Here’s a quick guide to how to get started with Bitcoin. You’ve heard about it, you like the sound of it, and you want to get your first Bitcoin or part of one.
Bitcoin (Image: Antana/CCBY-SA2)
If you just want to buy and own Bitcoin you just have to do the first two steps below. If you want to take it off the Internet and store it on your own computer and have full control over it, then also do the last two steps:
Once you’ve bought Bitcoin on a cryptocurrency exchange or other online platform it is advisable to transfer it to your own wallet.
If the currency has low value then you could take a chance and leave it online, but there are three risks to be aware of:
The exchange could collapse (it has happened before, e.g. Mt Gox).
You can’t get access to your currency as fast as you need it (e.g. to sell in a falling market). Currently Poloniex can take 24 hours for a withdrawal to go through, Bitfinex 12 hours.
The exchange gets hacked and a third party withdraws your Bitcoin.
Here we’ll cover the process of moving your Bitcoin from an online platform to your own wallet. It will be similar on most platforms and wallets – here we’ll assume:
Each wallet owns a series of Bitcoin addresses where coins can be deposited. Select the Receive tab to show the first address available in your wallet, listed as Receiving Address.
[A quick detour into addresses: Note the subject of addresses is quite a complex one that we don’t need to go into here – just be aware that most wallets will manage a series of addresses for you. For example, many wallets will use a different address for every transaction for enhanced security. Also, since a sending address may contain more Bitcoin than is sent from it the ‘change’ may get sent to a third address. You don’t need to worry about this, you just rely on using the addresses the wallet suggests. If you want to see the addresses that are being managed ‘under the bonnet’ have a look at the Addresses tab to see the various Receiving and Change addresses handled by your wallet.]
Copy this address to the clipboard: you can either select it and copy or click on the Copy icon at its right-hand end. Enter a Description, e.g. ‘Initial transfer from Coinbase‘. With that done we are ready to receive Bitcoin to the copied address in this wallet.
Note that the sending platform is in control of the transaction, Coinbase in our example. It doesn’t matter how much Bitcoin you want to receive, you’ll only receive what is sent – so the other items here (e.g. Request amount) are irrelevant for our purpose. By all means click Save to record your description of this transaction, but otherwise it isn’t necessary.
Electrum Receive screen after saving (Image: Bitcoin Investors UK)
Click on the Send button under BTC Wallet. to bring up the Send BTC screen. On the day I wrote this it had a message about delays in sending Bitcoin – you may or may not get that.
Paste the address copied from your Electrum wallet into the Recipient box. Check that Withdraw From shows the BTC Wallet. Under Amount click in the BTC box – this will bring up a Send Max button. Click on this to transfer out all your Bitcoin in this account (the fee is shown at the bottom). Add a Note such as ‘Transfer to my Electrum wallet‘. Press Continue.
Press Confirm. You should then get a brief confirmation message saying the transaction is going through. Go back to the Dashboard and you should see the transaction is listed under Recent Activity as Pending.
Now you have to wait. You may get an email confirmation from Coinbase that it is going through.
A transfer can take from minutes to hours depending on how busy the network is and how much Coinbase spent on fees to transfer the money (they probably default to a low fee). A transaction has to be confirmed by a number of different nodes on the blockchain and these transactions will come through one by one. If you click on the transaction in the Coinbase you can see how many Confirmations have gone through.
The first sign that the transfer is definitely happening may be seen in Electrum on the History tab. With luck this will show the transaction as it is confirmed, with the Description that you entered above and saved.
Electrum History screen (Image: Bitcoin Investors UK)
If you double-click on the transaction you can see the confirmations counting up.
As the confirmations come in the ‘Unconfirmed’ message changes to a clock face that fills in segments and goes from red to green.
Electrum Transaction Being Confirmed (Image: Bitcoin Investors UK)
When the transaction is complete it will show a green tick (you can see the details on the Addresses and Coins tabs and by double-clicking the transaction line):
It will also be shown in Coinbase as no longer pending (and if you double-click it there under Recent Activity it will be marked Completed).
It’s done. Your Bitcoin has been successfully transferred from your Coinbase account to your private Electrum Wallet. There it can only be transferred out using your private seed or password, otherwise there is no way for anyone to access it.
There are lots of ways to hold your Bitcoin but they can mostly be divided into exchanges and wallets. If you put your Bitcoin on an exchange like Poloniex, Bitfinex, Bittrex or Kraken then really you’ve handed your Bitcoins over to the exchange provider to look after.
If, however, you want complete personal control over your Bitcoin then the only way to ensure that is to create your own wallet and hold your Bitcoin there. The difference from an exchange is huge – only you can deposit and withdraw money there because you’re the only person who knows the passphrase or seed (like a complex password). Whereas with an exchange you have to ask the exchange provider to deposit and withdraw money – you can’t be sure they will, though they usually will, and it’s up to them how long they take to carry out a transaction.
Electrum Home Page (Image: Bitcoin Investors UK)
Here I’ll explain how to create a Bitcoin Wallet that is entirely yours to control. The example I’ll use is Electrum which is one of the biggest and most respected. Like most Bitcoin Wallets (and related software) it’s a software app that’s free to use.
To download the software go to https://electrum.org/#download and choose the most appropriate version for your device. I’m on Windows and have gone for the Windows Installer for the Latest Release (2.9.3 at time of writing). You could instead choose the standalone executable if you didn’t want to install it (you could then put it on a USB stick, for example).
Download the Electrum Wallet software (Image: Bitcoin Investors UK)
Once downloaded run the installer as appropriate for your device (note that if you have an older version of Electrum installed it’s clever enough to upgrade the program without losing your data).
When that’s complete, close the installer and run Electrum (e.g. in Windows via an icon on your desktop). Then select File -> New/Restore. Choose a suitable wallet name (or accept the default if you plan to only ever have one). This will create a new wallet (the option to Restore only applies if you’ve previously created an Electrum wallet and want to reuse it).
Create a new Electrum Wallet file (Image: Bitcoin Investors UK)
Next you will be asked ‘What kind of wallet do you want to create?‘:
Standard wallet
Wallet with two-factor authentication: this requires a second device, typically your smartphone, as an extra security layer
Multi-signature wallet: this is where two people are required to confirm a transaction (a bit like joint signatures on a bank account)
Watch Bitcoin addresses: this allows you to monitor a Bitcoin address elsewhere (e.g. in a hardware wallet) but not make transactions with it
Choose Electrum Wallet type (Image: Bitcoin Investors UK)
In most cases you should choose Standard wallet. If you are going to hold a lot of Bitcoin in this wallet you could research and choose Wallet with two-factor authentication. Here we’ll go with Standard wallet.
Next you’ll be shown the wallet generation seed. This is like a complex password, one that is made up of 12 individual words. Record this as it is the key to your wallet – lose it and you could lose the Bitcoin in the wallet.
If you are only going to hold small amounts of Bitcoin in this wallet then you may choose to store this seed electronically, e.g. copy the words to a Word document. However, if you are going to hold any significant amounts in this wallet then take the advice on the screen and write the seed on a piece of paper.
This avoids the risk of your device being hijacked (e.g. by malware) and your seed – and all the money in the wallet – being taken (an interesting property of Bitcoin is that if someone has your seed they don’t need to access your wallet – they can create a new wallet on their PC containing your money). Keep that piece of paper very safe – it could be far more valuable than your passport, bank cards, etc.
On the next screen you type in the seed so Electrum can confirm you really did record it! A bit painful, but a valuable check.
Once you’ve done that you have to enter a password to encrypt your wallet. I recommend you don’t make one up yourself (humans are very poor at creating passwords that can’t be cracked by computer). Instead go to Passwords Generator and create a new one with the following settings:
Random Password Generator settings (Image: Bitcoin Investors UK)
Press Generate Password then write down the password and the mnemonic below it (to help remember and confirm it). You can write this on the same piece of paper as the seed since in most cases your Bitcoin can be accessed with either.
Type in the password (not the long mnemonic) – don’t be tempted to copy and paste it (what gets used by Electrum needs to match how you read what you’ve written down). Leave Encrypt wallet file ticked and press Next.
There is a brief ‘Electrum is generating your wallet addresses‘ message then Electrum opens on its main view. It will default to showing a History tab listing transactions on the wallet – at this point it will be empty.
The bottom status bar will show the current Bitcoin value – if this is showing in dollars (USD) you can set it to pounds (GBP). Go to Tools -> Preferences -> Fiat -> Fiat currency and select GBP:
Electrum Preferred Fiat Currency (Image: Bitcoin Investors UK)
That’s it – you now have a Bitcoin wallet up and running ready to receive, store, and send out your Bitcoin. Its various features and the methods to send and receive Bitcoin will be covered in future posts, e.g. Receiving in an Electrum Wallet, and Sending from an Electrum Wallet.
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