Creating your personal bitcoin vault

Want to invest in bitcoin but don’t want to trust the security of your coins to a third party? You need to set up your own personal bitcoin vault! Follow the steps in this guide to get started. If you need one-on-one assistance with the process, I am available for private consulting.

Step 1. Buy a hardware wallet

Hardware wallets are devices that keep your bitcoin private keys permanently offline. Private keys are the files that are needed to sign bitcoin transactions and authorize transfers to other bitcoin addresses. If your private keys are stored on a computer that is “online” – that is, connected to the internet – then there is a risk that the private keys could be compromised by a remote hacker via malware that you unintentionally installed on your computer.

By storing private keys permanently offline, hardware wallets limit your risk to physical security threats. This means that a thief would have to have physical access to the hardware wallet in order to even have a chance at stealing your bitcoin. As we will see later in this guide, even physical access will not be enough for a thief to steal your bitcoin if it is properly stored in a hardware wallet.

Hardware wallet options that I can recommend based on first- or second-hand experience:

  • Ledger Nano S
  • Trezor
  • KeepKey

Step 2. Set up your hardware wallet

After you have received your hardware wallet, you will need to set it up. Steps vary depending on which hardware wallet you have purchased; step-by-step instructions are included with each device. Generally, these steps will include downloading the local app that is used to manage your hardware wallet, writing down your hardware wallet’s backup phrase, and adding a PIN to protect against thieves who gain physical access to your hardware wallet.

Step 3. Protect your backup phrase

The backup phrase that is generated when you first setup the wallet is essential to protect in case anything happens to the hardware wallet itself, such as loss, theft, or breakage. This backup phrase will consist of 12 or 24 words that you’ll need to recover your wallet if anything happens to it.

The easiest way to protect this backup phrase is to write it down. But then you have to think about how to protect this written copy – if anyone gains access to it, they’ll be able to recover your wallet just as easily as you could and move your bitcoin to their own address. So you need to treat your backup phrase just as sensitively as you would physical cash, jewelry, precious metals, social security cards, and other valuables.

Let’s say, for example, that your hardware wallet backup phrase is 24 words. You could protect this backup phrase a few different ways, depending on your risk tolerance:

  • You could write down all 24 words in one place and put them in a safe with other valuables.
  • You could write 12 of the words down on one piece of paper and keep it in your safe, and write the other 12 words down on another piece of paper and store that piece of paper in a separate location, such as a safety deposit box. Then, you (and any prospective thieves) will need access to both pieces of paper in both separate locations in order to recover the wallet.
  • In addition to storing 12 of the words in one location and the other 12 words in another location, you could also send one copy of one of the sets of 12 words to one trusted associate and one copy of the other set of 12 words to another trusted associate. These trusted associates could be, for example, a family member and a lawyer. Then, if anything happens to either or both of your own copies of either set of 12 words, you can ask your trusted associates to send you the copies you shared with them. Additionally, if anything happens to you, and your own copies become irrecoverable, you can leave instructions with your lawyer for both of the trusted associates to combine their copies of the words to recover your wallet and execute your will.
  • If you are storing a lot of value in your hardware wallet, you may consider using a tool like Cryptosteel to ensure that each copy of your backup phrase is protected against fires, floods, and electrical storms.

Step 4. Purchase bitcoin and transfer it to an address generated by your hardware wallet

Choose a service to purchase bitcoin and complete any steps that may be required to initiate your purchase (such as ID verification and adding two-step authentication – you want to make sure you add two-step authentication to all services that offer this). Use the local app that is required to manage your hardware wallet to create a new bitcoin address.

When you are ready to transfer your bitcoin to your hardware wallet, copy+paste the address you generated with your wallet’s local app into the withdrawal window of the service you bought bitcoin from. Double-check that the address you pasted matches the address generated by your hardware wallet, then withdraw the funds. Within a few seconds to a few minutes, you should see the bitcoin appear in your local app.

Options to purchase bitcoin that I can recommend based on first- or second-hand experience:

  • Gemini – allows you to purchase bitcoin with a bank account in the US. Suitable for advanced traders who understand financial markets.
  • Kraken – allows you to purchase bitcoin with a bank account in many countries. Suitable for advanced traders who understand financial markets.
  • Genesis Trading – allows you to purchase bitcoin with a bank account in the US. This service is most useful if you want to buy large blocks of bitcoin ($25,000+) OTC. If you do business with them, tell them John Light sent you.
  • LocalBitcoins – allows you to purchase bitcoin with a variety of payment methods, including cash or bank transfer, from traders in their marketplace. The quality of each transaction varies depending on the trader you choose to buy from.
  • Mycelium LocalTrader – allows you to purchase bitcoin with cash from local traders in their marketplace. The quality of each transaction varies depending on the trader you choose to buy from.
  • CoinATMRadar – this website will help you find a Bitcoin ATM near you where you can buy bitcoin with cash. Bitcoin ATMs often add a steep markup but offer the convenience of being able to buy your bitcoin same day, on the spot.
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Banking on the Blockchain: A Bitcoin Guide for the Unbanked

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Bitcoin is an open payment protocol that gives users the ability to transact electronically without the need for a trusted third party such as a bank or payment processor – think of it like email for money. In the same way that anyone can create an email account to send and receive email, anyone can create a bitcoin account to send and receive bitcoin. Because anyone can open an account or help process payments, no single trusted third party is capable of shutting down the network, closing accounts, or blocking payments. This makes bitcoin a potentially valuable tool for unbanked people who need a way to participate in the modern economy but for whatever reason are unable or unwilling to open a bank account.

An increasingly viable option.

Unbanked people typically rely on a patchwork of services to approximate participation in the modern economy, using some combination of check cashing services, remittance networks, pre-paid gift cards, and mobile money, all of which are expensive and/or inconvenient to deal with. Bitcoin can provide an alternative to all of these services by providing a free account to store, send, and receive money with, enabling easy electronic transactions with anyone else who uses bitcoin. Given the increasing availability of cheap, Internet-connected smart phones and free wifi in public areas such as libraries and cafes, most people in the developed world and a growing number of people in the developing world can now bank on the blockchain.

To BTC, or not to BTC?

Since there is no trusted third party that controls the bitcoin network, there is also no trusted third party that pegs the price of bitcoin (abbreviated “BTC”) to a relatively stable asset like US dollars (USD). Instead, the price of bitcoin freely fluctuates based on supply and demand, which is affected by changes in the bitcoin market and the broader economy. People who want to bank on the blockchain but avoid the price volatility of bitcoin can do so using third party currencies that are pegged to familiar assets like USD.

Once a holder of “blockchain USD” is ready to transfer their money, they can either send the USD directly to the recipient if they will accept it, or first convert the USD back into bitcoin and then send the bitcoin to the recipient. There are instant exchange services that make this process convenient for people who want to use bitcoin with third party currencies. Bitcoin can also be immediately exchanged for cash or stored value cards when it is received.

Banking on the blockchain.

This guide will assume you have an Android smart phone, although it is possible to use similar apps for the desktop, tablet, or iOS platforms. Most of the instructions below are only needed for a one-time set-up. After you’ve gone through these steps once, you’ll be able to quickly send and receive bitcoin.

First, you need to download a bitcoin wallet. This app stores all of your bitcoin account information.

Download + install the Bitcoin Wallet app.

Your bitcoin wallet will create a new account for each transaction. This is a security measure that can make it harder for thieves to compromise your account. Each account is made up of an address, which is needed to receive money, and a private key, which is needed to send money. The address starts with a “1” or a “3”, followed by a long string of letters and numbers that you can copy+paste into a payment request. This address is designed to be unique so that no one else can generate the same address and spend your money. The address is also displayed as a square QR code that can be scanned by people who want to send you money with their own mobile bitcoin wallet app.

Bitcoin address and QR code.

There are two simple ways for you to get money into your bitcoin wallet:

  • Earn bitcoin by selling goods or services to someone who has bitcoin
  • Buy bitcoin with cash from someone who has bitcoin and is willing to sell

To earn bitcoin, you can create a listing on a bitcoin job board or marketplace. If you already have a customer base for your business, tell them you accept bitcoin and offer a nominal discount for paying with bitcoin e.g. 2% off. If you are employed by someone else, you can sign up for a service that will make it easy for you to get paid in BTC without any cooperation needed from your employer.

To buy bitcoin with cash, you can use a marketplace like LocalBitcoins to find a well-rated trader in your area who will sell you bitcoin, or you can visit a local meetup to meet the community and see if someone is willing to trade. Set up the meeting with your trading partner in a public place with Internet like a cafe or library. Meeting bitcoin traders in person is a great way to learn from someone who is knowledgeable, and will help you secure a consistent source of bitcoin or cash when you need it. Another cash option that is increasingly viable is to find a Bitcoin Teller Machine (BTM) nearby. These machines accept cash and dispense bitcoin.

Once you have bitcoin in your wallet and the transaction has at least one confirmation, you can make purchases, transfer the bitcoin into long-term storage, or send bitcoin to someone who needs money. Bitcoin can be a great way to send money to family and friends overseas. Payments are usually confirmed within an hour, and each transaction requires fees of only a few cents USD no matter how large the amount or how far the money is being sent. The recipient can then spend the bitcoin, use a local exchange to cash out the bitcoin for local currency, or save the bitcoin in their own wallet.

There are over 100,000 merchants that accept bitcoin today, including gift card resellers that make it easy to spend bitcoin at stores that don’t yet accept bitcoin directly. For example, you can save as much as 20% or more on Amazon orders when you pay with bitcoin through Purse. This is just one of the many services that exists to help you save money when you use bitcoin.

To send someone bitcoin, press “send coins” in your bitcoin wallet and either copy+paste the recipient’s address or click the camera icon to scan their QR code.

Copy the recipient’s bitcoin address.
Paste the recipient’s address or scan their QR code.

Protect your bits.

One nice thing about banks is that they’re usually pretty good at keeping their customer’s money safe. This is a skill that has taken hundreds of years of experience and many billions of dollars in combined security costs to master. As a digital banking platform, bitcoin offers several unique security features that are free and easy to use. The first feature is the ability to back-up your wallet. To do this, first press the “three stacked circles” menu icon to access the main menu in your bitcoin wallet app, then press the “Safety” button:

Bitcoin Wallet main menu.

Next, press the “Back up wallet” button:

“Back up wallet” in
“Back up wallet” in “Safety” menu.

You will be prompted to enter a password. Make it a good one, something easy for you to remember but hard for others to guess. You can use a password manager app if this helps, just know that if you lose access to your password then you will lose access to your backup.

Use a password to protect your wallet back-up.
Use a password to protect your wallet back-up.

The back-up will be saved to your phone’s memory card or internal memory. The bitcoin wallet app will tell you where it is saved on the device after you’ve added a password to protect the back-up. To secure your back-up, either email the back-up file to an email account you will be able to access if you lose your phone or transfer the file to another computer and make other backups from there, such as USB, CD, and paper backup copies. After you’ve secured your back-up, if you lose your phone or somehow delete your wallet from your phone, you can download the Bitcoin Wallet app again and recover your wallet. To do this, first transfer the back-up file to your smart phone by downloading it from your email account or by connecting a USB cable or microSD card, then open the Bitcoin Wallet app. Navigate to the main menu and press the “Safety” button, then press the “Restore wallet” button:

Restore the wallet back-up.
Restore the wallet back-up.

You will be asked to select which back-up you want to restore. Pick the one you want, then enter the password you created when you first made your back-up copy. Then press “Restore.” Your wallet will take a few minutes to re-sync with the network, then all of your funds should be restored and your balance will be the same as it was before you lost your wallet. Try that with paper money!

The second feature that your bitcoin wallet offers that you can use to protect your funds is the ability to set a PIN that must be entered before each send transaction. This is to protect your funds from being spent by someone who gains access to your phone. Again, navigate to the main menu in your bitcoin wallet and press the Safety button, then press “Set spending PIN.” Your PIN can be as long as you want. Just make sure you can remember it, otherwise you won’t be able to spend your money.

Set a PIN.
Set a PIN.

Write down your back-up password and PIN and store the piece of paper somewhere safe where you can access it in case you lose your phone or forget your password or PIN. You can also write down a second copy of the password and PIN and give the copy to someone you trust just in case something happens to your copy. This will help prevent unnecessary and unfortunate loss of your bitcoin funds.

Another feature you can use to secure your funds is the multisignature account feature. This requires the use of a different app and multiple devices, and will be covered in a future blog post.

A relatively recent innovation that people are using to secure their bitcoin are hardware wallets. These are specialized devices that store bitcoin private keys offline, keeping your bitcoin safe from hackers who might install a virus on your device to try and steal your bitcoin. Hardware wallets will also be covered in a future blog post.

A new world of opportunity.

Bitcoin is a powerful new technology that gives anyone on the internet open access to the digital economy. Agree? Disagree? Share your ideas or questions about how bitcoin can help the unbanked in the comment section below.

Bitcoin image via Zach Copley [license]

First Edition of Bitcoin: Be Your Own Bank is now on sale!

After a public review period of the first draft, I am excited to announce today that the official First Edition eBook version of Bitcoin: Be Your Own Bank is now for sale on Gitbook. Everyone who pre-ordered the book will have already received PDF and epub copies of the book in their inbox by the time this post is published. If you weren’t one of the people who pre-ordered the book, you can pick up your own copy for $9 by visiting Gitbook. You can also click here to pay with bitcoin, and your copy of the ebook will be delivered to the provided email address within 24 hours. I am also working on making hardcover copies and additional distribution channels available as well – subscribe through the email signup form on the sidebar of this website to be alerted when this happens.

Many thanks to everyone who was involved in the drafting and publishing of this First Edition of Bitcoin: Be Your Own Bank, your help has been invaluable and most appreciated!

First Edition Draft Published

The First Edition release of Bitcoin: Be Your Own Bank is just around the corner. Today, the final revisions were pushed to Github for public review and comment. By the end of the month, the book should be ready for both print and digital distribution. It’s been a long time coming, but it’s finally done: this First Edition version will contain the most up-to-date information about the many ways you can use bitcoin to be your own bank. I will continue to update the book as needed on a rolling basis, but this First Edition will mark the first major release.

Some changes since the version 1 release:

New title – based on a recommendation by Harlan T. Wood, the title has been changed from BYOB: Using Bitcoin to Be Your Own Bank to the less wordy and more straightforward Bitcoin: Be Your Own Bank. Thanks to Harlan for his suggestions and help getting started with Github.

New cover – with the new title comes a new cover, designed once again by Rob Mitchell of Paperclip Robot. This cover reflects the move towards more straightforward branding and minimalist aesthetics.

Two new chapters – chapters featuring information about the blockchain and colored coins have been added to the book. The blockchain is the most important piece of the bitcoin puzzle, and full nodes are needed to help build, store, and distribute it. Learn more about the blockchain in Chapter 1. Colored coins provide a way to represent non-bitcoin assets on the blockchain, assets such as property titles, shares in a company, votes in an organization, identities, and more. Learn more about Colored Coins in Chapter 6.

Updated chapter titles – some chapter titles have been updated to more accurately reflect the content of each chapter.

More pictures – who doesn’t like pictures?

I hope you’re as excited about this release as I am! Head on over to the BYOB Github repo if you want to read the First Edition draft before it’s released in print and digital format; just click one of the chapters in the file list to start reading. I welcome you to share your comments or questions by creating an issue on Github or by sending me a message through my website.

BYOB v1 Release

I am happy to announce that today I am releasing version 1 of BYOB: Using Bitcoin to Be Your Own Bank. This release features the following chapters:

Chapter 1: Mining Bitcoin
Chapter 2: Storing, Sending, and Receiving Bitcoin
Chapter 3: Crowdfunding With Bitcoin
Chapter 4: Notarizing Digital Files With Bitcoin
Appendix A: Checklist for long-term bitcoin storage

I am already beginning work on version 2, which will feature an extra chapter on colored coins plus additional appendices featuring instructions for sending cold storage and multisignature transactions.

Instructional videos to accompany this guide will be released throughout the week. Physical copies of the book will be printed and mailed to people who ordered them by the end of this month.

Thank you to everyone who ordered through the BYOB Indiegogo campaign for your patience and support. I look forward to your feedback on the progress so far and the work yet to be done.

Proof of Existence

Document hash:

84f34439270ea75b9f166304a84e5b5b5219393bb9660c1fc79212344e605e2d

Why I Chose Indiegogo Over Kickstarter to Crowdfund “BYOB”

Yesterday, I publicly launched the crowdfunding campaign for my upcoming online course and e-book entitled “BYOB: Using Bitcoin to Be Your Own Bank.” While I wish I could have followed in ind.ie‘s footsteps and crowdfunded “indie-style,” they haven’t open-sourced their tools yet, and I wanted to launch this campaign before the holiday season was over. So I had to choose between the top two websites that I knew of: Kickstarter or Indiegogo. I got the idea for my campaign from an Entrepreneur article I read a while back about an entrepreneur who made over $60,000 using Kickstarter to pre-sell access to a course that teaches people to code iPhone apps, so initially I was going to use that platform for my campaign as well. I started filling out all of the campaign details while I was at an airport, thinking I could finish setting up the campaign in the hour before my flight left. I was wrong.

Kickstarter was difficult to deal with from the start: the website was running way too many scripts in my browser, and with NoScript and Ghostery blocking everything even remotely sketchy, the site was basically non-functional. After biting the bullet and allowing everything but the most sketchy of scripts to run, I was able to begin constructing the profile. Where I really hit a snag was when I got to the section about payment details. Kickstarter has partnered with Amazon Payments and required that I not only verify my identity on Kickstarter, which required answering invasive questions and confirming personal information that I’m shocked they even know, but verify my identity on Amazon as well, which asked for my full social security number, home address, phone number, and email address. This is where I drew the line and gave up on Kickstarter. None of that information is relevant to running a crowdfunding campaign. Ok, maybe they want to know who I am so that recourse is possible if I don’t deliver – fine. That doesn’t require me to give strangers on the internet all of the information necessary to steal my identity.

So I deleted the Kickstarter campaign and created an account on Indiegogo, hoping I wouldn’t be subjected to the same invasive procedure as before. The site had about the same number of scripts running on it as Kickstarter, and the trackers that Ghostery picked up were mostly social or analytics, which I switched off anyway. When I started creating my campaign, I skipped ahead to the payments section and was pleasantly surprised. No invasive questions, just two check boxes: bank deposit and PayPal. I checked both options and entered my payment details, clicked “submit,” and received a friendly “verified” badge. That was it. I smiled from ear to ear and proceeded to fill out the rest of the Indiegogo campaign. About 30 minutes later, I was done. That was easy!

I launched the crowdfunding campaign then and there and sent the link to close friends and family, then shared the link with my followers on Twitter. The campaign was quiet through the weekend, then I launched it to the public on Monday morning. I have since received $151 out of my $2000 goal, which is set as “flexible funding” so that even if I don’t hit my target I still get paid (I chose this option since there are no hard costs to fulfilling the rewards and I want to create the course and e-book whether I hit my goal or not). Progress has also been made in non-monetary ways. I received a private message from someone offering to help design the book cover, and Udemy approved my application to become a paid instructor on their platform. I have also finished the course outline on Udemy and have a filming and writing schedule for January so I can get the course and book completed in time for my self-imposed deadline of January 15th.

Overall my experience with Indiegogo thus far has been a pleasant one. I look forward to using a P2P platform like Lighthouse in the future, but for now Indiegogo has provided me a great service. I’d like to take the rest of this post to thank everyone who has contributed thus far by giving money to the campaign, sharing the campaign with others, and giving me valuable feedback. I’ve learned a lot and will continue working hard to hit my goal and complete the online course and e-book. With bitcoin acceptance growing every day, and people around the world experiencing economic oppression at the hands of authoritarian governments, I see an opportunity in the market for accessible and practical bitcoin education, and I thank all of my backers so far for validating this hypothesis and supporting my Indiegogo campaign for “BYOB: Using Bitcoin to Be Your Own Bank.”

BYOB: Using Bitcoin to Be Your Own Bank

After the first time I heard about bitcoin, it took me almost a year of learning about the underlying technology before I bought my first coins. Part of the reason for the delay was because I wanted to first understand bitcoin, but after grokking the concept of “decentralized digital currency,” the main hurdle was availability. The options for purchasing bitcoins were slim at the time, limited to wiring money to online exchanges in foreign countries or sending concealed cash in an envelope to “OTC” traders and hoping that bitcoins were received in return (I didn’t choose either of these options). After I managed to purchase my first bitcoins, I then had to figure out how to secure them. Luckily, a programmer from my area had developed a cool piece of software called Bitcoin Armory that was specifically geared towards the security-minded, and it made securing bitcoins relatively easy using advanced techniques like cold storage signing and Shamir’s Secret Sharing. Learning how to keep my bitcoins secure took practice, but I eventually developed an efficient workflow that made it easy to move coins between cold storage and hot wallets.

Once I felt comfortable using bitcoin, I started to spread the word and tell others about this exciting technology. But there was a problem: every new person I told about bitcoin had to start from scratch, and I didn’t yet know of an effective way to boil down the bitcoin story into an easily digestible elevator pitch, let alone teaching someone how to use it securely. When I would tell someone that it’s p2p money, I had to first explain what p2p meant and then explain why they would want to use bitcoin instead of the money they were already using. The “why” for bitcoin can be more difficult to explain than the “what” or the “how,” and I would often end up just sharing a bunch of links that were probably never read. But the more I practiced the pitch, and the more diverse my audience became, the better I got at explaining the “what,” “how,” and “why” of bitcoin. I eventually felt comfortable and knowledgeable enough to share my excitement with the world, and started a website where people could contact me to learn about bitcoin one-on-one. This started a journey into the bitcoin investing and startup world, and ultimately brought me to where I am today.

After almost two years of consulting for bitcoin investors, startups, merchants, and casual users alike, I have decided to take everything I’ve learned and taught and distill it down into an online course and companion e-book entitled “BYOB: Using Bitcoin to Be Your Own Bank.” In the course, I will be sharing a brief overview of the history and technology behind bitcoin and then dive right in to the practical ways that people can use bitcoin, including how to buy, sell, send, receive, and store bitcoins without relying on centralized services to store private keys.

I’m running an Indiegogo crowdfunding campaign right now to gauge public interest in this form of bitcoin education. For $25, contributors will receive lifetime access to the course as well as both a digital and physical zine version of the companion e-book. The intended audience is people new to bitcoin who want to learn how to use it without the fear of being hacked like so many others have been in the past. Contributors to the crowdfunding campaign can be beginner bitcoiners themselves or people who want to purchase access to the course and e-book as a gift for someone else. With the holiday season just around the corner, I can think of few better gifts to give than the gift of monetary freedom and satisfying one’s curiosity about bitcoin. And for those who don’t celebrate religious holidays, this is a perfect opportunity to make it a New Year’s resolution to take control of your money and “Be Your Own Bank!”

If this sounds like a great way to help increase bitcoin adoption, please consider contributing to the crowdfunding campaign at the $1, $15, or $25 level (or choose your own amount). You can also help by sharing the campaign page and video via email and social media with those who might be interested. I am starting to reach out to people who can help with the cover design and formatting of the e-book, if you’re interested in being hired to do this, please get in touch!