This article is for all newcomers to cryptocurrency field. At Coin ATM Radar we receive many requests to register account in order to start using bitcoins and bitcoin ATMs in particular. In order to buy and start using bitcoins, you don’t need to register with any service provider. We will cover the main options how to start using cryptocurrencies, and especially Bitcoin — the most popular cryptocoin as of today.
The first thing you need to do is choosing where to store your bitcoins, when you buy or receive them. There are two main options:
- Store with third-party service provider
- Store on your own in local wallet
You can store them with any of online wallets or exchanges (e.g. Coinbase, Kraken etc), in this case you trust these services, while they fully control access to your bitcoins, so generally you trust them that they will send bitcoins to you or to someone you will want to pay in the future, if you ask them to do so. This is no different from traditional banking, when you don’t control your money, rather banks do and promise you that they will execute your order to pay in the future.
However, the great thing about Bitcoin is that it allows you to fully control your funds without any intermediary and this is done with wallets installed locally on your device, be it mobile phone or computer.
There are a lot of different wallets on the market to choose from. The main criteria to look are:
- it has to be open-source
- should exist for a long time on the market with large number of users
Tutorial of how to set up Mycelium wallet:
Electrum is a light SPV wallet, which means you don’t need to download the full blockchain locally to start using it. You can also use Electrum with most hardware wallets, which allows to increase security level even for not technically advanced users.
The following video provides a tutorial of how to set up Electrum and start using it. Improtant: write down your seed on a paper and store in secure place, don’t send a screenshot to your email address as suggested in video. If your email gets hacked, you will lose bitcoins as well in this case.
Hardware wallet is a separate device, which stores the private keys of your wallet. It is considered a more secure setup, compared to hot-wallets described above (both mobile and PC versions). The advantage here is that you can use even compromised phone or computer in order to make bitcoin payments, while confirmation is still going through device, hence hackers won’t be able to retrieve access to your funds in case they install malicious program / key-logger on your computer.
Trezor is a brand owned by SatoshiLabs s.r.o. — a Czech Republic based company. This is one of the first, if not the first, mass-market hardware wallet, which is very popular among bitcoin users.
How to set up device and start using it is described in the following video:
Trezor device can also be used as a two-factor authentication device or password manager, which are nice add-on features on top of the main functionality.
Since 2018 there will be a new Trezor T version, pre-orders are open now. This model will have large color touch screen, compared to just two buttons of first generation model.
Ledger hardware wallets are provided by french company Ledger SAS. Previously the company provided two cheaper solutions — HW1 and Ledger Nano. At the moment they don’t sell them and software updates are targeted to new devices. Company moved to more secure (with dedicated screen) products, although more expensive: Ledger Nano S and Ledger Blue.
We don’t look at Ledger Blue device, as price is significantly more than Ledger Nano S and all competing products €229 ($265). Ledger Nano S model (on picture above) with a screen is more advanced version of previous Ledger Nano. Screen is relatively small and the device has two buttons. It is a bit cumbersome to reenter your 24 seed recovery phrase, however, practically it is a neat compact device.
How to set up and start using Ledger Nano S hardware wallet is showed in this video:
Ledger Nano S in comparison to Trezor has hardware security module which stores private key separately from main processor, which makes it more resilient to physical attacks. E.g. until recently it was possible to break Trezor device and get access to seed phrase and pin even for a non-technical person. This vulnerability is reportedly fixed with Trezor software update. Ledger device was not prone to this attack at all.
Keepkey initially started as a separately produced hardware wallet, however, mostly building on top of Trezor’s software. Device is unique with its large screen compared to other hardware wallets on the market.
This has several advantages. First of all device fully displays address where the payment is done. Another nice feature of KeepKey is possibility to restore the key from computer and not to worry about potential key-logger tracking key presses, as the characters change on every keyboard hit. Demonstrated in the video:
Price of KeepKey was $99, until recently it was acquired by Shapeshift and since then price policy has changed, now device is sold at $129.
How to set up and start using Keepkey hardware wallet is shown in the following video tutorial:
Security and backup
In most of tutorials users need to create a backup or write a seed phrase. It has to be done totally offline and stored in a secure place.
In a nutshell, in Bitcoin there is a way to deterministically generate plenty of addresses from the 12-, 18- or 24-word phrase. Which means if you have this phrase, you can recover all your addresses from the wallet and also access to the funds stored at any of such addresses.
That is why it is a must that you create an offline recovery option in case something happens with electronic device where you had your keys before., e.g. computer gets broken, or mobile phone gets stolen/lost/broken. You will still be able to get access to your funds.
Remark: Electrum has 13 words as a seed, but generally they use same 12-words scheme with one word used as a check that other 12 are correct.
Randomness of minimum 12 words (each word is selected from the agreed list of 2048 words) is enough to be protected from any brute-force attack of those words. There are totally 5.4*10^39 combinations for 12 words and 3.0*10^79 for 24 word seeds. Just to compare Earth has an estimated 1.3*10^50 number of atoms in it.
Depending on the amount of bitcoins you have, you also need to think about offline risks of storing such a phrase, e.g. in case fire / flood happens or robbery.
There are dedicated devices for these scenarios, e.g. Cryptosteel is a steel made plate, allowing you to define words of choice.
Steel is a very durable material, which means if fire or flood happens — storage medium won’t be damaged and you will be able to access funds when such a plate will be found.
Another risk is someone gets into the place you live and finds the recovery phrase. That means burglar will be able to get access to your funds. Bitcoin is still in its infancy, although mostly everybody have heard of it. So chances that burglar will know what 12-24 word phrase could mean are still low, but it makes sense to think and be prepared for such scenario as well. The recommended way here could be to split your seed phrase in 3 overlapping parts, e.g. 24-word seed to be divided into three 16-words chunks (1-16, 8-24 and third 1-8, 16-24). Then store one at your place and give two others to independent friends or family members. Alternatively, two different bank cells could be rented. To recover the full seed only 2 any pieces out of 3 will be needed, while none of the pieces of words by itself will be sufficient.
Just to repeat what was said before — any of online wallets is less secure compared to local wallets, but there are pros and cons. Online wallets might be more user-friendly and easily accessible, which makes it a practical option for storing small amounts.
Blockchain.info wallet is one of the oldest products on the market. The private keys are stored by the service but in encrypted way with your password. You also need to create backup of your wallet, in order to be able to get access to the funds in case service provider for some reason becomes inaccessible. It will be possible to use recovery phrase with any other wallet, even local ones.
Coinbase wallet is not a wallet per se. It is an exchange platform made convenient for retail customers. You can attach your bank account or credit card once and then quickly purchase bitcoins in the future.
Coinbase also allows you to send and receive funds in BTC directly, so their service can be used as a wallet as well. The difference compared to Blockchain.info is that they fully control access to your bitcoins, so generally there is custodial risk. In case Coinbase restrict access to your funds, you won’t be able to get it.
Buy / sell options
Now when you setup your wallet, and know where to receive bitcoins (one of addresses from your wallet), it is important to understand where one can get bitcoins. There are mainly three options:
- mine it
- earn it
- buy it
Mining is where from originally bitcoins are generated. Miners are network participants, who combine transactions into blocks, and by using computational power (computers, special dedicated devices) put a proof on top of each block, so that it is accepted by the network and is included in the blockchain. Mining nowadays is a specialized business, so it is not an easy set up for ordinary person.
Earning bitcoins is another option. If you provide some services (e.g. work as a freelancer) or sell some products, you can start accept bitcoins as a payment.
Bitcoin ATM is a dedicated device, which exchanges cash for bitcoins and in some cases vice versa. There are at the moment almost 1800 bitcoin ATMs in the world and more than 1000 in the U.S. The process is usually fast. Depending on the amount operators may impose verification procedures, e.g. SMS verification or ID scan. You can check particular listing description on our bitcoin ATM map to find details about it.
Another popular option is to register with any exchange and buy bitcoins online. In this case you highly likely need to pass KYC/AML requirements, e.g. provide your ID, share other details like mobile phone, address etc, and also usually you need to wire funds from your bank. So obviously exchange for cash is not an option with online exchanges.
To name a few out of many exchanges:
There are many others. However, you need to be careful and choose exchange properly. With bitcoin ATMs you convert cash to bitcoins immediately, there is no custodial risk involved. Exchanges on opposite are custodians, as they hold users funds, in fiat currency or cryptocurrency, so if something goes wrong, exchanges might close withdrawals for users, and you won’t get access to your funds. This happened many times in the past.
If you use exchanges for buying bitcoins, it is recommended to wire funds, as soon as they arrive on exchange, buy cryptocurrency and withdraw it immediately to your locally controlled wallet. Don’t hold funds with third parties, as in this case you don’t control keys / access to your bitcoins.
If you have any questions — feel free to ask in comments section below.
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