Trading with Bitcoins

Amidst the global economic collapse a new digital "coin" has emerged as the next big thing in virtual currency. Bitcoin has been touted for its advantages over conventional currencies - advantages I will let someone else explain in more detail. Basically, all you need to know is that the Bitcoin system is decentralized, anonymous, and therefore not government controlled. Unlike the US Dollar that can be printed by the government or taxed, there is virtually no way governments can take away your money. If you still want to know more go here.

With not much effort you can easily find that the mainstream (if anything related to Bitcoins can be called mainstream) way to convert your USD into BTC is this place called MtGox. Here you quickly create an account and upload funds (either in USD or BTC). The process of trading will cost you .65% for both buying and selling.

The trouble comes when you try to add funds: because Bitcoin transactions are irreversible, people giving up bitcoins want to make sure they will not have their USD taken back after the transaction. For now at least, there is no instant method of payment that guards against possible charge-backs. So before you can trade on MtGox you must wait a number of days before your USD "clear" and you can begin buying BTC and all along the way you'll rack up fees from various thrid parties you dealt with.

The solution? Trade directly with others in the Bitcoin IRC channel. (If you don't know what IRC is you should just give up now; even if you do you may still want to give up.)
Before you logon to either #bitcoin-otc or #bitcoin-pit you'll need to learn a little about the etiquette, how trades are done in bitcoin-otc, and most of all, how to avoid scam-artists. If this doesn't scare you away you might be ready to read the wiki guide to otc.

The first thing I learned by trying to trade with people is that you can buy or sell anything as an anonymous user: everyone doing business in otc has something called GPG. GNU Privacy Guard is a package encryption software that the people running the Bitcoin channels use to keep track of trusted traders. My first time in the channel I just asked how to go about getting GPG set up and someone pointed me to a lengthy but straight-forward guide.

After getting my GPG configured you won't be ready to trade just yet because you have to build up your reputation. It may sound like a catch-22 but there is no way to avoid it. People wont trade without unless they know you are honest. Fortunately for me, I know someone personally that has a good reputation in the pit that got me my first trade. For your first trade you should be prepared to pay in some form that cant be charged back after the fact. Most reputable people will not trade if you are using PayPal because with PayPal you can file a claim and reverse the charge. The best option for someone breaking into the scene is with MoneyPak, a prepaid card you can buy in local stores and that can be transferred to the PayPal account of the seller.

So assuming you've found someone who will trust you, you have to make sure you can trust them. If you use a form of payment that is irreversible you could end up with just another sob story for Bitcoin court (yes there is a Bitcoin court). The best way around this is to find the most reputable and willing person to hold the BTC before sending payment.

After you successfully make a trade you can then begin using your Bitcoins.

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