Fun with Bitcoin for Beginners, Part 2

Gordon Hall
January 1, 2014
Mr. Mix is a regular commentator at Zero Hedge, an influential financial website. He writes a blog on subjects of interest to him, recently including Bitcoin, a controversial topic.
As a beginner, he wanted to take a good look at the Bitcoin ecosystem for himself with the help of a couple of experts, as well as explore some parts of Bitcoin that beginners do not typically see.
A man of many interests, he is happily married to a wonderful Peruvian-born lady. Mr. Mix has been involved in international business (buying ball bearings and similar products for their company in Peru) for over 20 years.

Fun With Bitcoin For Beginners Part Two by Robert Mix


(first published on Friday the 22nd of November, 2013)


The whole Bitcoin (BTC from here on) thing seems to be moving into a higher gear.  There have been some a few developments that might very well be of interest.

Zero Hedge has been ablaze with comments, pro and con BTC.  Despite hyper-bloviating from one breathless BTC fan, it really looks like there is a solid base here for wider BTC acceptance.  Rumor has it (and I have read two accounts, but I cannot confirm they are true) that China is very interested in becoming King Of Bitcoin.  I do not know if this interest from China is from their government – probably.

Getting Your First Bitcoin

To learn about BTC, it helps to play with BTC.  The first hurdle is to get some!  In my last article on BTC, I mentioned that my “Original Donor” gave me some after showing me how to open a wallet (start by downloading “Multibit 0.5.14” software, download Java if prompted (I was), and then go from there).  It is not hard, I was able to do it, and I was terrible with computers in college (1970s)…

But, other than a donation, how do you get more BTC?  The most common way (other than “mining” them, with those specialized ASIC computers) is to buy them from the exchanges (Mt. Gox for example).  But, Mt. Gox is now mired in becoming a “bank”, as our .gov wants them to operate as a bank (at least in some respects, including supervision to prevent money laundering, etc.) because to cash BTC out, they pay by wire transfer, very bank-like…

But, I am exploring two other ways to get BTC, for cash.  I have found a guy who has at least occasional BTC for sale.  I have mailed him some cash, and when he gets it, he will send me BTC.  Over the Internet, straight to my wallet.  Sending CA$H by mail has certain risks of course, and is also inefficient in the time sense; he has to wait to get my cash, I have to wait for then to get my BTC.  At this point that is OK with me though, because I am experimenting with BTC (donating and learning more).

The other way I am looking into finding a “cash market” for BTC is to locate Bitcoin users in my city.  How?  Well, I have talked some of this over with a young computer guy (who did not know about BTC as it turns out, but he is interested now!) who has a group of hacker friends.  In such a group, it is likely that at least some of them will know about BTC.  If so, then we can get a nucleus started re: buying and selling BTC.  Quietly.  For cash.

Cash and Bitcoin is a powerful combination.  While I like gold more than the next guy, gold transport (say taking 20 ounces out of the USA on an airline flight, which introduces the Customs reporting requirement as well as the real risk of theft by our very own TSA) has its issues, you can put a near-limitless amount of BTC on a flash-drive.  The only problem is how you then get cash (or spend) the BTC you now have “over there.”

I am working on that.  Once I have some answers or good ideas, I will let you know.

An Insider’s Look at Mining

I am in regular email contact with a guy whom I will call “Bitcoin Insider” (B.I. from here on).  He really knows this subject well.

Recently I asked him if BTC was nearing “critical mass,” that is, if BTC was ready to storm across the stage and “change everything”.  He said not yet, that BTC is gaining momentum as people (like me) look into it and start using it and spreading the word.  Zero Hedge’s recent article (the one that I wrote about in my other BTC article) really caught my attention, but this has not yet gathered worldwide major attention (although I just saw that alternative financial newsletter “The Daily Bell” had an article on BTC…).

Some time ago, I asked him about the mining process and how BTC are made and awarded.  He told me that his computer has to work long and hard until it accomplishes enough work (and he has a pretty good rig IIRC), and then he is awarded 25 Bitcoins.  I imagine that is a LOT of work for 25 BTC (@ some $800 per BTC today, that’s $20,000 worth…).

[Ed. Note: I sent a draft of this to B.I. for his review.  He came back at me with an important clarification re: mining for BTC]:

This is correct for “solo” mining. In the first two years of
Bitcoin, this is what most people did. Anyone attempting this now
can expect to wait months or years to be lucky to hit the correct
solution to the math problem. It’s also possible for them to work
away diligently for 10 years or more and not ever be the first
miner to solve the math problem. It’s all luck and statistics. The
greater your hash rate, the more likely you will be rewarded with
the generated coins. If you’re never first, you get paid zero. Most
people are now part of a “mining pool” They join their computers
together with hundreds or thousands of others and share in the
generated Bitcoins. If there are 1,000 equally powerful mining
computers and one of them solves the math problem, then the lucky
computer gives the generated Bitcoins to the mining pool owner. The
mining pool owner then splits the proceeds to reward each of the
participants with 0.025 Bitcoins minus a commission of a couple of
percent to the person or group who is running the pool.

I also asked him if each Bitcoin was a “whole unit”, that is like a normal coin, one “chunk” (although digital in this case).  Here is his clarification (I deleted part of this paragraph to reflect his clarification):

The “whole unit” starts as the mining reward, currently 25
Bitcoins. Yes, it can be broken into 25 pieces of which each 1.000
Bitcoins then becomes a “whole unit”, but there is nothing special
in a single Bitcoin. This differs slightly from a one ounce gold
coin which is clearly a “whole unit” and cannot be divided further
without damaging the specialness of the whole unit.

I then asked B.I. about an idea both the young local computer guy had re setting up a mining rig, perhaps with Butterfly Labs hardware (they have advertised their ASIC computers at Zero Hedge).  Here is part of B.I.’s reply (edited by me, emphasis mine as well):

Inform your computer guy not to deal with Butterfly Labs. They have
failed to deliver for the past year. […]  Now they won’t even
refund any money to customers and they are not happy. He has an
active order placed last week with another company. If they
deliver, I’ll let you know. I don’t believe the return on
investment is positive anymore for mining. I think it’s much better

to just buy Bitcoins directly and hope that they go up in price.
There’s already a nuclear reactor’s power output powering all the
miners right now with no need to add more miners to it. Of course
all existing miners say these things to try to keep out fresh new

So, Butterfly Labs, with prominent ads and all, may not deliver on the gear they sell.  Also note his comment on the “…nuclear reactor’s power output powering all the miners right now…”.  I have read that it looks like fast chips (and LOTS of them) AND cheap electricity will be the only economical ways of mining BTC in the near future.

How Transparent are Bitcoin Transactions?

I also asked B.I. what he could find out about a recent transaction or two I have done, as well as other transactions from my wallet that I showed at the top of my last article.  First is me setting up a question or two, then his response.  I have edited both my questions to him and his replies back.  Note that I invited him to poke around to see what he could find out, as part of the whole payment process is public record.  How much?  That I do not know well, I have an idea or two, but I need to learn more.

Me to B.I.:

OK, the below information is for my new wallet […]:
Bitcoin wallet number:  1 […] 2iB
My name for above:  […] 332
I created another wallet as well.

Since you know more about BTC than anyone else I know, I invite you to dig around the blockchain (etc.) to see if you can see things, and then let me know!
If you let me know, I can add that info as well to my upcoming article. I will call you “Bitcoin Insider” unless you object or suggest otherwise […]

Part of B.I.’s response:

Here is what I learned about your address through public information:
From […] you have 0.05 Bitcoins in
your wallet at this address.

They came from the address 1P11zA1GaJcyjc7oVt1jVQvWcPoW12sv5R,
which I know
to be your original wallet. This means that anyone who can
tie your
..v5R wallet to you personally, now also knows that you are
associated with ..2iB but not necessarily that you own it. It could belong
to someone in China you sent a payment to. If you want to
break this
linkage to be more anonymous, you should create a new
address and
send the Bitcoins through some kind of anonymous mixing
service into
the fresh new address. The easiest way to do this is
at a gambling site
(usually the dice type) on bets that pay out
slightly less than 100%.

Note what he was able to find out.  Not all that many people could do that (and I gave him some info to start with, he even had my original wallet address from earlier communications).  More from B.I.:

Your transaction of transferring these 0.05 Bitcoins was
incorporated into Block Number […] and you paid a fee of 0.0001
BTC to the miner that registered this block. The miner is a member
of the BTC Guild as part of a mining pool. The miner broadcast this
block from IP Address […] which appears to be from […] using
internet service provider Cox Communications.

Your transaction has an identity number of 7e […] cb which is kind
of like the 6 digit verification number my bank gives me when I make
an online bill payment.

You’ve made 19 transactions with your ..v5R wallet address and there
are currently 0.0644 BTC remaining at this address. […] you may have
more Bitcoins in your wallet (that I can’t easily see, but I could trace all
the transactions manually to determine) because your wallet software
will be adding up the sum of the Bitcoins in all the addresses inside
your wallet and putting only the total sum on the screen to show you.

[…] 332 is invisible and will only exist inside your wallet
unless you tell people about it. Sure, you can call me Bitcoin
Insider. Sounds kind of like Watergate’s Deep Throat.

Note a few things:

1)  Transaction costs of 0.0001 BTC for a transfer of 0.05 BTC (0.2%, very low)!

2)  There seems to be a “BTC Guild” mining pool.

3)  He was able to get info on my receipts of BTC and payments (donations at this point) from/in my original wallet relatively easily, and if I had had more activity with this wallet that he did not know about, well, he could find that too.  It is important that we all understand what is available to the (informed) public, and what is not.

4)  NOT mentioning your wallet publicly apparently gives you more cover, more anonymity.

I would like to thank my virtual friend “Bitcoin Insider” for his kind help in allowing me to unravel more about BTC.  I hope to get to meet him someday (he is not located in my city).


Over the past few days I have been running‘s streaming service (one picture was Zero Hedge’s own screen shot that I copied from them).  As I ran the service for a while, I would notice occasional patterns.  Sometimes (late afternoon, US time) there would be big movements (lots of BTC purchases) from the exchanges.  Here is a nice shot I took when a stream of BTC purchases was coming from the US$ (*click* on any image for a better view):

“A Golden Shower on the US Dollar:”

Fiatleak’s first upgrade (since I first visited their site after ZH’s article). Note the size of the little circles is roughly equivalent to the size of the BTC being bought at that moment.  Also note that small green writing (horizontal, to the right of some “Bs”, this indicates BTC of 1 BTC or larger.

And their latest upgrade (all these changes have been made in the past few days.  Note that the site now shows day/night, where the sun and moon are — the sun is just west (left of Peru/Bolivia here, the moon is just east of the Philippines).

Here is what happens when China comes out to play!

The above is fiatleak’s newest version (23 Nov 2013).  China’s largest BTC transaction that I saw scroll by was for almost 70 BTC ($56,000!).  Remember, shows ONLY BTC transactions through the exchanges, it does not show mining BTC nor spending BTC…  Note that the total 3635.3 BTC was bought in about 54 and one half minutes (that is a rate of roughly $3,000,000 per HOUR).  Also note that it was late Sat night / early Sunday morning, yet they vastly exceeded BTC transactions through the exchanges.

When China is really rockin’, they buy about 1.5 – 2.0 times the USA (although above example shows Chinese buying is much more).  My rough calculations (over various periods over various days) are that China is a bigger player in BTC than the USA, perhaps by 50% – 100%!

Further Applications of the Blockchain

Here are some interesting links I have picked up over the past few days, I have not had enough time to judge them nor even digest them…:

Rick, proprietor at USCyberLabs (and all-around good guy, he commented at my last article, interested parties should check out his site) sent me the below tidbit, I am not sure what exactly this means, but this will interest some of you:

This is the 2nd biggest private p2p network ever created in the history of the world next to the Internet. Another aspect is the message feature of a transaction, used with a hash you can notarise documents. I mean any web document, word, power point, video, photo of husband cheating on wife, picture of a Twitter Tweet or any web object can now have a Notary digital seal that will live forever in the blockchain. My loco Bitcoin buddy says, the Bitcoin blockchain is the next best thing next to gravity. Especially for the financial world… ;-}

More links for those interested to check out: (they will be hosting a big BTC conference in Miami Jan. 25 – 26, 2014) (not as easy to use as I had hoped, so I bailed, may check ’em out again) and both claim to take BTC for gold silver.  But, caveat emptor!  I have heard two bad reports re: coinabul.  The recent volatile pricing in BTC may keep BTC – PM deals from actually happening…

I could go on and on with BTC websites, but the above will get almost anyone started.

Last modified (UTC): April 20, 2014 18:25

Tags: mining
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