To follow along in this section, download and install Electrum (http://electrum.org/). If you choose to use a different Bitcoin wallet program, most of the instructions on the following pages should apply to it as well.
When you run Electrum the first time, you’ll be asked to create a new wallet (or restore an old wallet, which we’ll ignore for now).
The next step is specific to Electrum; that is, it is not a standard feature of most Bitcoin wallet programs. The application presents you with a seed, which consists of 12 randomly chosen words, and asks you to write them down. Electrum uses this seed to create your Bitcoin addresses and private keys; therefore, the seed must be kept secret, similar to your private keys. Because we’ll be dealing with only small amounts of bitcoins, you don’t need to be too careful just yet. However, you should start keeping these security details in mind. A major benefit of a seed is that if you lose your computer (say, in a fire or theft), everything—your wallet, your Bitcoin address, your private keys, and (most importantly) your money—can be recovered from the seed.
The next step gives you the option of creating a password. Although the password is optional, it is very important. If your computer is stolen or somehow falls into the wrong hands, the password prevents others from spending your bitcoins. Because Electrum (and other Bitcoin wallet programs) uses the password to store your Bitcoin wallet on your computer in an encrypted form, the wallet is useless without the password. With many other Bitcoin wallet programs if you forget your password, you could permanently lose access to your wallet. But with Electrum, you can restore the wallet from your seed (without needing the password).
In the final step, Electrum requests instructions on how to connect to a remote server. Select Auto connect and then click Next.
The green dot in the bottom-right corner indicates that you are connected to the Bitcoin network. Congratulations! You’ve just set up your first Bitcoin wallet! Now you can fill the wallet with bitcoins.
Acquiring Bitcoins in Your Wallet
On the Receive tab, you should see a list of several Bitcoinreceiving addresses.
You can share these addresses with your friends so they can send you some starting bitcoins—one way to acquire bitcoins! At this point, if you want to put significant money into bitcoins.
To get a small quantity of bitcoins into your wallet—whether from a friend or from a site listed on http://newbiecoins.com/—you’ll have to give that friend or website one of your public Bitcoin addresses. At the time of this writing, a small amount of Bitcoin for testing would be about 0.5 millibitcoin (mBTC). If at the time you are reading, 0.5 mBTC is a lot of money, then feel free to use a smaller amount. A few minutes after your friend (or the site) sends these coins, you should see a balance of 0.5 mBTC in your Electrum wallet. (Actually, your balance will usually update instantaneously.)
Well done! You now own bitcoins, which enables you to look into your future! How? Read on.
Note: Importing private Bitcoin keys into a wallet can be hazardous. You should only import money using private keys when small sums of money are involved, and never use this method as part of a strategy for managing larger sums of money unless you’re an advanced bitcoiner. The comic at the end of this chapter illustrates why working with raw private Bitcoin keys can be very dangerous.
Spending Bitcoins with Your Wallet
Although thousands of merchants now accept bitcoins, you can’t buy much with 0.5 mBTC. You’ll need to scour the Internet for good deals!
Alternatively, for the deal of the century, you can have your fortune read online for the low, low price of 0.1 mBTC.
Visit http://befuddled.org/ to access our fortune-telling website, which we’ve linked directly to a crystal ball. When you send 0.1 mBTC to the server’s Bitcoin address, the server transmits a fortune request to the crystal ball, and it predicts your future.
To get your fortune, use Electrum’s Send function and paste the Website’s Bitcoin address into the Pay to field. In the Amount field, specify 0.1 mBTC (if your units are set to BTC, enter 0.0001; change the default units by choosing Tools4Preferences4Base Unit). Bitcoin transactions also require a fee. In the Fee field, enter 0.1 mBTC as well (this amount may be more than is necessary, but let’s not worry about that for now).
When you click Send, Electrum asks for your password and then confirms that the transaction has been transmitted. Almost immediately, you should see your fortune on the website. Welcome to the future! You’ve just made your first Bitcoin transaction!
Electrum’s History section shows you the transactions you’ve made in the past. Transactions that display the word pending are not yet recorded on the Bitcoin public ledger (which typically occurs about 10 minutes after a transaction is sent).
If you’re not interested in your fortune but want to practice sending bitcoins, you’ll be pleased to know that many charities and non-profit organizations now accept bitcoins. Some provide food for the homeless, defend online privacy rights, and support open source software (including Bitcoin). By searching online, you’ll find numerous non-profit organizations that have posted a Bitcoin address. We recommend giving your free milli-bitcoins to Sean’s Outpost, a charity that feeds the homeless in Pensacola, Florida (its donation Bitcoin address can be found on its website, http://seansoutpost.com/). Unlike with the fortune-telling Web site, you might not receive a response from the website when you donate. But rest assured that the recipients have accepted your bitcoins if Electrum’s History section displays the word confirmed. (Sometimes the confirmation status is indicated by a small dial icon or more than one confirmation is given for the transaction.)
You might be wondering how and where Electrum got a Bitcoin address. The answer is your Bitcoin wallet program.
Bitcoin Addresses Generated by Your Bitcoin Wallet Program
When you run a Bitcoin wallet program, it can generate a new Bitcoin address for you offline. No communication with the Bitcoin network is necessary, an unusual feature that surprises many people. With other addresses or numbers, for example, when you create a new email address, you must first find out whether the address is being used by someone else. The same is true when get a new phone number or when you open an account at a bank. However, when you want a new Bitcoin address, one is chosen at random from all of the possible Bitcoin addresses. What are the odds that a Bitcoin address randomly generated for you will be the same as one generated by someone else? We’ll use an analogy: Consider all the grains of sand on Earth—from all the beaches and deserts. When you choose a single grain at random to be yours and another person chooses a grain of sand at random to be his, the odds that both of you would choose the same grain of sand would be over a trillion times more likely than the odds that you both generate the same Bitcoin address.
While you can create Bitcoin addresses offline, you must be online to see how much money is in your addresses or to send money to others. That’s because these additional actions require you to access the public ledger of Bitcoin, which we’ll discuss next.
For more on Bitcoin for the Befuddled look for the fifth article in this series called The blockchain in a future edition of CDN Now.
About the Author
Conrad Barski has an M.D. from the University of Miami, as well as nearly 20 years of programming experience. Barski is a cartoonist, programmer, and the author of Land of Lisp. He’s been using bitcoins since 2011.
Chris Wilmer holds a Ph.D. in chemical engineering from Northwestern University and is a professor at the University of Pittsburgh. Wilmer’s first purchase with bitcoin was a bag of honey caramels from a farm in Utah. They were delicious.