Setting Up A Wallet
This is a first in a series of articles on how to use bitcoin to purchase items over the internet. In this case, we’ll specifically show the process, from start to finish, of purchasing precious metals through the Veldt website, but the fundamentals in these articles are applicable to any use of bitcoin as money.
Cryptocurrency is rapidly growing as one of the easiest & most secure methods of online transactions, but the concept can be daunting at first. It’s actually quite straightforward, but just requires a little education.
Bitcoin is the most popular of cryptocurrencies, and has seen the most widespread level of adoption. It’s based upon the concept of the “blockchain”: a ledger of encoded digital blocks that form the basis of the currency. Blocks are “mined” (or solved) by a worldwide network of computers, and bit by bit these blocks are distributed into the blockchain.
Bitcoin offers several advantages over fiat currency. Unlike paper, more bitcoins cannot be printed: there is a finite number of them in existence, and the blocks get progressively harder and harder to solve. They are infinitely fungible, which means that you can divide them to any extent as they get more valuable. They are also extremely private: it’s possible to go from funding to purchase entirely anonymously (it’s a little more difficult, but we’ll show you how to protect your privacy in a later article). And once you get set up, bitcoins are incredibly easy to use…easier and quicker, in fact, than any debit or credit card.
So you want to start out using bitcoin to purchase an item online. For our example, we’ll go with an American Eagle silver coin. You’ll first need a bitcoin wallet. This is a program that stores the information pertaining to the bitcoins you own. Since this information is encoded into the blockchain, you can access your wallet from many different places as long as you have the login info.
There are many different wallets available. Some are entirely online, others reside on your computer, and others are only on your iOS phone. For the most security, I recommend finding a wallet that isn’t dependent upon a third-party service. Armory is one of the best options for your computer. Breadwallet is an entirely independent open-source wallet that provides the most security of all, since it’s only accessible via iOS, an entirely enclosed and encrypted environment.
Your wallet will come with an address: a public hash key which is the way you send and receive funds. This is like a bank routing number: it’s safe to give out publicly.
It’s entirely acceptable, and even encouraged, to set up multiple wallets with multiple addresses. This hedges your risk in case one of the wallets was to go down or have technical problems, just like having more than one bank account in case you have a problem with another. This also lets you have a public address, for receiving funds, and a private address, that only you transfer to. You can transfer funds between them as you need. Most wallets charge a “network fee” for using them. This isn’t expensive, though: usually around $0.03 per transaction.
Adding Funds To Your Wallet
From here, you need to fund your wallet. You can purchase bitcoins in many ways: in person with cash (try localbitcoins.org for this service), at ATMs in certain locations, or at an online exchange. Exchanges usually require funding via a bank transfer, but some are introducing the ability to buy bitcoins with debit or credit cards. Purchase the required bitcoins & make sure to send them to your wallet’s address. Your wallet’s address is a long hash key, and you’ll be able to send and receive from this address. For now, simply make sure that the address is where you send the bitcoins you purchase.
There are upsides and downsides to every method of adding funds.
Purchasing bitcoins in person for cash is one of the most simple ways to go about funding your wallet. Localbitcoins.org is the standard site for finding a local seller. There are sellers in nearly every area, who will sell bitcoins for the current market value plus a small premium. The upside is that the process is simple and straightforward, much like buying furniture off Craigslist. You will be able to immediately determine if the transaction went through, and many sites have an escrow feature. The downside is that it requires physically meeting someone in person, and that can be uncomfortable for some people.
Bitcoin ATMs are popping up everywhere. They are usually limited to larger cities at the moment, but if you have one near you it’s an easy and painless way to purchase bitcoin. You can use a card to swipe & immediately have bitcoins transferred to your wallet. The upside is that it’s the easiest and perhaps most painless method, but the downside is that locations are limited and you must travel to one.
There are dozens of bitcoin exchanges on the internet. Some are more reputable than others. Most exchanges require purchase via bank transfer, but a few are beginning to offer debit and credit card functionality. The downside is that exchanges are not bulletproof: even large ones, like Mt. Gox, have been riddled with scandals and eventually even shut down. It is safe to use most of the largest exchanges, but this comes at a potential risk. It’s advised to not leave your bitcoin balances inside the exchange’s wallet: transfer it to your own private wallet for safekeeping. Also, the exchanges often require extensive personal information and validation in order to keep up with the constantly changing governmental regulations surrounding cryptocurrency.
Purchasing An Item With Bitcoin
So you’ve gotten a wallet, purchased some bitcoin, and now you’re ready to buy some gold. You’ve browsed the Veldt website, added a one-ounce American Eagle gold coin to your cart, and you’re ready to check out. Now what do you do?
It’s unbelievably easy. Easier, in fact, than using a bank card to complete an online purchase, and much more secure. One of bitcoin’s primary attractive features is the ability to secure your funds behind an impenetrable digital wall, unlike credit cards which are rife with identity theft and susceptibility to fraudulent activity.
Check out and select the bitcoin button when asked for a method of payment. A bar code will pop up, along with text. You can either send the requested amount of bitcoin manually to the bitcoin wallet address provided, or if you’re using a smartphone wallet you can scan the bar code and your wallet will do it automatically for you.
That’s it! You’re done: the bitcoins will transfer immediately and you have purchased the item. Now, Veldt will process your purchase and ship out your gold.
Purchasing With Privacy
There are a few extra steps to take with using Bitcoin anonymously, especially when you’re concerned with protecting your privacy. With some legwork, people can trace transaction histories in the blockchain, and if steps aren’t taken to conceal your identity from potential fraudulent people or thieves, your purchases could be traced back to who you are.
The first thing to avoid is purchasing bitcoin with credit cards, if at all possible. Anyone with access to your account (either nosy people or flat-out identity thieves) could see the purchase on your statements and know how many bitcoins you’ve purchased. It’s possible to use prepaid cards or cash to avoid this potential security problem.