The Bitcoin Diaries Day 1: On Obtaining Bitcoin
So after a couple fits and starts, I have started my week living on Bitcoin.
Last week, I successfully transferred $498 for 0.61 BTC at a rate of 1 BTC = $816.39. With my cryptocurrency in hand (not literally, of course), I began my experiment yesterday and plan on sharing daily updates on my progress here.
Part of my delay was self-inflicted, working on other projects here at FDL. But mostly I was spending time confronting the issue all first-time Bitcoin users must grapple with: deciding on the best way to get Bitcoin.
There are two main ways to obtain Bitcoin. The first is to mine it. What this means is taking part in the complex process of maintaining the blockchain, the public ledger of Bitcoin transactions that is essentially the lifeblood of the currency.
Mining requires money, technical know-how and some serious computing power — none of which I have — which means I would have to opt for option number two: swapping cash for Bitcoin.
This is obviously the most popular method for novice Bitcoin users like myself, however even within this option there are a variety of avenues a user could choose:
Buying Bitcoin directly from an individual:
This is by far the most anonymous way to obtain Bitcoin, but potentially the most dangerous. All this method requires is setting up a Bitcoin wallet and finding someone willing to sell you Bitcoin. From there, you meet that person, give them cash and the address of your wallet, and they transfer the Bitcoin to that wallet. Many people arrange these meetups over Reddit, while others choose to find fellow Bitcoin enthusiasts at Meetups.
In the early days of Bitcoin, many of these meetups were smaller, informal affairs but as Bitcoin’s popularity has burgeoned so has the size and intricacy of these events. In fact, in January of this year a Bitcoin center opened in downtown Manhattan where users can learn about the currency, swap Bitcoin and even engage in Bitcoin pit trading.
Using a Bitcoin Exchange:
There are number of online cryptocurrency exchanges available (e.g., Mt. Gox, BTC-E) where one can register and then use wire transfers to obtain their Bitcoin. Depending on where you live and what exchange you use, the registration process can prove difficult (e.g., proving identity, sending verifying documents, etc.). This also obviously presents issues of maintaining anonymity.
Furthermore, these exchanges are also sometimes subject to disruptions. For example, Mt. Gox paused withdrawals on Friday to “obtain a clear technical view of currency processes” – a move that also caused Bitcoin prices to tumble across the board – losing me $50 worth of Bitcoin in the process.
Nevertheless the exchanges are probably still the preferred method of day-traders, as they allow for instant fiat-for-Bitcoin exchanges. However, if centers like the one in New York begin popping up elsewhere, some traders may begin gravitating to those.
Using a Bitcoin Service:
In the past 2 years, a number of startups have launched with the aim of providing a simple method for beginner users to obtain Bitcoin.
Probably the most widely-known such service in the U.S. is Coinbase. Based out of San Francisco, Coinbase was launched in June of 2012, and received a $25 million dollar investment from Andreessen Horowitz in December 2013 – making it by far the most well-funded service in the market.
Coinbase works by allowing customers to verify their bank account and then purchase Bitcoin by making direct bank transfers. These transfers, however, take a few days to complete (although Coinbase now offers an express service for users willing to verify a credit card as well). There are also limits on transactions – meaning the service isn’t ideal for traders, but fine for casual users looking to just get their hands on some Bitcoin.
It’s for this reason that I ultimately decided to get my Bitcoin through Coinbase. Now many of you will probably say, “That defeats the purpose, it destroys your anonymity!” And you’d be 100% right. However, my goal in undertaking this experiment is to simply see what utility Bitcoin has for buying everyday items and accomplishing various activities in New York City. At least for the purposes of this week, I’m not very concerned about anonymity — I am, after all, writing about the whole experience online under my real name. That being said, I appreciate that maintaining anonymity is a major reason behind the growing popularity of Bitcoin and will continue to address this issue throughout the week.
For the time being though, I just wanted to get my hands on Bitcoin in a safe and fairly easy manner. I did that, and I now have 0.4272 BTC to my name. (I already used some to buy a MetroCard and set up a Foodler account – but more on that throughout the week.) I’m currently keeping my Bitcoin on Coinbase – but like many other online wallets, there is an inherent risk in doing so. The Verge even reported on a string of thefts from Coinbase last week. I will, however, discuss the issues with different Bitcoin wallets in greater detail in future posts.
Thanks again for joining in on this adventure, and please feel free to share your ideas, concerns, questions in the comments.
Photo by Antana, used under Creative Commons license