Cryptocurrency All-in-One For Dummies. Peter Kent

will collapse after 21 million coins are mined. Bitcoin has a limit to the number of tokens it will release. That number is hard-coded at 21 million. The estimated date of Bitcoin issuing its last coin is believed to be in the year 2140. No one can predict what will happen at that point, but miners will always earn some profit from transaction fees. Plus, users of the blockchain and the Bitcoins themselves will be incentivized to protect the network, because if mining stops, Bitcoins become vulnerable and so does the data that has been locked into the blockchain.

       Enough computing power could take over the Bitcoin network. This is true, but it would be extremely difficult, with little to no reward. The more nodes that enter the Bitcoin network, the harder this type of attack becomes. In order to pull this off, an attacker would need the equivalent of all the energy production of Ireland. The payoff of this sort of attack is also extremely limited. It would only allow the attacker to roll back their own transaction. They couldn’t take anybody else’s Bitcoins, or fake transactions or coins.

       Bitcoin is a good investment. Bitcoin is a new and interesting evolution in how people trade value. It isn’t backed by any single government or organization, and it’s only worth something because people are willing to trade it for goods and services. People’s willingness and ability to utilize Bitcoin fluctuates a lot. It’s an unstable investment that should be approached cautiously. Learn more about investing in cryptocurrencies in Book 5.

Bitcoin: The New Wild West

      The Bitcoin world is much like the early days of the Wild West. It’s best to approach cautiously until you figure out who the good guys and bad guys are and which saloon serves the coldest beer. If you fall victim to a scam, you’ll have little to no protection.

      

Bitcoins and other decentralized cryptocurrencies are considered currency in many countries, but little to no oversight or protection is in place for consumers.

      This section covers three common scams that are prevalent in the cryptocurrency world. They all revolve around stealing your coins and look a lot like traditional cons you might already be familiar with. This list isn’t exhaustive, and crooks are nothing if not creative, so be very cautious when using Bitcoins. You never know what’s around the next corner.

      Fake sites

      Websites that look like exchanges or web wallets but are fakes have plagued some of the top Bitcoin websites. This type of scam is common in the Bitcoin world and on the web in general. Scammers hope to make money by stealing login information from users or misleading them into sending Bitcoins.

      

Always double-check the URL and only use secure websites (those that start with https://) to avoid this problem. If a website or claim seems doubtful, check to see if it’s listed on Badbitcoin.org (www.badbitcoin.org). This is not an exhaustive list, but it includes many of the bad players.

      No, you first!

      “Send me your Bitcoins, and then I’ll ship you the goods.” Smells fishy, right? Scams like this are similar to money wire fraud. In this type of fraud, an individual pretends to sell you something but never delivers.

      The semi-anonymous nature of Bitcoins — combined with the inability to do a charge back — make it tough to get your money back. Plus, governments do not currently offer protection for Bitcoin transactions, so you’re up that proverbial creek without a paddle.

      Fraudsters will try to win your trust by sending fake IDs or even impersonating other people you may know. Always double-check the information they send you.

      

The best way to dodge this sort of scam is to listen to your instincts and never put more Bitcoins at risk than you’re willing to lose. If there is a way to verify the identity of the person offline, do so.

      Get-rich-quick schemes

      Crazy get-rich-quick schemes have proliferated in the cryptocurrency world. The good news is: It’s easy to recognize them if you know what to look for.

      Often, you are promised massive returns, and there is some kind of recruitment and indoctrination process. This process could include things like sales training, asking you to recruit your friends and family, and promising that this is a risk-free investment and that you’ll never lose your money. In this situation, never give anyone access to your private keys.

      The bottom line: If a scheme looks too good to be true, it probably is. No matter what, take a hard look at how the investment is generating value outside of what you’ll receive from your investment. If there is no clear and rational reason that a significant amount of value is generated, it’s a scam.

      

Run all investments by a lawyer and a CPA. They can help you understand your risks and tax implications.

Mining for Bitcoins

You can get started earning Bitcoins in a variety of ways. Mining for Bitcoin is how you earn Bitcoins by participating in the network. It’s usually handled by special mining hardware that is expensive and specialized. The equipment also needs Bitcoin mining software to connect to the blockchain and your mining pool (a collaboration of many miners jointly working together and then splitting the rewards of their efforts; see Book 6, Chapter 3 for more about pool mining).

      Here are three standard ways to explore mining Bitcoin:

       Bitcoin-QT: The Bitcoin-QT client is the original software written by Satoshi Nakamoto. You can download it at https://bitcoin.org/en/download.

       CGMiner: CGMiner is one of the most popular mining software applications. It is open source and available for Windows, Linux, and iOS at www.github.com/ckolivas/cgminer.

       Multiminerapp: The MultiMiner app is an easy Bitcoin client to run. You can download it at www.multiminerapp.com.

      

Bitcoin is a very competitive environment, and unless you buy specialized mining equipment, you may never earn any Bitcoins. The industry is constantly changing and equipment can become quickly out of date. Expect to pay between $500 and $5,000 per machine on average. For more information, head to Book 6, which goes into much more detail about cryptocurrency mining, including what equipment you need and other cost and risk factors.

Making Your First Paper Wallet

      A paper wallet is a paper copy of your public and private key for your Bitcoins. Because they’re completely offline, paper wallets are one of the most secure ways to hold Bitcoins when created correctly. The advantage is that your private key is not stored digitally, so it isn’t subject to hacking. Making a paper wallet is fairly easy. Just follow these steps:

      1 Go to www.bitaddress.org.

      2 Move your mouse around the screen until