Bitcoin for Everyone
Lesson 6 – Before You Buy Your First Bitcoin
Transcript of video lesson
Welcome back to Bitcoin for Everyone, an original Coin Academy course designed to introduce you to the world’s most popular alternative currency, Bitcoin. There are 8 lessons in this course. This is lesson number 6 entitled, Before You Buy Your First Bitcoin.
In this lesson, we’re going to be looking at the basics you need to get set up to get going and take those first steps to purchase Bitcoin. Let’s start out though with a very fundamental concept, and we really can’t emphasize this enough. Bottomline, the essence of owning a digital currency is control over data. In the case of Bitcoin, that’s control over your Public Address and your private key. These are two long strings of numbers that you need to keep separate and you need to understand clearly what they are for.
Your Public Address as the name implies, is viewable by the public and should be viewable by the public. There is no security issue here. This is how you receive Bitcoin. If someone wants to pay you, you give them the public address. If you purchase Bitcoin for an exchange, you have it sent to your public address.
In contrast is your Private Key. Again, as the name implies, it should be kept private. It should not be shared with anyone. This is how you send or redeem your Bitcoin. It’s literally the combination to the safe, the key to the safety deposit box. It’s the access to your wallet if you will. If someone has your private key, they can empty out your account. They can send your Bitcoin to someone else. They can transfer it away. The Private Key has to be controlled and you have to secure your private data. It’s an essential and an ongoing task and one that you must be willing to take on, and if you can’t take it on and you can’t maintain it, you shouldn’t be owning digital currency. Particularly, at this point and time when many of the systems are less user-friendly than they might be at a later more mature stage in the digital currency world.
Now, with that behind us, let’s move on and let’s take a look at the basic elements that you need to have in place before you can start to own digital currency. What do you need to get started? It’s actually a pretty short list. You either need a computer or a mobile device. This is where you’re going to keep your wallet and this is how you’re going to access, buy, sell, manage your Bitcoin accounts.
Next, you need that digital wallet which is simply a piece of software, a piece of software that stores data securely for you. And then, of course, you need something of value to exchange for Bitcoin. This could be fiat currency or it could be goods or services. These are really the three essential elements that you need to get started and it’s really all you need, but optionally, you may want to go ahead and join an exchange. An exchange is simply a service, a business that allows you to buy, sell and redeem Bitcoin. There are a number of exchanges out there. We’re going to go through that in just a few slides from now.
But first, let’s take a look at securing your computer. Things you must have. First, you must have a backup routine, and I don’t mean just whenever it occurs to back up your computer, I mean a regular established routine for creating scheduled backups. This is necessary because it helps simply avoid that you’re going to miss a backup and murphy law says the first time you miss a backup is the first time you’ll have a crash, and you’ll lose your data and you’ll be stuck. You can’t retrieve your Bitcoin at that point or whatever data was on the computer.
If you’re on Macintosh, using Mac, there are very good backup programs, the time machine program allows you to sync with a time capsule or another external drive. It’s really a wonderful program. It’s extremely easy to use and very thorough.
If you’re on Windows, there are a number of alternatives to look at to establish backup routines. If you’re on Linux, there are easy ways to set this up as well. But it’s an absolute must and it’s the fundamental of any security protocol. You have to have good backups, without good backups, all hope is lost if something goes wrong.
You also must have anti-virus or malware protection on your computer. This is third party software you install on the computer to help keep it free from Trojans and other attacks, other vectors that can be used by spammers and hackers to gain access to your machine. This becomes super important when you start storing critical financial data on your machine. I know people who own digital currency that have a computer that is for no purpose other than managing their digital currency accounts. That computer is turned on when they need to buy and sell digital currency and then it is turned off. It is not connected to the internet otherwise. This may seem extreme but if we’re talking about large sums of cash, think about it: do you want your wallet readily available for anyone to walk by and reach out and grab it? Do you watch your safety deposit box door left open so when other people walk in the vault they can see what’s inside? No you don’t and this is something you have to decide on a level that the cost-benefit is appropriate for you. You simply can’t be too secure though, that’s the bottom-line.
Optionally, you should have drive encryption. If you’re on Mac, this is very easy to implement. If you’re on Linux, this is very easy to implement. If you’re on Windows, it’s a bit more of a task but it’s worth it. This is a very, very good idea in the case that your computer is stolen.
You also should have a password vault. Now, what is a password vault? It’s simply a piece of software that maintains all of your passwords for you. When you create a new account, you create a new entry in the password vault and you put that password in there. Then, when you close that program, it’s encrypted. And to open it again, you have to enter a password to open the vault and then you can see your data. I love using a password vault because it means I no longer have to remember all these passwords and usernames. It makes my life much, much easier, in addition to boosting my security. I highly recommend finding a good password vault program. There are free ones but even the commercial ones are quite affordable and considering the amount of grief that they save you, they’re totally worth it.
And finally, you should have firewall protection. Firewall protection is for any computer that interfaces with the internet. It is a way of blocking different attack vectors for hackers. If you are on Mac, this is as simple as clicking the checkbox in your system preferences. It is more complicated on Windows and slightly less complicated in Linux. Firewall protection is highly recommended. It is an easy way to add another layer of protection for your machine.
Now, this is what we need to talk about for a computer. Let’s say, however, you decided you want to use your mobile device for handling your digital currency. What can we do to secure our mobile devices? There are only a couple of things you can do. Bottom-line is you must have your passcode protection in place. That’s the code you have to type in to gain access after the phone has gone to sleep and the screen is no longer available to anyone. This is absolutely essential. Put on the strongest protection, the longest passcode you can come up with, or if you have a gesture system, make sure that you have a complex gesture not an obvious simple two-stroke gesture.
You also must have hard drive encryption. Now, where with the computer, we consider hard drive encryption to be optional. With the mobile device, it’s absolutely essential. Why? Because mobile devices get lost, they get stolen and the first thing somebody is going to do is they’re going to try to mine your hard drive for all the personal data that it contains. You must have that encrypted. This is easy on iPhone, fairly easy on Android devices. On Windows phone, it’s a bit more of a task but it’s absolutely a necessity if you’re keeping financial data on your mobile device.
Now, once you have your computer set up and secure, or your mobile device is set up and secure, it’s time to get that piece of software known as a digital wallet. Now, there are different options here. The first option is to take an online digital wallet. Basically, this is a digital wallet that lives on a website somewhere. It’s a service provided by another company. Note that this is your least secure option. Why? Because all of your information is in the hands of a third party and your trusting that they won’t be hacked or compromised. Still, it’s very convenient, you can access it from a variety of different devices and locations. Some people find this to be preferable. Two possible options here are Coinbase, offers a good online wallet that includes 2 factor authentication with your phone, and blockchain.info offers a very nice online wallet as well. Mind you, we aren’t endorsing these services, it’s just some ideas for you to start looking.
Then the next option is to have a computer-based wallet, and one you might want to look at here is called Hive. The third option is to have a mobile-based wallet and an option to look at here is called Mycelium. Once you’ve set up your wallet, you need to turn your thoughts to wallet security. After all, the wallet is the container for your digital currency. This is where your private key and your other information will be stored. First, you need to make sure that your backups are in place. You have to keep your digital wallet backed up in case there’s a disaster or problem you need to be able to restore that data, otherwise, you have lost your Bitcoin and you can’t get them back. Period, end of story.
Next, keep that hard drive encrypted, particularly on your phone, absolute necessity, and frankly, if you’re going to use an offline wallet, that is one on your computer, you also should definitely have your hard drive encrypted. And we also strongly recommend that you employ Two-Factor Authentication, also known as “2FA”.
What is 2 Factor Authentication? Well, when you go to a website and you log in and you put in your password and you’re inside of the site after that, that’s single-factor authentication. Two-Factor Authentication requires an additional step. Either providing personal information that only you know or frequently having an SMS sent to your phone where then you can see that SMS code and you can type that into the blank. And in some cases, biometrics is used as the second factor. 2 Factor Authentication is very good protection against hackers. It’s not bullet proof but it’s significantly stronger than single-factor authentication.
The other option that you should consider is called cold storage. Cold storage is basically physical storage of data. What this would mean is, it would be printing out your Bitcoin and storing them in a physical location. This would be for example your safe or your safety deposit box. But you absolutely, positively must have this locked away. It cannot be lying around where it can be picked up and stolen. Some people again who are very extreme about their Bitcoin security, not only will they have a computer that does nothing but handle this, but they will also transfer all of their Bitcoin holdings to cold storage and then lock it in the safe. That way, there’s not a chance that their computer can be hacked and their information can be taken and their financial holdings lost. Cold storage is where thinking about, it is an additional step. It does require additional maintenance, there is additional overhead for you. But after all, this is your money.
Next, you need to select an exchange. Should you decide to go with an exchange-based trading account? What is an exchange? It’s simply a marketplace for digital currency. It’s where you can buy, sell and redeem Bitcoin and other digital currency. You can move in and out of currency. You can also move between other types of digital currencies. When you are looking for a good exchange, first, check the requirements of the exchange. Do they support your country? Do they support the currency that you want to use? Check out what features they provide. Do they interface with your bank? Do they provide all the various features that you need to move your money in and out safely and in timely fashion?
Next, do they provide Two-Factor authentication? We strongly recommend that you only use providers with Two-Factor authentication. There’ve incidents in the past of exchanges being hacked and people losing their money, losing their Bitcoin. Two-Factor authentication will help overcome that threat.
Next ask, “What is the extent of their reserve?” Ideally, they have a 100% reserve which helps guarantee liquidity and fast turnaround of transactions protecting you from potential fraud. And next, “Do they audit those reserves?” In other words, is this simply a statement on a piece of paper or do they actually, periodically audit them? We want someone with good financial policies and practices in place. They add the layers of protection that we want to be used in this third party service.
And the last thing, you should always do is, find out what sort of a reputation do they have? Simply, Google them. Are there reports of the exchange being hacked? What are other people saying about the exchange? Are they happy users? It’s really a fast way to do some due diligence. Some of the big names in the business are shown on the screen right now. Kraken is a European-based exchange, but all five of these exchanges do provide very good services and they’re definitely worth looking at comparing them and seeing if they meet your requirements and your definition of what will meet your needs.
Now, that’s it for Lesson 6. Inour next lesson, Lesson 7, we’re going to look at how you can actually obtain Bitcoin. Please join us for that lesson.