All About Bitcoin – Part 5

Transferring Bitcoins

Transferring bitcoins is almost exactly like spending bitcoins, shown in a previous article.

When transferring bitcoins we normally do not have a time limit such as in the purchase example. Also, there is usually no limit to the amount in bitcoins we can transfer. Different wallets and exchanges have limits on who and how much can be transferred. Some wallets require proof of age for transfers and accounts. Coinbase requires users to be 18 or older.

Bitcoin wallets stored locally will be free of such limits. In-exchanges, where we fund our bitcoin purchases, often limit the amount of national currency we can convert into bitcoins. Some limits apply based on the laws followed by particular exchanges. Exchanges such as bitcoin-24 have no limits on transactions or withdrawals.

There is no limit on how many bitcoins we can send from our bitcoin wallet to any other bitcoin wallet. That is a direct transfer. However, if we choose to go through an exchange, limits may apply.

Sending a transfer looks exactly like the Send process shown earlier. We simply ask the receiving party for their bitcoin address or bitcoin wallet and put that piece of code in the Send space as shown below.

Note that we can also use an email address. The person receiving this bitcoin Send will get an email from Coinbase explaining they have bitcoins waiting for them. They can either provide Coinbase a bitcoin wallet for receiving the payment, or set-up an account with Coinbase for receiving the payment.

There are many other ways of sending bitcoins directly to debit cards with, or to other online payment services with Dwolla, MyBitcoin, and others. The same basic steps apply:

  1. Get the receivers bitcoin wallet address.
  2. Open our bitcoin wallet or account screen on any bitcoin exchange we have our bitcoins stored in.
  3. Use the Send function and put the receivers bitcoin address and/or email in the “To:” box.
  4. Carefully confirm amounts and addresses. Once we hit send, there is usually no method of canceling or recalling the transfer.

Accepting Bitcoins In Business

BitPay appears to be the leading merchant services provider for online stores. There are several other methods that work almost like Paypal for accepting payments via bitcoin. The other bitcoin merchant tools do require some custom coding.

All we need to do is give users our bitcoin wallet address for sending payments to us. We can also choose to create an individual wallet address for each sale. This is how the automatic checkouts work and requires software for generating an unlimited number of unique bitcoin wallet addresses.

Bitpay simply requires setting up our products with BTC prices, the normal account tie-ins such as business name, tax code number ( EIN# for a business or Social Security# for individuals in the U.S.) and accounts tied to the BTC wallets. Then Bitpay provides all the clearing and collection function.

Showing that we accept bitcoins on the first page of our store or site shows we are ready for conducting business in the newest digital way.

With our proud sign displayed, we can use one of many different merchant solutions. Bitpay is generally the leader, but others offer similar functionality.

Merchant solutions for Bitcoin:

This is only a small portion of the ever-expanding options for merchants.

All that we need to do to sell with bitcoins, is sign-up for one of the above accounts, (again, is recommended) and place the correct bitcoin code they provide onto your website. The site will automatically coordinate the bitcoin transfers and loading up the correct wallet from the purchases.

Using Bitcoins Anonymously

There are several forms of anonymity for online purchases.

Store/service purchasing transaction anonymity – We are able to generate separate wallet addresses so that the store does not see repeat orders from one wallet. This form of privacy breaks the database many stores such as Amazon, Target, Costco, etc. keep on customer purchases. There will be almost an infinite number of purchases from different bitcoin wallet addresses. Different bitcoin addresses with different purchases makes it almost impossible to track buyers.

We can maintain this low level of anonymity by creating a new bitcoin address or wallet for each purchase. Many bitcoin wallet services or clients have a “New Address” option for each purchase.

This option creates a shadow wallet address that ties in with your main wallet and masks where the purchase came from.

Our original bitcoin wallet address, account, and email address can be tracked back to our Internet service provider (ISP), computer, and finally, our identity. Preventing any attempt at linking a person to a bitcoin wallet address, service, or email requires a more thorough approach.

These steps are available from

  1. Use Tor browser from Tor Project.
  2. After Tor confirms that you are being routed through the Tor proxy network, go to TorMail for hidden service and create an email account. This is the first, and major roadblock for anyone tracking bitcoin addresses - anonymous email addresses.
  3. Create a new, anonymous email address through Tor for each new bitcoin purchase.
  4. Use the BitInstant service or others that allow cash deposits for bitcoin to email purchases. Another option is to use LocalBitCoins for buying them in cash anonymously.
  5. Use the created TorMail email address, the amount of money you are converting to bitcoins, create a name with a DOB. Will be a good idea to keep these handy, but not necessary.
  6. Take the cash deposit slip to the service counter that completes the deposit process. There may be cameras to avoid at some locations.
  7. The transfer will be completed after you get confirmation, normally within an hour. Create another bitcoin address using the same steps above, and send the bitcoins to the newest address created with TorMail.

Following these steps creates a nearly impenetrable wall of anonymity.

Our anonymity is not fool-proof with bitcoin. Most of the services commonly used, such as Dwolla, Bitcoin-24, Flexcoin and many others do require tying our account to bank accounts, and often cell phones. This account linkage requires much more effort for clearing our trail. Getting a prepaid phone from a small retailer in the $20 range, we can receive our confirmation text with this phone and not use it for anything else.

Getting funds into and out of the bitcoin wallet for everyday use will have to occur without having a bank account tied to the bitcoin service. Once we tie our bank accounts in, we have lost anonymity.

Paypal is not a popular method of buying bitcoins, partly because it breaks anonymity. The other reason for avoiding Paypal, is that there is up to a 7 day delay for obtaining bitcoins through Paypal.

This delay stems from the reversibility of Paypal transactions. Avoid using Paypal because other bitcoin users will suspect the transaction to be spam or from a dishonest person.

Our options for fully maintaining bitcoin anonymity throughout – and not on a per transaction or per store basis – necessitates buying bitcoins with cash, barter, silver, gold, or anything but bank wires, debit cards, Paypal, or standard financial instruments.

How To Create Bitcoins Or Become A Bitcoin Miner

Early on with bitcoin, simply downloading the bitcoin software started us on the road as bitcoin miners. We started the software for bitcoin, and it would show how our computer processor was mining bitcoins as it solved the blockchain puzzles. The procedure for bitcoin generation on regular personal computers was in reality quite slow.

Computers with more powerful processors and graphics cards could radically decrease the time required for solving the cryptographic problems, or hashing, as it is referred to in the bitcoin world. The creator(s) of the software anticipated that bitcoin mining would grow in popularity. The software code and mathematics creates more difficult problems to solve – or mine – as the total number of circulated bitcoins increases.

The Concept Of Bitcoin Mining

Gold and silver are mined into existence. Costs for finding, licensing, mining ore, culling ore from gold and silver, then minting coins and bars, creates a value for gold and silver. bitcoin has a similar set-up, though not as costly or involved. The key difference is that mining for bitcoins involves solving codes or cryptographic mathematical puzzles.

The most important aspect of mining bitcoins, is that anyone can get involved. There is no central bank, no government treasury, no board room filled with supposedly all knowing people deciding how much money to produce. We can all produce bitcoins, provided we can set-up a mining operation.

Terms BTC Miners Use:

__Mining__ – Solving the math puzzles for generating the next block. Miners hash at a certain rate based on computing power and the difficulty of the bitcoin hash over time.

__Rig__ – the complete set-up for solving the bitcoin algorithms involving power source, processing unit, code, input and output controllers. These are normally dedicated bitcoin servers, but could be any form of computer or graphics card devoted to solving the BTC block puzzles. This involves a red-hot fast CPU, GPU (Graphic Processing Unit), ASIC (Application Specific Integrated Circuit), and now dedicated computer boxes called FPGA. Field Programmable Gate Arrays are taking the speed championship from ASICS for cracking codes.

__Hash Rate__ – The speed a rig can solve or make calculations for the bitcoin network. It is expressed as TH/S for Trillion Hashes/Sec or GH/S for Giga Hashes/Sec.

__Block__ – A record that confirms many waiting transactions. It then becomes part of a block chain where each block relates to previous and future blocks through agreement of code segments.

__Block Chain__ – A grouping of blocks forming the public record of all bitcoin transactions in chronological order. It is shared among all bitcoin users for verifying the false from true bitcoin spends, the balance of bitcoin addresses, and prevents double spending of bitcoins. Think of the block chain as the ledger for bitcoin, with encoded entries.

__bitcoin__ – These are unique codes “awarded” to miners for solving the problems that allow for creating the next block in the block chain. bitcoin was awarding 50 bitcoins per solution and now is awarding about 25 per solution. This will go down to 12.5 bitcoins per block in 2017. Every four years the number of bitcoins created per 10 minutes will go down by half, until 2139.

How To Mine Bitcoins

For learning about mining (and not creating any bitcoins for a long, long time):

  1. Click “Generate”
  2. Watch as your computer begins solving the bitcoin codes - and makes almost no progress over time.

For those that want to make money with bitcoin mining, here are a few considerations:

  1. Select the lowest cost electricity state possible. CA is among the highest, and here are a few others at either end:

__Lowest-Cost States:__

  • 1. Wyoming
  • 2. Idaho
  • 3. Utah
  • 4. Kentucky
  • 5. West Virginia

__Highest Cost States:__

  • 47. Rhode Island
  • 48. Alaska
  • 49. Connecticut
  • 49. New York
  • 50. Hawaii

2. If you want to have your own rig (BTC mining server), buy a dedicated one, or build one with an ATI graphics cards. ATI offers the most energy efficient cards with among the fastest hash rates in the low end GPU server world. Now miners are going to ASICS and FPGA's.

Here are a few sources to buy the rigs:

We can also buy and assemble our own bitcoin mining rig. This is similar to building our own computer.

  1. We need a power supply. Bigger is better. 500 W + is ideal.
  2. We need a motherboard with multiple graphic card slots.
  3. We need a mid-range processor of either Intel or AMD brand.
  4. We need input output cards to handle extending to other graphics cards.
  5. We need multiple graphics cards from ATI. The faster and more memory the better and at the lowest price possible.

How to assemble and get the system working together is beyond the scope of this article. One of the better resources is from Scribd at:

How To Build A Budget Bitcoin Mining Rig

Fortunately, building our own mining rig is not the best option for mining bitcoins. Much like in the real investment world, the best option is buying shares in a mining group. It’s almost like buying stock, but without the downside risk and plenty of upside. Still, there are risks.

Problems In Mining Bitcoins

Initially, bitcoin mining was not very profitable. With BTC/$ values as low as $.06 - $.30, there was not much incentive to mine too actively. As the value of the bitcoins increased, miners began to make huge margins mining bitcoins. When bitcoin got to the level of about $260, miners could be making 50 -60 times their investment in the mining rig and electricity. The complexity of the puzzles to solve has increased, as has electricity cost, and the number of miners working to solve the next block, all while the $/BTC value crashed. These factors have made it so the individual miner does not stand to make much profit from bitcoin mining unless they invest in serious equipment. Some of the top end bitcoin mining boxes run over $10,000.

A better approach for most would-be bitcoin miners is either to buy into a mining group, or join a mining pool. Mining pools allow individual members to get a smaller piece of the BTC awards given for solving a single block in the chain. Otherwise, an individual miner could be mining for a long time before ever solving the block at the right point to receive their BTC's. Not a wise investment.

We can either build or buy a bitcoin mining rig as previously described, or join a mining group. We would link our solving power with the rest of the group and split the bitcoins awarded based on calculations performed.

You can see one of these mining pools here: Deepbit

This area of bitcoins is ripe for scams, so “buyer beware” applies here.

Categories: Cryptocurrency | Bitcoin

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