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SO YOU JUST BOUGHT SOME BITCOIN, NOW WHAT?

WikiBit 2022-01-23 20:24

Abstract:There are three primary ways to take your Bitcoin participation to the next level: secure your keys, run a node and start mining from home

  Congratulations and welcome to the Bitcoin network! This is the beginning of an exciting adventure full of countless resources, lots of helpful mentors and online friends who can become in-person friends if you go to local meetups or conferences. Not to mention ample hope for the future, as the magnitude of Bitcoins effect on the world is realized.

  The Bitcoin journey can have a noticeable impact on every aspect of life and the rabbit hole is as wide as it is deep. There are an overwhelming number of topics to learn about in myriad disciplines: economics, technology, philosophy, finance, personal responsibility, computer science, energy production, electrical engineering — the list goes on. Even narrowing the list down to matters specifically related to using Bitcoin can be overwhelming.

  This piece is meant to support those who have taken the orange pill, but dont know what to do next.

  Using Bitcoin responsibly means being one‘s own bank. While there are many topics to traverse about Bitcoin, the first necessary step is taking self custody over any bitcoin bought on an exchange. If you’re reading this, you‘ve hopefully set up an account with Swan Bitcoin, Cash App, Strike, River Financial or even Coinbase. Maybe you’ve heard the phrase, “Not your keys, not your bitcoin” and are ready to take the next step with this Bitcoin thing, but don‘t know what to do next. Well, you’re in the right place.

  There are three main ways to interact with the Bitcoin network:

  •   Holding the private key by withdrawing bitcoin from an exchange

  •   Running a Bitcoin full node

  •   Mining bitcoin at home

  •   Getting bitcoin off of the exchange is the absolute bare minimum requirement, while running a full node and mining bitcoin at home are more dedicated ways to participate. Running a node is extremely important to preserving the rules of Bitcoin, such as the hard limit of 21 million bitcoin to ever exist, while mining is a way to strengthen and decentralize the network while earning bitcoin pseudonymous in the process.

      Doing all three paves the way for Bitcoin sovereignty and being your own bank. Although they are reliant on one another on a large scale for the security of the Bitcoin network, each individual can choose if they want to do all of the following or any one of them independently; the choice is up to the user.

      For readers who want more details, the explanations for each topic are in the paragraphs. For readers who are more task-oriented, there is a bulleted list at the end of each section.

    GET BITCOIN OFF AN EXCHANGE

      First and foremost, owning bitcoin requires holding private keys. Some key terms:

    •   Seed phrase: 12 or 24 words that represent a long string of numbers and letters which can generate private keys and public keys. They should never be shared with anyone, ever.

    •   Private key: Can be thought of as a “master key.” Anyone who has a private key is able to spend any and all funds associated with it.

    •   Public key: Derived from a private key. Can be thought of as a “lock.” Anyone who has a public key can create addresses where funds can be sent, but cannot spend them without the private key.

    •   Address: Derived from a public key, an address is used to receive bitcoin. It comes in the form of a string of numbers and letters, starting with a 1, 3, or, most commonly, bc1. It can also be expressed as a QR code, but should be checked against that string of numbers and letters to make sure theyre the same (more on that later).

      Bitcoin is an asset anyone can truly own and have complete control over (as long as they are the only one with the private key). This is because it does not rely on trusted third parties, banks, authority or governments. If bitcoin is on an exchange, it‘s just an IOU. To clarify, if bitcoin is in Cash App, Coinbase, Swan, River, Kraken, Binance, Kucoin, Bittrex or any other place where it was bought from a third-party custodian, it’s most likely a custodial exchange and not in ones own wallet.

      There are a ton of YouTube videos on how to get it off the exchange and into self-custody. There‘s a learning curve, but anyone can do it with a little effort! I’ll explain it in writing for people who learn in this format.

      The first step is to download wallet software. There is software that works without the use of a hardware device and may be a good place to start. The wallet that I like to use is Wasabi Wallet because of the CoinJoin service it offers as well as the capability to connect to my Bitcoin node and hardware devices. It recommends the use of a passphrase, which can absolutely never be forgotten. Ever. After downloading the software, its time to generate a new wallet. Name the wallet and add an (optional) passphrase. Leave the “password” box blank to opt out.

      Next, there will be a page with 12 words (some wallets have 24). Get a notecard or piece of paper and a pen to write these words down. Never save them on a computer. Write them in order on a notecard or piece of paper and put it in a very safe location that will not be forgotten by you or found by anyone else. These 12 (or 24) words are the “seed phrase” which can be used to recreate the private/public keys to access funds.

      If the computer is destroyed, but the seed phrase is safe, the bitcoin is safe. (Bitcoin is stored on the blockchain, not on a device.)

      Once the words are written down, check the box and the wallet will be created. We‘re ready to withdraw Bitcoin from the exchange! Click the “receive” tab and make a label. I usually make the label the exchange where I’m withdrawing from or the person who knows Im using this address. Click “generate receive address” and the wallet software will create a bitcoin address using the public key (think: lock). This will consist of a string of letters and numbers, usually starting with bc1q

      Click the address for it to be copied. Then paste it into the exchange‘s withdrawal menu. There is also a drop down tab to display a QR code for scanning using a phone camera (for exchanges with phone apps such as Cash App). Double and triple check that the address pasted on the exchange’s website matches the one from Wasabi before clicking send.

      Done! Your keys, your bitcoin. Some exchanges have an extra step requiring confirmation by email or another method. This is an added layer of security once the bitcoin transfers off the exchange. No one besides the person who has the private key can access it.

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