tried was sending the Bitcoins somewhere. This time I used Mt Gox.

Like when I transferred money from Bitstamp to my wallet, sending money to Mt Gox requires an address. All of the exchanges provide for funding through Bitcoins. I plugged the address into the wallet and transferred my entire balance.

To increase anonymity on the system (remember, the system is not anonymous although people tend to assume this) wallets have multiple identities. The idea is that you create separate identities for each party that you want to work with.

This worked fine, but it also took hours. As discussed in Part 1, all of the transactions have to be mashed up into this giant distributed transaction log and this process takes a long time. However, eventually it did appear in my Mt Gox account.

Screen Shot 2013-04-08 at 08.52.57

(I must say though, this is a little stressful as it disappears from your wallet immediately.)

Buying things

In Part 1, I touched on the issues around actually buying things. In the first instance, there is a lack of merchants out there that accept Bitcoins. (It would be nice if Amazon accepted Bitcoins, but they do not.)

I did want to buy something as part of this guide -- although this was tricky. Most of the small merchants don't peg Bitcoin prices to a proper currency. This results in companies that set their prices up on a Monday, but by Friday the market has moved so much the prices are so adrift from the underlying currency that the whole thing falls apart.

BitcoinStore is one of the more advanced merchants with systems that do peg prices to USD. So I bought a mousemat and shipped it to one of the ZDNet editors. (They wanted $50 to ship a $3 mousemat to the UK.)

BitcoinStore uses a system called BitPay to handle the Bitcoin payments. You can implement this on your own site if you like.

It works just like you'd expect. You're given an address to send money to. All you need to do is go to your wallet and send the money.

Screen Shot 2013-04-08 at 14.25.48
Checking out of BitcoinStore. All I have to do is ask my wallet to send Bitcoins to that address.

After a short while, the money transaction processes through. On this transaction log I took some Bitcoins out of my Mt Gox account into my wallet and sent it from there. Technically I didn't need to do this -- I could have sent the Bitcoins from Mt Gox directly to BitcoinStore through BitPay.

Screen Shot 2013-04-08 at 14.33.52
The transaction log in my wallet showing various transactions, including payment to BitcoinStore.

 

Conclusion

Once you get your head around it and set-up, working with Bitcoins is actually very easy.

Go back to: Part 1 -- How to buy and sell Bitcoins: The Theory

****

What do you think? Post a comment, or talk to me on Twitter: @mbrit.

Image credit: Wikimedia

Topic: Security

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25 comments
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  • Bitcoins UK

    Buy bitcoins in UK is very expensive (huge fees because intermediaries), I made a blog with what I believe is the cheapest way:
    http://howtogetbitcoinsuk.blogspot.co.uk/
    Mark Tey
  • Wow

    This is incredibly bizarre. Why go through this process at all? Do we need more middle men? I don't think so.
    slickjim
    • Profit.

      What's wrong with profiting?
      HypnoToad72
      • No

        It is a phoney bubble. When it bursts it will be shrinkage.

        I am all for using a PC to mine for data but, that doesn't cost $181 per coin.
        slickjim
  • What's the Point?

    Ok, so what is the point of Bitcoins?
    cmwade1977
    • Profit.

      Anyone against profit is a communist, or so we're always told.
      HypnoToad72
    • The point of Bitcoin

      There have been a lot of articles on Bitcoin recently, but most focus on perceived negatives, and very few mention the key advantages.

      Bitcoin is NOT created by fiat by a central bank whose sole mission is to fund reckless government pending. Governments cannot create, manipulate, abuse, inflate, and destroy it as they routinely do the national currencies. Its global adoption will force governments to be fiscally responsible.

      Bitcoin allows fast and easy exchange of money without giving 3-5% to a bank or payment processor.

      Bitcoin is Money Version 2.0. Bitcoin is to banker's money as email is to handwritten letters. It is easier, faster, cheaper, and more secure than using banks and payment processors.

      We stand on the threshold of a revolution in money that can fundamentally alter our civilization, and most of the articles can only say that it must be a bubble.

      Hey, journalists! There actually is an important story here, if you will dig a little deeper!
      JohnCunningham
      • You're right...

        the banks or payment processors wont get the 3-5% but the Bitcoin processors will. So, their still will be a middle man in this system. Yes, a bit easier to bypass which makes me think of PayPal. In a round about way, aren't they bitcoin but using current currency instead of digital.

        This raises one question in my mind, Who Actually Sets The Value of A BitCoin to the Dollor, Euro, Yuan, Yen, Rupee, etc?... If it's driven by "stock market" or "a corp of some sort" vs "the public people", it just screams another legal scam to me. The general idea behind this sounds good and all but like everything else designed for good and betterment, the more negative uses come from it.

        Meaning the people will cause this system to become bad and corrupt. People are viruses and parasites by nature. Funny how that works. Then again, it's just my opinion.
        Free Webapps
        • just read this article a few min ago

          very interesting read.

          http://news.yahoo.com/wild-unregulated-hacker-currency-gains-following-015010691--finance.html
          Free Webapps
  • So this is the new world order one-currency government?

    As with the fees people mentioned (of course some leechy bank is going to suck us dry), it's still easier to deal with regular currencies in one's regular country.

    But for how much longer?

    Taking off the tinfoil hat now.
    HypnoToad72
    • Bitcoin is here to stay and grow

      I would not put the one-currency government, because the goverment and the bank are not involve, if fast they started to know it's existing when it reach almost a billion dollars in value.

      It's more like internet currency, a bit the same way email replace the normal mail.
      If you draw a chart of the number of email sent, the curve would probably look like the a Bitcoin chart.

      You have certainly the right to be very skeptical about Bitcoin, but it's here to stay and grow because it's decentralized, anonymous, free to trade and quantity limited currency.
      Jean-Claude Morin
      • Not really ananymous

        In fact, because every transaction ever is recorded, it's probably the most leas anonymous "cash" there is.
        x I'm tc
  • Perhaps no better than standard currency for now, but

    in the long run your account might actually hold or increase in value (what a concept!) and it might be harder for a Cypriot-like bank to scim off the top of your account.
    nwtim
    • Or

      Easier for anyone in the world to freeze your assets.
      slickjim
      • How to freeze someone else asset.

        You can actually freeze someone else assets by having more than half the network computing poker. Currently Bitcoin network is soo big, that it outpace the TOP 500 supercomputer TOGETHER. So good luck beating that and blocking my transaction.

        The same way, good luck doing a fake transaction that will pass...

        It's not because you don't understand how it's work that it's not revolutionary.
        Jean-Claude Morin
        • Data (1's & 0's) can be manulipated...

          In due time will fake transactions get through. That's a fact. Now if it were to become public knowledge, is something else.
          Free Webapps
  • power

    I have just one small question. What happens if the power goes out? How do I get my money?
    bshock4
    • power

      How exactly do you get your dollars out of the bank when the power goes out?
      skellam
      • power

        I can stockpile a bit of cash/gold in a safe for a power outage....but a cyber dollar is hard to store in my safe with no power.

        I'm not some sort of survivalist end of the world person...but say your stuck in a 2 to 3 week power outage...what would you do?

        Can I tell you that there are 50 bit coins on my external hard-drive and you will take my word for it they are there?
        bshock4
        • Bazinga!

          LOL! good one
          Free Webapps