Bitcoin guide

This guide describes what Bitcoin is and how you use it. If you don't care about the details, you can skip reading and instead head over to Coinbase and sign up. Then pay the Athletium license using their service.

1. Basics

Bitcoin (BTC) is a digital currency that is stored in accounts online. For Bitcoin, an account number is called a Bitcoin address, and always start with 1, 3 or bc1. For example, here is a random Bitcoin address:

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A ledger keeps track of the balance of all addresses. Thousands of online computers (the Bitcoin network) each keep an updated copy of this ledger, to make sure it can't be tampered with. Bitcoin miners are computers that can modify the ledger, which is very intensive work, so they are awarded Bitcoins for their effort (they mine new Bitcoins).

Each Bitcoin address has a secret key, which unlocks it for spending. Here is an example of a key:

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8agcWpm1Gq3fvXB5LaKhGjtwuc

To spend Bitcoin means to move a certain amount from your address to someone else's address. To do this, you issue a transaction request to the Bitcoin network, and wait for a miner to accept it. Each request has a signature on it. Miners look at this signature, to see if its real or fake. Only a person with access to the actual secret key can produce a real signature.

Along with the request you also offer a tip to the miner. The higher the tip, the faster a miner will accept and process your request. A normal tip is $0.50 to get the transfer done in 30 minutes, but can be as low as $0.10 to do it in 24 hours. But there is no time guarantee for transactions - they will happen as soon as a miner accepts them.

The Bitcoin network is not owned by any specific person or company. It is the collaboration of hundreds of thousands of anonymous people. However, it is created in an ingenious way so that it can guarantee that all transactions are made according to the rules. More than 200,000 transactions happen every day, and this guarantee has never been broken since Bitcoin was created in 2009.

The rules are stricter than for traditional money though: Bitcoin transactions are irreversible, which means that there isn't any customer support you can call if you regret a transaction, or if someone got access to your secret key and stole your money.

Bitcoin advantages over traditional currencies:

Bitcoin disadvantages over traditional currencies:

2. Opening an account

To open a Bitcoin account is free. All you have to do is generate a new random address, with its corresponding secret key. It does not have to be registered anywhere to be valid. As soon as you transfer Bitcoin to it, it will be added to the address ledger of the Bitcoin network.

To create a new address, you can for example use Bitaddress.org.

The Bitcoin address ledger is public, which means that the current and historical balance of every address can be seen by anyone. To see it for the random address above, you can for example use Bitref.com.

This makes it easy for both a buyer and seller to prove if a payment has been sent.

It also means that Bitcoin is semi-anonymous. You don't know who owns an address, but you can see what other addresses have paid to and from it. By creating maps of how different addresses relate, someone might figure out your identity. To counter this problem, most addresses are only used once, for one purpose. For example, your Athletium payment address is unique to you, and only used once.

3. Bitcoin wallet services

To send and receive Bitcoin you must interact with the Bitcoin network. The easiest way is by using a digital wallet service. The wallet keeps track of your address and its balance, and lets you do payments. Some wallets are installed on your device (wallet app), others are a service you login to online (wallet website).

Keep in mind that the service you use will have your private key, so it will be in charge of all your Bitcoins. Choose service carefully and from a well known company.

When you use the wallet the first time it creates a backup phrase. This is a random sequence of 12 words, that you write down and store at a secure location. This is the equivalent of a password for all your Bitcoin, so be sure to never show it to anyone. Here is an example:

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The wallet then uses the phrase as the starting point to create a sequence of random addresses to use for the wallet. Each time you send or receive Bitcoin, it uses a new address, to make transactions anonymous. If you lose access to the wallet, just sign up for the service again, enter the backup phrase, and the service can recreate the same sequence of addresses again.

4. How to pick a wallet service

There are different types of Bitcoin wallets:

A) Offline wallet (extreme security, not very practical): You don't store your Bitcoin in a digital wallet, instead you generate an address and secret key yourself (for example using Bitaddress.org), write it down in a secure place, and transfer your Bitcoin to that address. When you want to spend the Bitcoin, you temporarily install a self contained wallet app, do the transaction, and then uninstall it.

B) Self contained wallet app (high security, practical): You install a wallet app that is self contained, which means that it never shares your recovery phrase, addresses or secret keys with a server. Examples:

C) Online wallet (good security, very practical): This is an app or website that acts similar to a bank. In other words, the Bitcoin you own is not stored in an address on the Bitcoin ledger, but in the service's own ledger. All large Bitcoin services are like this. This means slightly higher risk, because they can practice fractional reserve banking with your funds to increase their profit, and they can get hacked. Examples:

It is very uncommon that large Bitcoin services get hacked or have financial problems, but it has happened in the past.

5. How to buy Bitcoin

Once you have a Bitcoin wallet, you can buy bitcoin to store in it. The online wallets (see above) accept credit card payments to do this. They have to follow regulation, so they will ask you to prove your identity. This means that you must enter your name, residential address, email address, phone number, and a picture of your ID card.

Some services (Coinbase, Coinmama) sell you the Bitcoin directly, while other services (Local bitcoins, Kraken) connects you with individual sellers, and help you secure the transaction by the use of escrow.

Some countries have Bitcoin ATMs, where you can insert cash bills, and deposit it to your Bitcoin address.

6. Currency converters

Your digital wallet will show how many Bitcoins 20 USD is, but you can also look it up on the web:

7. Payment confirmation

Useful services to see if Bitcoin has been paid to a specific address. Click a link to see the balance of your Athletium payment:

8. Learn more

Articles and information about Bitcoin: