Peter Kent - Cryptocurrency All-in-One For Dummies

The semi-anonymous nature of Bitcoins — combined with the inability to do a charge back — make it tough to get your money back. Plus, governments do not currently offer protection for Bitcoin transactions, so you’re up that proverbial creek without a paddle.

Fraudsters will try to win your trust by sending fake IDs or even impersonating other people you may know. Always double-check the information they send you.

The best way to dodge this sort of scam is to listen to your instincts and never put more Bitcoins at risk than you’re willing to lose. If there is a way to verify the identity of the person offline, do so.

Crazy get-rich-quick schemes have proliferated in the cryptocurrency world. The good news is: It’s easy to recognize them if you know what to look for.

Often, you are promised massive returns, and there is some kind of recruitment and indoctrination process. This process could include things like sales training, asking you to recruit your friends and family, and promising that this is a risk-free investment and that you’ll never lose your money. In this situation, never give anyone access to your private keys.

The bottom line: If a scheme looks too good to be true, it probably is. No matter what, take a hard look at how the investment is generating value outside of what you’ll receive from your investment. If there is no clear and rational reason that a significant amount of value is generated, it’s a scam.

Run all investments by a lawyer and a CPA. They can help you understand your risks and tax implications.

You can get started earning Bitcoins in a variety of ways. Mining for Bitcoin is how you earn Bitcoins by participating in the network. It’s usually handled by special mining hardware that is expensive and specialized. The equipment also needs Bitcoin mining software to connect to the blockchain and your mining pool (a collaboration of many miners jointly working together and then splitting the rewards of their efforts; see Book 6, Chapter 3for more about pool mining).

Here are three standard ways to explore mining Bitcoin:

Bitcoin-QT: The Bitcoin-QT client is the original software written by Satoshi Nakamoto. You can download it at https://bitcoin.org/en/download .

CGMiner: CGMiner is one of the most popular mining software applications. It is open source and available for Windows, Linux, and iOS at www.github.com/ckolivas/cgminer .

Multiminerapp: The MultiMiner app is an easy Bitcoin client to run. You can download it at www.multiminerapp.com .

Bitcoin is a very competitive environment, and unless you buy specialized mining equipment, you may never earn any Bitcoins. The industry is constantly changing and equipment can become quickly out of date. Expect to pay between $500 and $5,000 per machine on average. For more information, head to Book 6, which goes into much more detail about cryptocurrency mining, including what equipment you need and other cost and risk factors.

A paper wallet is a paper copy of your public and private key for your Bitcoins. Because they’re completely offline, paper wallets are one of the most secure ways to hold Bitcoins when created correctly. The advantage is that your private key is not stored digitally, so it isn’t subject to hacking. Making a paper wallet is fairly easy. Just follow these steps:

1 Go to www.bitaddress.org .

2 Move your mouse around the screen until the amount of randomness shows 100%.

3 Click the Paper Wallet button.This gives you the option to create a paper wallet that you can print.

4 In the Addresses to Generate field, enter 1.You can make several wallets at once, if you need to, but you might as well just start with one to get the hang of it.

5 Click the Generate button.Figure 4-2 shows a paper wallet.

6 Click the Print button. Do not let anyone watch you create your paper wallet. This isn’t something you want to do at a public computer. Make sure to use a printer that is private and not connected to the Internet so you’re not at risk of your private keys being hacked.

Laminate your paper wallet to make it a little more durable.

FIGURE 4-2:A paper wallet.

Chapter 5

IN THIS CHAPTER

Seeing how and why Ethereum started

Discovering the Ethereum blockchain

Uncovering blockchain hacks

Getting started with Ethereum

Creating a decentralized autonomous organization

Creating your own token

Building smart contracts and decentralized corporations

The Ethereum project is one of the most developed and accessible blockchains in the ecosystem. It is also an industry leader in blockchain innovation and use cases. Understanding this technology is essential because it’s leading the charge in smart contracts, decentralized organizations, and token offerings.

This chapter covers the makeup of Ethereum and explains the new way to build organizations and companies on the Ethereum blockchain. It also goes into safety and practical business applications of the Ethereum blockchain, including how the project started and where it plans to go.

This chapter sets you up to create your own decentralized organization and explains how to mine the cryptocurrency on the test net to fuel your projects. After reading this chapter, you’ll be able to set up your own Ethereum wallet and trade the token. You’ll also be able to generate your own custom token that can be traded globally. Consider this chapter your introduction to Ethereum. To dive deeper into Ethereum, check out Book 4.

Ethereum was first described in 2013 in a white paper written by Vitalik Buterin, who was very active in the Bitcoin community as a writer and programmer. Buterin saw that there was significantly more potential in Bitcoin than the ability to move value without a central authority. He had been contributing to the colored coin effort within Bitcoin to expand the utility of Bitcoin beyond the trade of its native token. Buterin believed that other business and government use cases that require a central authority to control them could also be built with blockchain structures.