Ask LH: How Can I Get Started With Bitcoin?

Hey Lifehacker, I would like to start making some investments into Bitcoin but I am unsure of where to start. What software do I need? How do I trade Australian dollars for Bitcoin? Thanks, Bit Confused

Photo: zcopley

Dear BC,

Bitcoin is a digital, computationally derived currency that can be traded online in peer-to-peer transactions. Unlike the Australian dollar, the currency isn't saddled to a standard value agreement which can cause it to fluctuate wildly: it currently sits at around $616 AU dollars per “coin”.

You can obtain Bitcoins in two ways: either by trading goods or money with people who already have them, or through "mining" your own. The mining process involves running computer software that performs complex mathematical equations, for which you’re rewarded a small portion of a Bitcoin.

The processing power required to make mining profitable is extremely high — the smallest current unit is a "Satoshi" which is one hundred millionth of a bitcoin. In other words, it's not really something you can generate on a home PC to any meaningful level. Plus, other computers will be attempting to solve the same equations as yours, which means you invariably waste time crunching redundant numbers.

One alternative is to join a Bitcoin mining group such as BitcoinCZ. This involves multiple users pooling their computing resources together to mine bitcoins faster. The downside is that you then have to share the spoils with the rest of the group, resulting in pitiful returns. Basically, unless you have access to a fleet of supercomputers or a workforce of slaves, you're probably better off going down the buying-and-selling route.

Storing and using Bitcoins requires wallet software or an online service. To set up an online wallet and purchase your first Bitcoin, just follow these steps:  

  1. To create a wallet, sign up for an online service like My Wallet or Coinbase. For these instructions, we’ll use Coinbase because they provide a simple, integrated purchase process with two-factor authentication for added security.
  2. From the lefthand menu, click “Linked Accounts” and add a bank account. It can take several days for Coinbase to successfully link a bank account, so if you intend to purchase any Bitcoins you should plan ahead.
  3. Once your account is all linked up, click the Buy/Sell Bitcoins link. The page will default to the Buy Bitcoins section so just enter the number you want to purchase, choose your bank account (if you linked more than one), and click the Buy Bitcoins button. The transaction may take a few days to complete, but you’ll receive a notification when the Bitcoins have been safely transferred to your wallet.

The purchase process doesn’t take much effort, but involves a lot of waiting.

Once you've amassed a few Bitcoins, you can use them just like any other digital currency to buy goods online, albeit in a peer-to-peer framework. These days, it's not difficult to find merchants that accept Bitcoin; everything from boats to houses have been paid for through the cryptocurrency.

For more information, check out the below mind map: it includes links to useful Bitcoin content, including instructional videos, merchant services, currency converters, security FAQs, payment information and popular Bitcoin alternatives. (Simply click on the relevant text to go to each web page.)


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See also: Why It Pays To Keep Abreast Of Technology | The Interactive History Of Bitcoin | How To Make Your Own Bitcoin-Like Cryptocurrency | Ask LH: How Does Bitcoin Work And Is It Safe?

Cheers Lifehacker

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Comments

    Thanks, and can you also do a story about Ripple, their protocol is faster, ripple.com

      Ripple is a private centralized system owned by OpenCoin, Inc., not a decentralized system like Bitcoin. Don't let people try to confuse you by using buzzwords associated with decentralized systems.

    Obviously, I’m missing something, but why would any buyer choose to complicate any retail transaction by paying with Bitcoins, which are effectively a volatile “foreign” currency with a ~2% FX conversion fee (~1% buy/sell at each end)—even for a local transaction—and has no transaction dispute resolution process?—Dream on Bitcoin fanboys …

      To pay for illegal services/products whilst remaining anonymous.

      I don't believe bitcoins will stand the test of time, but it's quite interesting if you read up about how they're currently being used.

    Coinbase won't let you link an Australian bank account

    Last edited 14/08/14 9:21 am

    SUICIDE CULT!

    Benefits:
    -No Chargebacks
    -Less fees than Visa/MC/Paypal
    -Buy anything, no capital gains
    -Instant or Faster than Banks (transacting/clearing funds)
    -No risk of having your account frozen
    -etc, etc, the list goes on!

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