These tips and tricks are my opinion, they are not facts, and may be controversial. They come from personal experience and/or from observing what’s happening in the bitcoin world. Enjoy!
- First Law Of Bitcoin Security: Use Bitcoin only from a secure smartphone or tablet. Never use it with a personal computer or jailbroken device. Desktop-class operating systems just aren’t safe enough to be sure you aren’t leaking your passphrases, private keys and/or wallets to hackers. When it comes to bitcoin, hackers are more determined than ever, because it is far safer and more profitable for them to steal bitcoin than anything else. If you break this law, you better know what you are doing.
- We don’t have decentralized bitcoin exchanges and decentralized online bitcoin services yet. Whenever you use an online service that requires you to trust them, any bitcoin they are holding for you is at risk. Watch this compelling talk by Chris Odom about how trusted entities will no longer be needed. That is one of the founding principles of bitcoin, after all.
- If you want to buy or sell bitcoin on one of the current exchanges, minimize your risk by keeping your bitcoins in your own wallet, and sending them to the exchange only when prices meet your desired target. You can often set up an email notification when the price reaches your target, and then it takes only about a half an hour to send bitcoins to the exchange, have them confirmed, then sell them. Leaving the bitcoins at the exchange with an open order to sell will get you a better price, but then you are greatly increasing your exposure to the risk of losing the bitcoins and getting “goxed”. Similarly, do not leave fiat currency in your exchange account either, it is also at risk, even if slightly less.
- If you use bitcoin, and prefer not to have it stolen, then you should use two-factor authentication for all your related online activities, including –and especially– for email access. If your email provider, file backup service, bitcoin exchange or other important service doesn’t support two-factor authentication, change services.
- First Rule Of Bitcoin Investing: Hold your bitcoins for the longest time. If you spend some, buy more to replace them. Listen to this catchy song on video a few times.
- Never use a regular paper wallet, the private key is not encrypted. Anyone that finds it can steal your bitcoins. Use a BIP38 encrypted paper wallet instead. You can create one using bitaddress.org. You provide a secret passphrase to generate as many encrypted private keys as you need. To redeem bitcoins from an encrypted paper wallet you must have the passphrase. You can now safely leave copies of your paper wallet in a few places, without worrying about theft. Your passphrase must be very complex, but memorizable. 12 truly random words is considered safe. If you are afraid you might forget it, and you don’t keep copies of your paper wallets on a computer, then you can store the passphrase in your encrypted password manager or write it down somewhere nobody would ever likely find it, away from your paper wallets.
- Stop saying there can only be 21 million “bitcoins”. Expressing that limit in terms of “1 BTC” units is arbitrary, as is the BTC unit itself, and it scares people. At the very least, you can say there are 21 billion millibits! A bitcoin is similar to a $1 million dollar bill in that it can also be divided into 100,000,000 units, except instead of calling the units pennies they are called satoshi. People like to own full units of something. Give them smaller units to think about. According to Coinometrics there’s only 2.3 million “USD $1 million dollar bills” (if those existed). That’s ten times less than bitcoin’s 21 million “$1 million dollar bills”.
- Did you know you can send and receive bitcoin using only cell phone text messaging? Try it at Kipochi. Pretty neat. It’s like the “WhatsApp” of bitcoin.
- Did you know there are bitcoin-based stock markets? You can use bitcoin to buy or sell shares of (usually bitcoin-related) companies listed on those stock markets? Sounds great, but they aren’t regulated, and many have closed or have been hacked over the years. However, if you are a risk taker and want to be able to invest in companies such as Neo & Bee, then check out Havelock Investments. Open 24/7. As usual, don’t risk what you can’t afford to lose.
- Did you know every bitcoin transaction is actually a script? Bitcoin employs a limited scripting language that is executed as part of processing the transaction. This is how multi-signature bitcoin transactions mentioned later are possible, and allows for flexible transactions. There is an in-development project called Etherium that is based upon the bitcoin protocol’s principles, but with a complete scripting language and necessary infrastructure to manage and fund their execution. One of the things this will enable are distributed, autonomous applications. These are applications that are run on mining/client nodes and cannot be shut down as long as they are funded. You can have a complete service that runs autonomously and funds itself using “internet money” (bitcoin) and never has to deal with banks and cannot be shut down on someone’s or some government’s whim. Riveting stuff.
- (Hypothesis) A large number of bitcoins were mined in the first years, but lost because people mined them mainly out of curiosity, or for fun. Since then, they then deleted or lost their private keys, or forgot about bitcoin and didn’t know it continued to thrive, gain value, and survive the test of time. Their keys were lost, so the bitcoins are lost. I have not yet seen a good estimate of how many of the current 12.5 million BTC are lost, but the number is possibly in the millions.
- Don’t bother trying to mine bitcoin. It is far more profitable to simply buy and hold some bitcoin itself. You will almost certainly have a far better ROI buying and holding bitcoin than buying and running bitcoin mining equipment. Mine bitcoin only if you want to experiment, or to protect your bitcoin holdings. When you solo mine, or mine as part of smaller pools, you help the network by decentralizing it even more, and you can dilute the effects of bad actors in the mining community.
- Another, better way of helping the bitcoin network is to run a full bitcoin node. A full bitcoin node keeps a copy of the entire blockchain, and helps spread the blockchain and new transactions to other nodes worldwide. To run a full bitcoin node, you need to be running Bitcoin-QT and you need to make sure your router is forwarding port 8333 TCP packets to the computer running Bitcoin-QT. If Bitcoin-QT says you have only 8 connections or less, then you are not running a full bitcoin node and you are instead leeching off the network, because new nodes can’t connect to you to grab some of the blockchain.
- Bitcoin supports N of M signature transactions. For example, you can make it so your bitcoins require at least 2 of 4 different private keys in in order to be spent. You could hold 2 of the keys, so you can spend the bitcoins whenever you want, but give 1 key to your family, and another key to a notary. The notary alone can’t spend your bitcoins, and neither can the family. Your testament can instruct the notary to provide your family with the 2nd key, and then they’ll have the required two keys and therefore have inherited your bitcoins.
Canadians: If you want to buy/sell bitcoin in a serious way, use my affiliate link to sign up on Virtex, the Canadian exchange I recommend.