Demystifying Bitcoins – Pt.3 Getting Bitcoins in India

Through this final part of the series, we can take a look at everything you need to get yourselves some Bitcoins. If you’ve not been through the previous parts of this guide, please do give it a go as it gives you a simplified picture of how Bitcoins work –

• Part 1 talks about Cryptocurrencies, the need for it, and Decentralized Ledgers
• Part 2 talks about Blockchains and Bitcoin mining

Don’t worry – reading the previous parts is not a pre-requisite to own Bitcoins, as you don’t really need to know how things work under the hood. A lot of the complexities are handled by the client themselves leaving the users with simple intuitive interfaces to carry out Bitcoin transactions.

Note that the following article is written with reference to the Bitcoin environment in India. So, most of the suggestions will be more relevant in the Indian context.

What do you need to get yourself some Bitcoins? Read on!

Step 1: Setting up a Wallet

A Bitcoin wallet is like your real-life wallet. It’s a place where you store your Bitcoins. A Bitcoin address is like an account number for your wallet. If you want someone to transfer money to you, just provide them with your Bitcoin address. Any money sent to a Bitcoin address gets credited to the wallet it points to. A sample address will look like this – 12i5SQK8JK6cmpMxzB5DqARhLGiNhQkm2B

(This address points to my wallet so if you’re feeling extra generous, you know where to send Bitcoins to :-))

Each Bitcoin wallet is controlled by what is known as its Private Key. We don’t need to go into detail as to what it is, but you do need to keep in mind that whoever holds control over the Private Keys has actual control over the Bitcoins held within the wallet. Different wallet providers allow different levels of control over the private keys, and this influences who have ‘actual’ control over the wallet – the user or the provider.

Note: Some Bitcoin exchanges also provide wallet facilities. So in case you’re feeling impatient and just want to take a shortcut, jump straight to Step 2 and leave Step 1 for a later day.

These are some of the popular types of Bitcoin wallets-

Soft Wallets through Online Providers

These are the easiest ones to start off with. You can simply register with an online wallet service provider, just like you’d register with any other email provider like Gmail, and they will handle the complexities of managing private keys, setting up wallet etc. A lot of Bitcoin Exchanges also provide wallet service. These services offer the perfect way to start dabbling with Bitcoins as it is quite user-friendly. The flipside is that since Private Key control lies with a third party, your Bitcoins are not 100% safe. I highly recommend using these services to start off and invest smaller amounts in.

Examples: Coinbase, Airbitz (Mobile)

Pros: Easy to setup, Easy to manage, User-friendly, Accessible from anywhere through internet

Cons: Private Key lies with the third party, prone to hacks

True Wallets – Software

These are wallets for people who want to kick it up a notch and start managing their own Private Keys. Some of the providers of True Wallets generate a Private Key from a ‘Seed’ that is provided by you. As long as you have the ‘Seed’, you have almost complete control of the wallet.

Examples: Electrum, Mycelium

Pros: More secure than soft wallets, you control your Private Keys and hence your wallets

Cons: Setup is slightly more complicated than soft wallets, you lose your Bitcoins if you lose your Private Keys or Seed

True Wallets – Hardware/Cold Storage

This is the ultimate ‘True’ wallet for the super-paranoid or the super-rich folks who are in possession of millions of dollars worth of Bitcoins and wants 100% control over their wallet. These hardware wallets or cold storage, move Bitcoins away from networks and physically isolate them in a hardware form which you could store in bank vaults. This way, the wallets cannot be ‘hacked’ over the internet or stolen due to web-security lapses.

Examples: Trezor, Keepkey

Pros: Most secure wallets you can find, Physically isolated from the Internet so ‘hacker’ proof to a certain degree.

Cons: Expensive, Setup requires some time, your Bitcoins disappear if you lose the device.

The following sheet could be used as a quick guide to select a wallet

So as portrayed by the chart above, if you’re a beginner trying to just dabble with Bitcoins then I’d suggest going for Online 3rd party wallets. If you plan on storing larger amounts of money in the form of Bitcoins and want to carry out very few transactions, then it’d be best to opt for a Hardware wallet.

Step 2: Register at a Bitcoin Exchange

Bitcoin Exchanges are places where you can buy Bitcoins by exchanging them for real-life cash. They work similar to Banks carrying out currency exchanges. You can go register yourself to one that your country supports and buy Bitcoins in exchange for local currency. Since most of the Bitcoin exchanges also double-up to provide wallet facilities, you can take care of steps 1 and 2 in one shot by just signing up with a Bitcoin Exchange.

Different exchanges provide different buying and selling rates for Bitcoins. I suggest you register with as many exchanges as possible and keep an eye out for the best rates before jumping in.

The following are examples of Bitcoin exchanges in India which support transaction in INR.

Examples: Unocoin, Koinex, Coinsecure, Zebpay

Some Parting Words

Congratulations, if you managed to go through these simple steps, you will now have in your possession some of those Bitcoins that everyone’s been talking about :-). It should be noted that Bitcoins can also be obtained through Bitcoin mining, but currently, the difficulty levels to solve for the nonce is so high that it cannot be done through normal personal PCs. If spending oodles of cash & setting up a mining farm is not your thing, you could also take part in mining pools which brings a large number of such individuals miners together and consolidate their effort in finding the nonce. Once it is found, the resulting Bitcoins earned as the reward is equally divided amongst the users in that mining pool. I will not be touching on those topics in the current article.

There are some pointers you will need to keep in mind while dealing with Bitcoins.

• Bitcoin rates fluctuate wildly. You will need to do your research carefully before investing money in it.
• Bitcoin transactions need a little more time to confirm completion as compared to Bank transactions(more than 30 mins recommended). As discussed in Part 2, this is the time the transaction needs to propagate through the de-centralized network of miners and for confirmations to come in.
• Transferring Bitcoins may not always be free and will result in some network cost. Please check with your exchange/wallet provider to see what the rates would be.
• Bitcoin transactions are IRREVERSIBLE! Do NOT transfer Bitcoins to people you don’t trust. Once a transfer happens, you will not be able to reverse it unless the other party decides to return it.
• As a currency, Bitcoin is going through a turbulent period where it had already gone through a hard-fork splitting it into Bitcoin Core and Bitcoin Cash. Now there is another hard-fork in view which will add a new currency called Bitcoin Gold. Have a clear picture of these currencies, as it is easy to get confused between them, and invest wisely.
• There are far more cryptocurrencies than just Bitcoin. Each may have different rates and different appealing factors. I suggest you try exploring some of them like Ethereum, Litecoin, Ripple etc.
• While choosing Bitcoin Wallets/Exchanges, it is also worth checking their support for the other cryptocurrencies as well.