Intro to bitcoin and wallets walkthrough

[droppin23]

Hello! 
 

I’ve noticed that a nonzero amount of members are either hesitant to get payments set up with bitcoin, or have had a difficult time setting themselves up to purchase or transfer bitcoin. Coming from someone who was very new to crypto currencies 2 years ago, I understand where you guys are coming from. My goal with this is to hopefully make a short and easy to follow guide on how to get set up and ready with bitcoin, and some common myths or misconceptions surrounding bitcoin.

Intro: What is bitcoin?

Bitcoin is an electronic currency and store of value(albeit one that fluctuates wildly). Bitcoin is stored in a wallet(represented with a long string of alphanumeric characters). There are services that hold your bitcoin for you, called exchanges. You are also able to hold bitcoin yourself in what is called cold storage. Examples of cold storage are Electrum, ledger, and trezor. There are more, but these are the most common. You are able to send and receive bitcoin with a certain amount of anonymity. Bitcoin transactions are NON REVERSIBLE and are NOT INSTANT. There are websites such as blockchain . com that allow you to track the progress of your transaction.

Below are ways to get bitcoin, and some pros and cons.

 1. Coinbase

Coinbase is the easiest way to set up purchasing bitcoin with your debit card or bank account. It will require you to verify your identity, and link your bank account and or debit card. Purchases with debit cards give you instant access to your bitcoin, where purchases with your bank account require 3-5 days to clear(obnoxious). It’s that easy! You make purchase using the TRADE button.

2. Sending bitcoin with coinbase

alright you bought your bitcoin after signing up and getting your account fully set up. In order to send bitcoin to another party, you need their RECEIVING address. Once you have the RECEIVING address copied, go to PORTFOLIO on the website. Scroll down to assets, and click on bitcoin. Click send bitcoin, paste the receiving address, and input the correct amount of bitcoin needed to make your transaction. Done!

3. Keeping your Coinbase account secure.

Some of you are going to have a large amount of money in Coinbase at some point and time, and I personally am aware of people who make a large sum of money attempting to steal from Coinbase. We want to avoid this. To lock your account down, we just need to practice correct account security practices! Use a password that you have not used elsewhere before, I personally have keepass2(a password manager) create and store a 64 character password that even I don’t know for my account. TURN ON 2 FACTOR AUTHENTICATION USING GOOGLE AUTHENTICATOR. Do NOT use text verification, as you can be a victim of sim swapping(google it). With those two steps, your account is for all intents and purposes non-accessible to anyone aside from yourself.

4. Issues with coinbase and general do-not’s

Coinbase is highly regulated and can at any time restrict or suspend/close your account if they feel what you are doing is against their terms of service, or the law. This can obviously cause some issues with a lot of things. Coinbase also has your bitcoin address tied to your identity, which is realistically not a problem for most people, but it is something to remember. I do not recommend sending funds directly from Coinbase for ANY purchase.

5. Avoiding Coinbase suspension.

awesome, you got your bank account linked and bought some bitcoin and are ready to make a purchase! You will need to transfer your bitcoin from Coinbase to a cold storage wallet.

6. Cold storage and how to use

I’m going to use electrum as the only example currently, if this guide is well received I will get into ledger next. 

6a. Google “electrum wallet” and download the version correct for your OS. Complete the install, set your password, and electrum is set up! To transfer your btc from Coinbase to your electrum wallet, click RECEIVE in electrum, copy the receiving address, and use step 2 from the guide to send bitcoin to your electrum wallet. You will receive confirmation of incoming mBTC(just a different way to show bitcoin value, you will have the same amount of money that you sent). You are now able to send bitcoin from your electrum wallet and avoid account suspension!! 

7. Droppin23, this all seems great but it seems like I can be easily identified due to Coinbase having my identification, how do I remain anonymous? 
 

To remain as anonymous as you can with bitcoin, with KYC implementation to localbitcoins, this is a bit more obnoxious than it used to be. The easiest(lol)way to anonymously purchase bitcoin is finding someone local to sell you bitcoin for cash. Depending on where you are this will be either super easy or legitimately not an option.
 

The second way that CAN be anonymous is using a bitcoin ATM. There will be a premium on price while using one of these, and you WILL NEED the QR code located on the RECEIVE tab in your electrum wallet. Make the purchase with cash, and scan your QR code when prompted. For purchases of less than $1000, you will need a phone number(can be temporary), and a name entry. For purchases of more than $1000, you will need to register with your ID, defeating the point of the anonymous thing. 

The third way is using localbitcoins to send a moneygram or other transfer service to purchase your bitcoin. There are many options for sellers with this. 
 

This was all kinda typed out last minute so let me know if this is helpful or useless or whatever you think. 

 

[droppin23]

Please feel free to ask other questions related to bitcoin or other currencies and I will do my best to explain them! Also let me know if you feel I was unclear in any part above and I will elaborate. This stuff is really easy to use once you get a little experience!

 

[Jesse]

This is the awesome! It's the guide I wish I'd had when I made my first bitcoin transactions!

I do have a few questions:

1) The first time I used Coinbase, it took 11 days before my bitcoin was released. (Yes, 11, not some sensible number like 7 or 14, or even 5 or 10.) I almost didn't use it again, but still felt too shaky to try anything else. All my subsequent transactions have been released within a matter of hours. Is that normal for Coinbase? I've heard similar stories from other Coinbase users.

2) Is the security rigamarole necessary (a password manager and worrying about SIM swapping...and ok, I do use 2-factor authentication, but I use that on everything) if you simply don't keep any coin in your Coinbase or personal wallet? I only buy the amount I'm going to spend and I transfer it immediately when it becomes available. Do I really need anything more than 2-factor authentication? (I did Google SIM swapping and it seems hard to believe that a nobody like me would be the target of something like bribing cellular company employees. I mean, if you want my collection of obnoxiously cute photos of my pets, you could just ask me. Although I do appreciate having learned about it either way!)

3) How secure is Coinbase in terms of: (a) stability---I've stuck with them partly because they're reputable and I trust them not to take my money and vanish and (b) random account closure? I once sent money overseas to a friend who was getting married. Western Union promptly suspended my account, claiming illegal activity. I could only get my account by providing them with a laundry list of details about my friend and myself, and I was so pissed off I refused to do it. I haven't been able to Western Union since. Do you think we'll encounter something like that with Coinbase in the future?

4) What are our tax obligations with bitcoin? One minor reason I never keep any in my wallet is because if the value goes up, I assume I would owe capital gains tax on that. Otherwise, I can't see how the transaction would be any different than any other purchase. But, again, I've stuck with Coinbase because, if that transaction should be taxed, I assume (perhaps naively) that they're established enough to assess the appropriate taxes.

5) Could you explain tumbling and what's your advice as far as using it? I was surprised you mentioned buying in-person and via ATMs (both of which are not options for a large number of people), but not tumbling. Is that not really so great an option for added anonymity?

Thanks again! This guide was AWESOME!!!

 

[iheartsleep]

Hey man thanks for this post it actually motivated me to try out all this crypto stuff but I have one question, What type of wallet should I create in electrum? (Standard, two factor, etc)

 

[droppin23]

@Jesse yep, super normal for Coinbase to take forever the first transaction. 
 

2. All of the security stuff is NOT necessary in any way for 99% of people. Realistically no one is going to be trying anything like some swapping to get a random Coinbase account, especially when you use it in the way you do(I do not hold anything in Coinbase either). 2FA sms or Authenticator will prevent any issues. I prefer Authenticator, only because I have a ton of websites set up to use it. 

3. Coinbase is extremely stable, not gonna go anywhere. The account closure part is harder to gauge as they will close account they feel are operating illegally. I would say avoid sending transactions for legally ambiguous things directly from Coinbase. For the risk of random closure, I would say 0%. I personally just don’t buy anything from my Coinbase address, but I would say most of their user base uses them as the direct sender for purchases.
 

4. You are SUPPOSED to treat each purchase and sale(aka every transaction) as a taxable event. This is insane and i do not do this. I have found the govt is more than happy with exclusively reporting if you ARE using crypto currencies as an investment. So only report if you are holding and the value jumps significantly and that encourages you to sell or convert to another crypto. 
 

5. I actually meant to get into tumbling but got a bit sleepy lol. Btc tumbling or mixing is a waste of everyone’s time in my opinion. Using a wallet associated to you that sends btc to a mixer kinda adds to the “you’re doing something illegal” narrative if legal issues ever do arise. You theoretically can also still be tracked through tumbling if someone really needed to track you(more a concern for large financial crises but still). Tumbling also takes a few out of your original amount and no one likes that. 
 

the only true fully secure crypto is Monero, but it doesn’t seem to be accepted by many people in any application.

 

[droppin23]

@iheartsleep I have standard, as I pretty much use it to hold btc for 10-20 seconds. Up to you and 2FA will always be more secure.

 

[Kalsima]

@droppin23 I'm embarrassed to say I never have used bitcoins. Thank you for your help and if I need any help someone is usually around to help. Your explanation was helpful.

 

[drjimmy1964]

 once sent money overseas to a friend who was getting married. Western Union promptly suspended my account, claiming illegal activity. I could only get my account by providing them with a laundry list of details about my friend and myself, and I was so pissed off I refused to do it. I haven't been able to Western Union since.

@Jesse I hope this is ok with moderator to ask.   

I know this is an old thread, but I was doing a search on W U and found your post and was curious - did they really say “illegal activity” ?  And you never sent the laundry list right ?  I’m being little nosy because I’m having sort of similar issue but not illegal I was told I travel too much down south o the bore derrr...    and I was wondering if since you posted this maybe you resolved your stance problems with WU ?  (I guess that would mean you’d have to give laundry list eh?).  It really does seem intrusive 

 

[Jesse]

@Jesse I hope this is ok with moderator to ask.   

I know this is an old thread, but I was doing a search on W U and found your post and was curious - did they really say “illegal activity” ?  And you never sent the laundry list right ?  I’m being little nosy because I’m having sort of similar issue but not illegal I was told I travel too much down south o the bore derrr...    and I was wondering if since you posted this maybe you resolved your stance problems with WU ?  (I guess that would mean you’d have to give laundry list eh?).  It really does seem intrusive 

I don't recall the exact wording anymore. They didn't really beat around the bush. As I recall, they did use the phrase "illegal activity," but worded it such that they weren't directly accusing me of it....while basically accusing me of it. In other words, if you couldn't provide this laundry list of things about your friend, they would assume you were sending money for kiddie- or drugs or whatever. I don't recall what the questions were, but they might not have been things I necessarily knew about acquaintance-type friends getting married overseas. No, I haven't made any attempt to resolve it, but I don't use WU overseas very much anyway, and I doubt I'll try in the future if I have some other option.

 

[Clarissa]

I had a similar experience today with WU. Before they would approve my transfer, I got an email requesting additional information and that I had to call within 12 hours or my transfer would be cancelled. WU asked a lot of questions, but the customer service agent helped me with some of the answers. They said it was to prevent fraud and scams. I had to confirm the receiver name, my relationship to them, and the description of funds (he gave me multiple choice like Gift, Donation, Repayment on a loan etc). Then I had to verify my card number and the last time I used WU. It ended up being approved, but next time I’d much rather use BTC. The problem was I only get a weekly spend amount of $300 on Coinbase. Hopefully I can find a way to increase that limit soon. 
 

I actually downloaded CashApp based on chat in another thread, but purchasing BTC almost seems too easy. It took me hours to get verification from Coinbase ( I have an expired driver license thanks to COVID). CashApp just asked for my phone number and bank account and I was able to go to Investments and buy BTC. I didn’t go through with it though. I figured there must be some catch. I’ll need to do more research. 

 

[DoomKitty]

@Clarissa The “catch” with Cashapp and KYC stuff (proof of identity, etc) is they don’t require it to buy bitcoin but you have to go through it if you want to withdraw/spend any.  Or at least that’s how it was when i was using it. 

 

[Jesse]

The problem was I only get a weekly spend amount of $300 on Coinbase. Hopefully I can find a way to increase that limit soon. 
 

I actually downloaded CashApp based on chat in another thread, but purchasing BTC almost seems too easy. It took me hours to get verification from Coinbase ( I have an expired driver license thanks to COVID). CashApp just asked for my phone number and bank account and I was able to go to Investments and buy BTC. I didn’t go through with it though. I figured there must be some catch. I’ll need to do more research. 

Nope, I haven't found any catch with CashApp. Coinbase does get quicker after the first time you use it. The first time took me about a week or so, but now I can transfer it within a matter of hours usually. If there's any catch, it's probably that I've found CashApp to be quicker, but with slightly higher fees.

 

[Clarissa]

@Jesse How do I increase my weekly spend amount on Coinbase?  I also hear people getting kicked out for "inappropriate" spending.  It doesn't sound very decentralized to me.  I studied this entire topic -- Blockchain and Bitcoin -- in college (like 4 years ago), but they never taught us about the spending limits.  All we learned about was mining and creating contracts which is pretty useless here.  I even got a gov't grant to research applications for the blockchain but it's too confusing for most normal industries to understand.

 

[Clarissa]

@DoomKitty So if I want to buy a lot of BTC on CashApp, then I need to do the whole identity thing to send the money or move it to a wallet?  I don't want to spend all this money on BTC and have it stuck somewhere unable to access it.

 

[DoomKitty]

@Clarissa Yes you have to do the KYC identity stuff in order to transfer it to another bitcoin address, so its best to go through all the hoops prior to purchasing to make sure you can do that!

Also, the reason Coinbase makes spending limits and such is to fully and overly comply with banking laws and to prevent any money laundering or fraud and to mitigate other illegal activity.  It has nothing to do with the blockchain itself!  There is a tab somewhere on their website where you can provide additional info to increase your purchase limits.

 

[Clarissa]

@Clarissa Yes you have to do the KYC identity stuff in order to transfer it to another bitcoin address, so its best to go through all the hoops prior to purchasing to make sure you can do that!

Also, the reason Coinbase makes spending limits and such is to fully and overly comply with banking laws and to prevent any money laundering or fraud and to mitigate other illegal activity.  It has nothing to do with the blockchain itself!  There is a tab somewhere on their website where you can provide additional info to increase your purchase limits.

@DoomKitty I luckily got through the KYC with a passport (my license expired during COVID and while it's still valid for a year, Coinbase wouldn't accept it).  Back when I was doing academic research, I don't remember banking laws being allowed to interfere with bitcoin (it went against the philosophy).  Is this a new thing? -- banking laws cooperating with BTC actions?  I know there were ways (illegal/special gov operations) that were able to track illegal activities without banking laws because of the whole anonymity thing.

 

[DoomKitty]

@Clarissa Bitcoin is in no way anonymous, its just decentralized.  Pretty much any "tumbling" has been "de-tumbled" by now unless it is carefully being transferred into an actually anonymous crypto like Monero, and then carefully put back into bitcoin.  Coinbase sells their blockchain analyzer to the Secret Service and other agencies and happily complies with all LE warrants.  Its not about what the "philosophy" of bitcoin is or was, as now its a legal currency and has to follow federal laws.  Im not sure about the history of any specific banking laws and various crypto, but for a company to not be criminally liable in various ways, they have to comply with federal laws around currency/banking. Here's a tidbit from legality of bitcoin wikipedia page:


The US Treasury classified bitcoin as a convertible decentralized virtual currency in 2013. The Commodity Futures Trading Commission, CFTC, classified bitcoin as a commodity in September 2015. Per IRS, bitcoin is taxed as a property.

If money services businesses, including cryptocurrency exchanges, money transmitters, and anonymizing services (known as "mixers" or "tumblers") do a substantial amount of business in the U.S., they are required to

• register with the U.S. FinCEN as a money services business
  
• design and enforce an anti-money laundering (AML) program, and
  
• keep appropriate records and make reports to FinCEN, including Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs)
  

Seventeen other countries have similar AML requirements.[13] As of 2018 U.S. FinCEN receives more than 1,500 SARs per month involving cryptocurrencies.

In September 2016, a federal judge ruled that "Bitcoins are funds within the plain meaning of that term".

I unfortunately know much less than i should about bitcoin lol!!  Also i LOVE your avatar!

 

[Clarissa]

@DoomKitty I hope I'm not giving out too much personal information (a.k.a. my avatar could be a dead giveaway hah).  I did an entire semester of research with a government grant, but the applications of Blockchain and Bitcoin were just too confusing that not even the Math/Science Department Chairs could really figure it out. 

In Satoshi Nakamoto's original white paper, he/she/them writes:

"What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party."

This is what I keep referring to as the "philosophy".

But yes, I did some research and it seems like Coinbase is selling out PII (personally identifiable info) to the DEA, IRS and etc.

https://www.forbes.com/sites/billybambrough/2020/06/10/serious-coinbase-surveillance-warning-sparks-massive-bitcoin-backlash/#129802f22f80

It's possible the Coinbase limits could be set due to the underlying limitations in mining, but who knows because it seems that CashApp has no limits.  I guess everyone should be on high alert. 

 

[DoomKitty]

@Clarissa  Its still decentralized, so the miners are still solving the transactions outside of exchanges/banks/etc (and in that sense trustless), but its definitely not anonymous, and various exchanges do as much as the can to make sure its not anonymous, Coinbase being by far the worst.  So the philosophy is still being held up, its just that Nakamoto maybe didnt implement their idea quite as well as maybe they should have, so the anonymity isn't there.  Though im not sure anonymity was something Nakamoto thinking about?!!?  There are ways to acquire bitcoin without the KYC stuff, like with the peer-to-peer app Bisq and similar.  Even a lot of what used to be non-KYC places like localbitcoins.com have turned KYC for legal reasons.  Also look into Monero for a decentralized and (so far) completely anonymous crypto.  Oh, and I don't think the Coinbase limits are based on mining limitations, as even just a week ago someone transferred 166 million in bitcoin!  That's rad you did a research semester on blockchain stuffs!  I only barely understand the basics, I wish i could understand the details of it all more, but its waaaaaaaaay beyond my brain!