How to avoid beginner’s mistakes with bitcoin
Learning a new subject can be difficult, especially when it’s a subject as complex as bitcoin, which presents many opportunities for mistakes and errors. For new bitcoin users, some missteps can be dangerous and, in a worst case scenario, can cost them their hard-earned currency. The best way to avoid pitfalls is to get a good grasp of a few points that most often trip up new users.
Mistake 1: Getting bogged down with technical details
This is not a horrible mistake, but it can be discouraging to new users. It’s easy to get mired in the details of bitcoin and the blockchain technology behind it. The mining process, the block size debate and other esoteric aspects of bitcoin can be confusing.
In truth, a new user doesn’t need to know a lot about these concepts if the goal is simply to purchase some bitcoin to use.
“One common mistake I’ve seen from new bitcoin users is thinking that they need to download and configure a bitcoin mining client on their computer in order to start using bitcoins,” said Michael Vogel, founder and CEO of goNetcoins. “Fortunately, it’s much easier than that.”
Mistake 2: Becoming confused about bitcoin wallets
To use bitcoin, you must first set up a wallet to store your bitcoins. That wallet can be an app, hardware or a cloud-based solution. This can confuse new users, so some companies make the process easier by automatically creating a user wallet.
“The average person that is new to bitcoin is usually not familiar with the concept of bitcoin wallets. At Netcoins, many of our ATM customers don’t yet have a wallet and aren’t yet sure what to do. In our case, we eliminate that first step of finding a wallet by creating a Blockchain.info Web wallet for the customer at the time of purchase,” Vogel said.
Bitcoin wallets can be stored online or offline. Generally speaking, when choosing a wallet, the safest option is select one that is kept offline on a computer or other device and protected by a password.
Online wallets — including those provided by bitcoin exchanges — are more susceptible to hackers.
“You should be wary of any service designed to store your money online,” according to a guide at bitcoin.org. “Many exchanges and online wallets suffered from security breaches in the past and such services generally still do not provide enough insurance and security to be used to store money like a bank.”
If you do decide to use an online wallet, consider keeping a limited amount of bitcoin in it. If you wouldn’t feel comfortable keeping a large sum of cash in your physical wallet, you shouldn’t keep a large amount of bitcoin in an online wallet.
Mistake 3: Engaging in questionable transactions
Bitcoin transactions by nature cannot be reversed. There is no ‘return bitcoin’ feature built into the protocol. In light of this fact, you should be careful with transactions.
While well-established online merchants are a safe bet, an anonymous seller is something of a risk. If you have no way to verify the seller’s legitimacy, you run the risk that they will take your bitcoins and disappear.
One way you can help yourself is by using reputation management tools to check up on bitcoin users’ credentials. You can also use services that bring in a third party to moderate in the case of a dispute.
Mistake 4: Becoming overwhelmed by volatility
Bitcoin is a volatile currency. In June 2015, one bitcoin was worth slightly more than $200, today it is worth around $450. This volatility makes bitcoin great for speculators, but new users can find it problematic if all they really want to do is use bitcoin for purchases.
There are two ways to deal with bitcoin’s volatility. One is to keep only small amount of bitcoin in your wallet and use it to purchase goods and services when its value increases. The other is to purchase bitcoin only when you need it.
Mistake 5: Not seeking out other members in the community.
Bitcoin boasts a large and diverse community that can help you get set up or offer advice about some of the currency’s more complex issues. You can explore forums and reddit pages about bitcoin. Or, better yet, you can meet up with bitcoin groups in person.
“If you visit meetup.com, you’ll find that most cities have a bitcoin meetup group,” Vogel said. “Often these groups hold regular meetings and welcome people that are new to bitcoin. This can be a great way to have someone show you how to set up your bitcoin wallet, as well as learn about the stores and services in your area that accept bitcoin payments.”