Bitcoin Survival Guide

Bitcoin Survival Guide: Everything You Need to Know About the Future of Money

  • BY ROBERT MCMILLAN AND CADE METZ

 

Illustration: WIRED

 

The price of a bitcoin topped $900 last week, an enormous surge in value that arrived amidst Congressional hearings where top U.S. financial regulators took a surprisingly rosy view of digital currency. Just 10 months ago, a bitcoin sold for a measly $13.

The spike was big news across the globe, from Washington to Tokyo to China, and it left many asking themselves: “What the hell is a bitcoin?” It’s a good question — not only for those with little understanding of the modern financial system and how it intersects with modern technology, but also for those steeped in the new internet-driven economy that has so quickly remade our world over the last 20 years.

The spike was big news across the globe, from Washington to Tokyo to China, and it left many asking themselves: ‘What the hell is a bitcoin?’

Bitcoin is a digital currency, meaning it’s money controlled and stored entirely by computers spread across the internet, and this money is finding its way to more and more people and businesses around the world. But it’s much more than that, and many people — including the sharpest of internet pioneers as well as seasoned economists — are still struggling to come to terms with its many identities.

With that in mind, we give you this: an idiot’s guide to bitcoin. And there’s no shame in reading. Nowadays, as bitcoin is just beginning to show what it’s capable of, we’re all neophytes.

Bitcoin isn’t just a currency, like dollars or euros or yen. It’s a way of making payments, like PayPal or the Visa credit card network. It lets you hold money, but it also lets you spend it and trade it and move it from place to place, almost as cheaply and easily as you’d send an email.

As the press so often points out, Bitcoin lets you do all this without revealing your identity, a phenomenon that drove its use on The Silk Road, an online marketplace for illegal drugs. But at the same time, it’s a system that operates completely in the public view. All Bitcoin transactions are recorded online for anyone to see, lending a certain transparency to the system, a transparency that can drive a new trust in the economy and subvert the anonymity sought by those on The Silk Road, which the feds shut down last month.

Bitcoin is much more than a money service for illegal operations. It’s a re-imagining of international finance, something that breaks down barriers between countries and frees currency from the control of federal governments. Bitcoin is controlled by open source software that operates according to the laws of mathematics — and by the people who collectively oversee this software. The software runs on thousands of machines across the globe, but it can be changed. It’s just that a majority of those overseeing the software must agree to the change.

In short, Bitcoin is kind of like the internet, but for money.

Birth of the Bitcoin

 

Click to enlarge. Illustration: WIRED
What does that mean, specifically? 

About five years ago, using the pseudonym Satoshi Nakamoto, an anonymous computer programmer or group of programmers built the Bitcoin software system and released it onto the internet. This was something that was designed to run across a large network of machines — called bitcoin miners — and anyone on earth could operate one of these machines.

This distributed software seeded the new currency, creating a small number of bitcoins. Basically, bitcoins are just long digital addresses and balances, stored in an online ledger called the “blockchain.” But the system was also designed so that the currency would slowly expand, and so that people would be encouraged to operate bitcoin miners and keep the system itself growing.

When the system creates new bitcoins, you see, it gives them to the miners. Miners keep track of all the bitcoin transactions and add them to the blockchain ledger, and in exchange, they get the privilege of, every so often, awarding themselves a few extra bitcoins. Right now, 25 bitcoins are paid out to the world’s miners about six times per hour, but that rate changes over time.

Why do these bitcoins have value? It’s pretty simple. They’ve evolved into something that a lot of people want — like a dollar or a yen or the cowry shells swapped for goods on the coast of Africa over 3,000 years ago — and they’re in limited supply. Though the system continues to crank out bitcoins, this will stop when it reaches 21 million, which was designed to happen in about the year 2140.

The idea was to create a currency whose value couldn’t be watered down by some central authority, like the Federal Reserve.

When the system quits making new money, the value of each bitcoin will necessarily rise as demand rises — it’s what’s called a deflationary currency — but although the supply of coins will stop expanding, it will be still be relatively easy to spend. Bitcoins can be broken into tiny pieces. Each bitcoin can be divided into one hundred million units, called Satoshis, after the currency’s founder.

The Key to the System

How do you spend bitcoins? Trade them? Keep people from stealing them? Bitcoin is a math-based currency. That means that the rules that govern bitcoin’s accounting are controlled by cryptography. Basically, if you own some bitcoins, you own a private cryptography key that’s associated with an address on the internet that contains a balance in the public ledger. The address and the private key let you make transactions.

The internet address is something everyone can see. Think of it like a really complicated email address for online payments. Something like this: 1DTAXPKS1Sz7a5hL2Skp8bykwGaEL5JyrZ. If someone wants to send you bitcoins, they need your address.

If you own some bitcoins, what you really own is a private cryptography key that’s associated with an address on the internet

If you want to send your bitcoins to someone else, you need your address and their address — but you also need your private cryptography key. This is an even more complicated string that you use to authorize a payment.

Using the math associated with these keys and addresses, the system’s public network of peer-to-peer computers — the bitcoin miners — check every transaction that happens on the network. If the math doesn’t add up, the transaction is rejected.

Crypto systems like this do get cracked, and the software behind Bitcoin could have flaws in it. But at this point, Bitcoin has been tested pretty thoroughly, and it seems to be pretty darned secure.

For the ordinary people who use this network — the people who do the buying and the selling and the transferring — managing addresses and keys can be a bit of a hassle. But there are many different types of programs — called wallets — that keep track of these numbers for you. You can install a wallet on your computer or your mobile phone, or use one that sits on a website.

With these wallets, you can easily send and receive bitcoins via the net. You can, say, buy a pizza on a site that’s set up to take bitcoin payments. You can donate money to a church. You can even pay for plastic surgery. The number of online merchants accepting bitcoins grows with each passing day.

But you can also make transactions here in the real world. That’s what a mobile wallet is good for. The Pink Cow, a restaurant in Tokyo, plugs into the Bitcoin system via a tablet PC sitting beside its cash register. If you want to pay for your dinner in bitcoins, you hold up your phone and scan a QR code — a kind of bar code — that pops up on the tablet.

 

How to Get a Bitcoin

If all that makes sense and you wanna give it try, the first thing you do is get a wallet. We like blockchain.info, which offers an app that you can download to your phone. Then, once you have a wallet, you need some bitcoins.

In the U.S., the easiest way to buy and sell bitcoins is via a website called Coinbase. For a one percent fee, Coinbase links to your bank account and then acts as a proxy for you, buying and selling bitcoins on an exchange. Coinbase also offers an easy-to-use wallet. You can also make much larger bitcoin purchases on big exchanges like Mt. Gox or Bitstamp, but to trade on these exchanges, you need to first send them cash using costly and time-consuming international wire transfers.

Ironically, the best way to keep bitcoin purchases anonymous is to meet up with someone here in the real world and make a trade.

Yes, you can keep your purchases anonymous — or at least mostly anonymous. If you use a service like Coinbase or Mt. Gox, you’ll have to provide a bank account and identification. But other services, such as LocalBitcoins, let you buy bitcoins without providing personal information. Ironically, the best way to do this is to meet up with someone here in the real world and make the trade in-person.

LocalBitcoins will facilitate such meetups, where one person provides cash and the other then sends bitcoins over the net. Or you can attend a regular Bitcoin meetup in your part the world. Because credit card and bank transactions are reversible and bitcoin transactions are not, you need to be very careful if you’re ever selling bitcoins to an individual. That’s one reason why many sellers like to trade bitcoins for cash.

The old-school way of getting new bitcoins is mining. That means turning your computer into a bitcoin miner, one of those nodes on Bitcoin’s peer-to-peer network. Your machine would run the open source Bitcoin software.

Back in the day, you could do bitcoin mining on your home PC. But as the price of bitcoins has shot up, the mining game has morphed into a bit of a space-race — with professional players, custom-designed hardware, and rapidly expanding processing power.

Today, all of the computers vying for those 25 bitcoins perform 5 quintillion mathematical calculations per second. To put it in perspective, that’s about 150 times as many mathematical operations as the world’s most powerful supercomputer.

And mining can be pretty risky. Companies that build these custom machines typically charge you for the hardware upfront, and every day you wait for delivery is a day when it becomes harder to mine bitcoins. That reduces the amount of money you can earn.

This spring, WIRED tested out a custom-designed system built by a Kansas City, Missouri company called Butterfly Labs. We were lucky enough to receive one of the first 50 units of a $275 machine built by the company.

We hooked it up to a network of mining computers that pool together computing resources and share bitcoin profits. And in six months, it has earned more than 13 bitcoins. That’s more than $10,000 at today’s bitcoin prices. But people who got the machine later than we did (and there were plenty of them) didn’t make quite so much money.

Online Thievery

Once you get your hands on some bitcoins, be careful. If somebody gets access to your Bitcoin wallet or that private key, they can take your money. And in the Bitcoin world, when money is gone, it’s gone for good.

This can be a problem whether you’re running a wallet on your own machine or on a website run by a third party. Recently, hackers busted into a site called inputs.io — which stores bitcoins in digital wallets for people across the globe — and they made off with about $1.2 million in bitcoins.

In the bitcoin world, when money is gone, it’s pretty much gone for good.

So, as their bitcoins start to add up, many pros move their wallets off of their computers. For instance, they’ll save them on a thumb drive that’s not connected to the internet.

Some people will even move their bitcoins into a real physical wallet or onto something else that’s completely separate from the computer world. How is that possible? Basically, they’ll write their private key on a piece of paper. Others will engrave their crypto key on a ring or even on a metal coin.

Sure, you could lose this. But the same goes for a $100 bill.

The good news is that the public nature of the bitcoin ledger may make it theoretically possible to figure out who has stolen your bitcoins. You can always see the address that they were shipped off to, and if you ever link that address to a specific person, then you’ve found your thief.

But don’t count on it. This is an extremely complex process, and researchers are only just beginning to explore the possibilities.

Bitcoin vs. the U.S.A.

Bitcoin is starting to work as a currency, but because of the way it’s built, it also operates as an extremely low-cost money-moving platform. In theory, it could be a threat to PayPal, to Western Union, even to Visa and Mastercard. With Bitcoin, you can move money anywhere in the world without paying the fees.

The process isn’t instant. The miners bundle up those transactions every 10 minutes or so. But today, payment processors like BitPay have stepped in to smooth things out and speed them up.

The feds have stopped short of trying to kill Bitcoin, but they’ve created an atmosphere where anybody who wants to link the U.S. financial system to Bitcoin is going to have to proceed with extreme caution

The trouble is that federal regulators still haven’t quite figured out how to deal with Bitcoin.

The currency is doing OK in China, Japan, parts of Europe, and Canada, but it’s getting its bumpiest ride in the U.S., where authorities are worried about the very features that make Bitcoin so exciting to merchants and entrepreneurs. Here, the feds have stopped short of trying to kill Bitcoin, but they’ve created an atmosphere where anybody who wants to link the U.S. financial system to Bitcoin is going to have to proceed with extreme caution.

Earlier this year, the U.S. Department of Homeland Security closed the U.S. bank accounts belonging to Mt. Gox, which has generally been the world’s largest Bitcoin exchange. Mt. Gox, based in Japan, let U.S. residents trade bitcoins for cash, but it hadn’t registered with the federal government as a money transmitter, and it hadn’t registered in the nearly 50 U.S. states that also require this.

The Homeland Security action against Mt. Gox had an immediate chilling effect in the U.S. Soon, American Bitcoin companies started reporting that their banks were dropping them, but not because they had done anything illegal. The banks simply don’t want the risk.

Now, other Bitcoin companies that have moved fast to operate within the U.S. are facing the possibility of being shut down if they’re not following state and federal guidelines.

Even if the feds were interested in shutting down Bitcoin, they probably couldn’t if they tried, and now, they seem to understand its promise. In testimony on Capitol hill earlier this week, Jennifer Shasky Calvery, the director of the Treasury Department’s Financial Crimes Enforcement Network, said that Bitcoin poses problems, but she also said that it’s a bit like the internet in its earliest days.

“So often, when there is a new type of financial service or a new player in the financial industry, the first reaction by those of us who are concerned about money laundering or terrorist finance is to think about the gaps and the vulnerabilities that it creates in the financial system,” she said. “But it’s also important that we step back and recognize that innovation is a very important part of our economy.”

It is. And Bitcoin richly provides that innovation. It just may take a while for the world to completely catch on.

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Why We Don’t Do What We Want To Do and How to Start

 

Why We Don’t Do What We Want to Do and How to Start

Jump for Joy

“If it is important to you, you will find a way. If not, you’ll find an excuse.” ~Unknown

“The truth is,” she said, “if you can’t put fifteen minutes a day into your art, then you’re making an excuse.”

I squirmed in my seat.

It was February 1, 2011, and I was on the phone, interviewing Michele, a professional artist and artist’s mentor, for an online course I created.

Michele was sharing what she tells the artists in her mentorship program who complain of not having enough time to do their art. Her words were intended for her mentees, but it felt like they were aimed directly at me.

As an artist myself, I knew making art made me happy—made my whole day go better, in fact—and yet I was always too busy to do it. Was I just making an excuse?

I didn’t want to admit this truth to myself, but when confronted with the starkness of Michele’s statement, I had nowhere to hide.

I’d spent years believing I needed big chunks of time to make my art, but if fifteen minutes a day worked for Michele and the serious artists she mentored, maybe I was clinging to a false story, operating under a “self-installed glass ceiling” that was limiting my beliefs about what was possible.

That day changed my life. Once I accepted that my mindset was the only thing really getting in the way of my “impossible dream” of a consistent, prolific art practice, I committed to trying this fifteen minutes a day idea, as an experiment, for one month.

I admit I was skeptical that fifteen minutes would be enough to accomplish much, and I couldn’t imagine that such a short amount of time would even begin to satisfy my hungry inner artist. But waiting until I had big chunks of time to work in my studio had gotten me nowhere.

For over a decade I’d lamented that I never had enough time to do my art. Surely, even fifteen minutes would be better than nothing.

In fact, my fifteen minutes a day experiment resulted in my most prolific year ever. It stretched well beyond that original first month, and in 2011 I created more art than I had in the previous decade—over 150 finished pieces.

But it didn’t just make a difference for my art life. This experiment had effects that rippled out into the rest of my life, too.

When I finally made space in my day—even just a handful of minutes—to do something I loved but had somehow been resisting for years, I realized that my previous “inability” to find a way to make time for my art was, as Michele had said, just an excuse.

However, I had clung to this excuse not because making art wasn’t important to me. To the contrary: it was precisely because it was so very important to me that I couldn’t seem to get myself to do it.

Sometimes we make excuses to avoid unpleasant things, it’s true. But human psychology is complex. Perhaps just as often we make excuses because we want something so much it hurts.

On the surface, this doesn’t make logical sense. Dig a little deeper, though, and things start to become clear.

“If I do this thing that I really want,” we might think, “I might prove once and for all that I’ll never be any good at it.”

Or, “If I try, I might fail.”

Or, “If I step into this bigger identity for myself, I’ll have to let go of my comfy, old identity. People might expect more of me, or they may be threatened or disappointed.”

And, ultimately, “If I do this, everything might change, and change is hard!”

No wonder we resist! It feels so much safer not to try at all.

There are infinite reasons why we make excuses not to do what’s important to us, and the more important something is to us, the more likely we’ll resist it.

How to break the cycle? By looking resistance square in the face and taking responsibility for finding a way instead of finding another excuse. By acknowledging what is really important, and committing to making it a priority.

When I finally took the big, scary step to put just a tiny bit of time toward my art every day, something shifted. I started to notice other ways I’d been avoiding things that were important to me.

Suddenly, the “sensible” reasons I’d given myself for not going after other important goals shone forth as the excuses they really were, like ping pong balls under black light.

As for my story that I didn’t have time to get to the gym or to go walking every day—I accepted that this was simply an excuse, changed the paradigm, and brought the gym to me: I set up a cheap treadmill in my studio, so I can walk while I work at my computer. It’s now a rare day that I don’t walk at least five miles, and ten or more is not unusual!

And about my story that I am, and will always be, something of a slob—I accepted that this was just an excuse, too, and I’ve been clearing out clutter, getting rid of stuff little by little, slowly getting closer to the spacious, organized home and studio I really want.

It won’t happen overnight, but my fifteen minutes a day commitment to my art showed me that baby steps, over time, will take you further than you ever imagined. 

If something is important to you and you haven’t found a way, don’t give up! Don’t just accept that it’s not important to you if your gut tells you that it is, but do look at where you might be spinning stories, creating excuses for yourself.

If you take responsibility that your excuses may be the only thing between you and your dreams, you may be surprised at what you can change in your life.

Photo by Karen Corby

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15 Small Steps to Happiness

By Emma Elsworthy

1. push yourself to get up before the rest of the world – start with 7am, then 6am, then 5:30am. go to the nearest hill with a big coat and a scarf and watch the sun rise.

2. push yourself to fall asleep earlier – start with 11pm, then 10pm, then 9pm. wake up in the morning feeling re-energized and comfortable.

3. erase processed food from your diet. start with no lollies, chips, biscuits, then erase pasta, rice, cereal, then bread. use the rule that if a child couldn’t identify what was in it, you don’t eat it.

4. get into the habit of cooking yourself a beautiful breakfast. fry tomatoes and mushrooms in real butter and garlic, fry an egg, slice up a fresh avocado and squirt way too much lemon on it. sit and eat it and do nothing else.

5. stretch. start by reaching for the sky as hard as you can, then trying to touch your toes. roll your head. stretch your fingers. stretch everything.

6. buy a 1L water bottle. start with pushing yourself to drink the whole thing in a day, then try drinking it twice.

7. buy a beautiful diary and a beautiful black pen. write down everything you do, including dinner dates, appointments, assignments, coffees, what you need to do that day. no detail is too small.

8. strip your bed of your sheets and empty your underwear draw into the washing machine. put a massive scoop of scented fabric softener in there and wash. make your bed in full.

9. organise your room. fold all your clothes (and bag what you don’t want), clean your mirror, your laptop, vacuum the floor. light a beautiful candle.

10. have a luxurious shower with your favourite music playing. wash your hair, scrub your body, brush your teeth. lather your whole body in moisturiser, get familiar with the part between your toes, your inner thighs, the back of your neck.

11. push yourself to go for a walk. take your headphones, go to the beach and walk. smile at strangers walking the other way and be surprised how many smile back. bring your dog and observe the dog’s behaviour. realise you can learn from your dog.

12. message old friends with personal jokes. reminisce. suggest a catch up soon, even if you don’t follow through. push yourself to follow through.

13. think long and hard about what interests you. crime? sex? boarding school? long-forgotten romance etiquette? find a book about it and read it. there is a book about literally everything.

14. become the person you would ideally fall in love with. let cars merge into your lane when driving. pay double for parking tickets and leave a second one in the machine. stick your tongue out at babies. compliment people on their cute clothes. challenge yourself to not ridicule anyone for a whole day. then two. then a week. walk with a straight posture. look people in the eye. ask people about their story. talk to acquaintances so they become friends.

15. lie in the sunshine. daydream about the life you would lead if failure wasn’t a thing. open your eyes. take small steps to make it happen for you.

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"I AM"