Avoiding Regret: My obsession with Bitcoin

I'm engrossed by bitcoin, I'm writing this to try to get some of it out my head.  It's not really a new obsession, I wrote a post about it in late 2011.  But I didn't really get into it until April of 2013.  Then I went through the standard bitcoin-nerd obsessive information gathering phase.  Learning about bitcoin is a fantastic experience for a technical nut like me.

Once you actually make a bitcoin transaction, and move it from one place to another, or from one person to another, and all the pieces of the puzzle are clear in your head, it's very exciting.  And I knew that I needed to do something.

My primary goal was avoid regret.  I was spending so much time reading, listening and thinking about bitcoin that I really, really didn't want to be sitting around in two years regretting the fact that I had been so engrossed by bitcoin, but had done nothing.

There is very simple math that makes bitcoin an appealing idea to me:

21 million bitcoins ÷ 7.13 billion people = 0.00295 bitcoins/person

So about 0.00295 bitcoins is the "fair share" of bitcoin that everyone on earth would have if we evenly divided it.  And currently it is quite cheap to get more then your fair share by many orders of magnitude, so that seemed like the smart thing to do.  So my mission to avoid the regret of a missed opportunity was started.

Here is the an overview of the steps that are required to get into bitcoin responsibly and securely with a significant amount of money.

1. Learn as much about it as you can.
2. Secure your computer.
3. Secure your wallet.
4. Register for an exchange account.
5. Move fiat currency into exchange.
6. Trade fiat for bitcoin.
7. Get your bitcoins into your own wallet.
8. Security Upkeep.
9. Sit back, watch and hold.

1. Learn as much about it as you can.

Currently bitcoin is in it's infancy. The tools, services and methodologies that exist are not fool-proof. Bitcoins are not even common-sense-proof. Technically bitcoin is still in beta-phase as the software is still version 0.8.5.  You can lose your bitcoins, have them stolen, or royally screw something up.

However, there are some very clear and distinct protocols that make owning bitcoins nearly disaster proof.

Here are some things that am quite certain I am completely protected against as long as they don't happen all at once:

- My house burning down
- My home computer being hacked by a hacker
- Forgetting my password
- needing to suddenly leave Montreal at a moments notice
- losing my real wallet
- hackers attacking bitcoin sites

I can be protected against all those things because bitcoin is a really weird digital thing.  There is an essential way of describing bitcoin that makes understanding all of it's properties much clearer.

Bitcoin is simply a public ledger.  As simple as that.  It is fundamentally just a list that says how many bitcoins every person has, and everyone who uses that list agrees that the list is accurate.  If you want to send your money to someone else, the bitcoin is subtracted from your total and added to their total.

When you own bitcoin, all you own is the right to transfer the right to transfer the bitcoin (it's recursive).

This essay provides a very powerful allegory about the nature of bitcoins.

Everything else that you ever hear about how bitcoin works is simply the details that make that public ledger work on a global scale, pseudo-anonymously, mathematically verifiably and fairly.  This video is a great technical overview of the whole thing.

Having a good understanding of bitcoin is essential to keeping them safe.  If you are going to own bitcoins, you are essentially going to act as your own bank security system.  There isn't any other safety net waiting to catch you.

2. Secure your computer.

Because of the irreversibility of bitcoin transactions, any breach of your computers security could result in the theft of your bitcoins.  I would assume that any computer you use for day-to-day activities and is connected to the internet is insecure.  You will need to make a bitcoin "wallet" to store your coins.  Essentially the security of that wallet is based upon the security of the computer that the wallet it is created and stored on.  What you want to attempt to do is make more of a bitcoin "vault" by taking special care and extra precautions.

Unfortunately I can not recommend the ownership of significant quantities of bitcoins to anyone who is not able to achieve a high level of computer security.  There are three main ingredients to the computer security of bitcoin

a. An offline computer.
b. A fresh Linux operating system.
c. Extremely good passwords.

There is so much to say about each of these, I'll leave it for another time.

3. Secure your wallet.

If you've succeed in the security setup, I would suggest either the Electrum or Armory* as good bitcoin wallets of choice.

*currently requires a very good computer to run

They are both "deterministic" wallets that let you create a backup that will never need to be updated.

You need to make backups in a few different ways.  You need one that protects against a lost password.  You need another to protect against the physical security of your house while still guarding against online attackers.

I found that creating my security protocols made me feel quite a lot like a spy.

4. Register for an exchange account.

There are many options for obtaining bitcoins.  Online exchanges, bitcoin ATMs, or person to person transactions.  Because this guide is really focusing on a significant investment, I would steer towards the online exchange option because it generally has the lowest fees and doesn't require meeting anyone out in the real world.

In Canada, I would suggest cavirtex.com.  They require some ID verification that can take a significant amount of time, so I would suggest signing up even if you aren't entirely sure about the whole thing.  It doesn't cost anything.

5. Move fiat currency into exchange.

Sending money into an online exchange in Canada is still slow, so this process can be a little bit maddening if as you wait for your money to transfer the price goes up.

6. Trade fiat for bitcoin.

Once your bitcoin finally make it into the exchange account you actually have to make the trade.  It's pretty much like trading stock.  Except the price is jumping all around.  I found that I was anxious enough having waited for my money to transfer in that I just put in buy orders at the current market price and was done with it.  In the grand scheme of bitcoin, a couple percent likely isn't going to make that much of a difference.

7. Get your bitcoins into your own wallet.

Once you buy your bitcoins, you need to have them sent to your personal bitcoin wallet/vault that you created.  Even though you trusted your money and bitcoins to the exchange for a little while, they are too much of a target to be allowed to store your bitcoins long term.  There is no regulation or insurance to protect you, so you have to take  it into your own hand currently.

8. Security Upkeep.

Earlier you became a bit of a spy to secure your bitcoins.  You need to keep up this spy work from time to time.  I do it about once a month.  I test my secure system.  I check my backups for integrity.  I test my password memory.  I keep things up to date.

Security is not simply the strength of a vaults steel, it also requires strict protocols and ways of doing things.  You should get good at these things.

9. Sit back, watch and hold.

And hopefully now you have your bitcoins, and you can obsess... I mean observe the price.  The eco system that surrounds bitcoins is getting progressively better.  The software will get easier to use.  The security requirements will become simpler.  There will be more places to spend it. So right now the main thing to do is to wait.

My favorite ways to observe the news of bitcoin are to follow it on reddit and twitter.  As well, I love the podcast Let's Talk Bitcoin.  It is a fantasticly produced show which delves into every possible aspect of the currency.

Other wise there are a few main charts that I like to watch.

Bitcoinwisdom is my current favorite real time tracking of the price, Bitcoinity comes in a close second.

I also like to keep track of a 40-day average of the price, it helps keep things in perspective and gives a more accurate feel for what the sustainable price of bitcoin currently is.  It's hard to get too emotional when you look at it because it changes so slowly.

While I'm not at ease, I'm filled with anxious excitement.  I waited for seven months as the price wavered between 150$CAD and 80$CAD, and nothing much happened.  And all of a sudden it seems the starting pistol has sounded and the whole thing has exploded.  I'm trying to understand what it means, and why it is happening.

But thankfully I followed my plan to avoid regret, and its going well.  Will it all crash and burn to the ground? Perhaps.  Literally anything is possible.  The only thing I know for certain is that I don't have to worry about not having done anything.

It's interesting to see that I have a history of blog posts that point to this weird economic obsession of mine. I didn't even realize it before.  Here are some of them

Money money memes
Wealth cap
Inside job

If you have any questions I'd be happy to answer them.

And now I don't have to regret not telling you all about it.