What is bitcoin and how it works?

The Bitcoin system was created in 2008 by a fabled Satoshi Nakamoto, an individual or a group of people whose true identity is still unknown. The Satoshi’s White Paper published that year explained in details the principal ideas of Bitcoin and the revolutionary technology that stood behind the digital coins. As peer-to-peer electronic cash, Bitcoin solved a notorious double-spending problem and offered a fresh approach to ‘trusted third parties’. As opposed to conventional currencies minted and issued by banks, Bitcoin is not governed by any institution or regulatory body. ‘Bitcoin’, a currency unit, circulates only within a computer network and is generated as a result of complex mathematical procedures that is traditionally called ‘mining’.

Bitcoin in simple terms

A bitcoin does not work as dollars, euros or other fiat currency – it is not traded in a physical form. In fact, a bitcoin is a chain of electronic signatures that exist only online. Every bitcoin owner transfers bitcoins by digitally signing the previous transaction, and this information is added to the end of the chain. In simple English, a bitcoin consists of the list of all previous owners and transactions. The key advantage of this scheme is that it cannot be falsified since all the transactions between peers are put into blocks and announced publicly to the entire network.

The blocks are organized into a blockchain or a huge public ledger that includes records of all transactions ever made by bitcoin owners, and this underpins the main drawback of Bitcoin; the ledger becomes more sizeable over time and it requires more computational power to process all previous bitcoin transactions. At the time of writing, the total blockchain size was 155 Gb and it keeps growing by about 5 Gb monthly.

Bitcoins are transferred directly between participants without a third party involved. In case of physical currency, there is a regulatory authority or a central bank that is held responsible for maintaining a legitimate nature of all transactions and taking measures against counterfeiting. Bitcoins work different: there’s no central entity to manage digital transactions and their verification is conducted by all participants in the bitcoin network who run a special software. To avoid double-spending, that is paying the same bitcoin more than once, all validated transactions are timestamped in order to prove the time of each bitcoin move in chronological order.

A bitcoin is a currency unit that has a ticker symbol of BTC or XBT. Smaller units are named an mBTC (a one-thousandth of a bitcoin or 0.001 BTC) and a satoshi (a one-hundred millionth part of a BTC).

What is bitcoin mining?

Paper currencies are regularly minted and brought to circulation and the number of dollar or euro bills steps up regularly. The Bitcoin system was mathematically established in a way to limit the total number of bitcoins that can ever be created to approximately 21,000,000. Recall that cryptocurrency is not minted – new bitcoins are ‘mined’.

Miners are individuals or big bitcoin farms that provide computing power of their devices to verify that new transactions within the bitcoin ecosystem are valid. Miners arrange new unspent transactions into blocks and try to solve a complex and time-consuming mathematical task of finding a number, known as a nonce, that lies in the range between 0 and roughly 4.2 billion. That number must produce a specific result when passed through the hash and combined with the block content. It takes about 10 minutes to confirm a block and one of the miners who contributed to the process receives a certain amount of bitcoins as a prize. Mining involves the use of computation power, which entails expenses on electricity consumed by the computing hardware, so the bitcoins awarded for solving the math task is a kind of incentive to miners. According to estimates, around 80% of all bitcoins have been produced so far, and the number of bitcoins granted to miners as a reward will be going down.

Irreversible transactions

It is not impossible to cancel a bitcoin transaction after being sent since no one has control over the system. So a sender needs to double-check every detail (a recipient address and amount) before clicking send. Failure to do this can result in the funds being channeled to a wrong recipient without any chance to retrieve them.

Security

Every bitcoin owner has an automatically generated private key which is tied to a specific digital wallet and is used to send cryptocurrency. A private key is a string of 64 characters (numbers 0–9 and letters A–F) related to a bitcoin address. If cryptocurrency needs to be received, the recipient informs his bitcoin address, also known as a public key, to the sender. If bitcoins need to be sent, the sender uses his private key to digitally sign the transaction and transfer an amount of bitcoins to the recipient’s address. The public-private key pair is absolutely resistant to brute force, and the digital coins can be transferred only by the person who knows his unique private key. So it is of importance to keep the keys in a safe location: on a hard drive, USB flash drive or on paper.

Anonymous transactions

Chapter 10 in Satoshi’s White Paper is about privacy. It reads that the conventional banking model maintains a proper level of privacy by not disclosing the names of the parties involved in transactions. But as identities are always linked to transactions, some information can leak out due to bank security breach or hacking. In Bitcoin, the network participants can see that someone moves digital coins to someone else but the identities of both are unknown. However, the Bitcoin’s anonymity is not full because there are some methods allowing to link a bitcoin address to its owner by tracing all related transactions. That is why, Bitcoin is considered to be a pseudonymous system, not the anonymous one.

To stay on the safe side and avoid your privacy being compromised, it is worth to follow these simple advice:

  • Do not publish a personal bitcoin address online, especially in tandem with your name.
  • If you are a U.S. resident, avoid purchasing bitcoins for USD at national exchanges (the ones that are based in the United States). They are subject to money laundering laws and other digital currency regulations so they require users to prove their identity by submitting scans of their IDs. When a U.S.-based user then transfers money to an online casino account or withdraws BTC therefrom, the transactions become associated with a user’s identity, thus breaking his/her anonymity.
  • Consider options other than keeping BTC in online wallets because they can leak personal details (IDs, IP addresses and other information) to third parties.
  • Use Tor browser or VPN when purchasing and transferring bitcoins, to hide your true identity.

Is Bitcoin Gambling Legal in the USA?

Experienced players know how hard it is to find a reliable online casino that would serve U.S. citizens and the same refers to bitcoin gambling sites. The current legal framework in most of the United States DOES NOT expressly stipulate that betting bitcoins or other cryptocurrency in online casinos is illegal. To understand better whether bitcoin gambling is outlawed or not in the USA, let’s look at the most important applicable law that governs online gambling.

UIGEA

The Unlawful Internet Gambling Enforcement Act signed in October 2006 stipulates that banking facilities and credit card companies are not entitled to facilitate transactions related to online gambling. In other words, online casinos operating before 2006 were able to use the US banking system for their purposes but the UIGEA closed that opportunity. The Act forced some big and thriving operators like PokerStars that was among the most visited poker rooms in the U.S. to draw out of the market. To sum up the point, the use of banking system for gambling purposes is prohibited in the USA. The facts set forth above made some online casino operators shift their focus to non-traditional payment options like cryptocurrency, which does not violate the law.

Bitcoin gambling from players’ perspective

To put it briefly, no federal legislation makes online gambling illegal for players. Current laws prohibit casinos to ACCEPT wagers on the territory of the USA but there are no laws that would forbid individuals to PLACE bets. That is why virtually all bitcoin casinos are based outside the U.S. territory to circumvent the law and accept bets without violating any regulations. As for practical application of the law for players, Bitcoin gambling has three legal statuses in the USA depending on each specific state: it can be legal, illegal and not unlawful. Let’s explore this in details.

In what states bitcoin gambling is totally legal and illegal?

U.S. citizens who live in Delaware, New Jersey and Nevada are allowed to take part in any gambling activities including the use of bitcoins; these relate to depositing cryptocurrency into the casino, betting and withdrawing. The casinos providing service to residents of these states must use special geo targeting software to make sure the customers are physically located in any of the three states.

The only state that expressly prohibits online gambling activities is Washington. State residents may not use offshore gambling sites, register there and place bets in any currency, whether fiat or digital. Sure, the country has not enough manpower and resources to trace each player of the Evergreen State who visits and plays at offshore casinos but many gambling sites themselves restrict players from forbidden locations based on their IP addresses and other factors.

Why is bitcoin gambling considered ‘not unlawful’ in most states?

The majority of the United States neither legalized nor forbidden online gambling activities for ordinary players. To that end, players must abide by federal laws, particularly the Unlawful Internet Gambling Enforcement Act. In fact, this law does not clearly set forth whether any individual player is subject to prosecution for online gambling but there have been no charges or appeals against violating players for over 10 years since the Act became effective. And again, the Act is basically targeted against banks and online exchanges that process payments related to gambling activities. With this in mind, it’s always a good idea to stay alert and try to leave as little personal details as possible when buying bitcoins or sending them to an online casino. Below are a few tips on how to disappear from the spotlight and hinder the tracing of your identity:
– U.S. based exchanges are obliged to make their customers pass through KYC procedures. When registering, users have to upload their government IDs, utility bills and scans of some other documents to have their identity verified. Therefore, after purchasing bitcoins and then sending them to an offshore online casino, the transaction is tied to a specific name, thus it is easily traceable. To avoid this, consider channeling bitcoins through several middleman wallets with the casino as the final BTC recipient.

Gambling-related trends in U.S. legislation

Bitcoin gambling is not deemed to be unlawful in most states; however this is a hot topic in some states that still arises disputes and may eventually lead to some bans or liberalization, so the information in this review would not reflect the actual legal environment after a while. So before registering at any online bitcoin casino make sure the territory you are physically in does not prohibit online gambling.

On congress.gov, there is the Restoration of America’s Wire Act bill that was introduced in House in February 2015 and cosponsored by 26 Rep. senators. If passed, the Act will force all internet gambling businesses in the USA to transmit all wagering information to authorized bodies. This further means that the three states that have legalized online gambling will very likely discontinue servicing U.S. customers.

How to buy bitcoins

Before buying bitcoins, you need to set up a wallet to store the cryptocurrency you are going to purchase. A detailed guide on bitcoin wallets is available on this website so give it a glance or do some research yourself, pick the most suitable type of wallet and set up an account with there. In a nutshell, bitcoins can be purchased on online exchanges or directly from a person with cash.

Bitcoin exchanges

There are many hundreds of online exchanges that differ in security levels, reputation, buying limits, fees and many other criteria that need to be checked before opening an account. The largest and most trusted exchanges that work in the United States are Coinbase, CEX.io, Bitstamp and Bitcoin.com, all of them accepting USD payment via a credit card and/or Paypal. Virtually all exchanges establish fees that differ across the network and all of them have detailed rules and guides helping customers create an account and execute a buy or sell transaction. After the funds have appeared on your account, it is strongly recommended to move the bitcoins to a wallet that you should have set up at the very first step. Here goes a short outlook on the recommended BTC exchanges that serve U.S. citizens.

Coinbase

Located in the USA, Coinbase is often listed as one of most influential blockchain organizations worldwide, operating as a cryptocurrency exchange and web wallet. The exchange supports trading fiat money for BTC and reverse, and allows for connecting the wallet to a user’s bank account or debit/credit card. Among supported payment methods are PayPal (for selling of BTC), bank account (buy/sell) and Visa/MasterCards (for buying of BTC only at a 3.75% convenience commission). The website has an intuitive interface but support fails to respond quickly. Coinbase is a respectable company and is recommended to online casino customers of the U.S.

Kraken

Kraken is a reliable exchange and one of the oldest bitcoin exchanges in the business with quick deposits and withdrawals. The system does not support bank cards – U.S. customers can deposit dollars by wire transfer from a personal bank account, and the fiat dollars are then exchanged into bitcoins with fairly low fees charged.

Bitstamp

It supports on the fly transactions thanks to a mobile application for both Android and iOS. To buy bitcoins, a registered user must place a buy order, make a USD deposit via wire transfer or credit card, wait until the funds arrive and then buy bitcoins. The daily and monthly purchase limits are $5000 and $20,000. For credit card purchase, the exchange incurs fees of 5% to 8%, and for international wire, the USD deposit fee is 0.05%.

Gemini

Gemini position themselves as the next generation exchange and reliable custodian, much due to keeping customer’s USD deposits in American banks insured under FDIC. To buy BTC for USD, a user needs to link his bank account and then perform a wire transfer or make an ACH payment. Gemini applies no charges on wire transactions.

Buying bitcoins with cash

Buying cryptocurrency with cash is another option of obtaining bitcoins, which has some advantages. First, in many cases you can receive BTC much quicker than you would if using exchanges. Second, some options such as peer-to-peer transactions are anonymous and include zero fees. But the downside is that you will not be able to purchase large amounts with cash. There are three ways of buy BTC with cash:

  1. Trading in person. LocalBitcoins is one of the best services to bring together bitcoin sellers and buyers. A user-friendly search facility will show you all sellers located physically in the same city or region as you. The service offers flexible delivery mechanisms, from meeting in person to bank transfer to PayPal. The minimum that can be sent to a LocalBitcoin wallet is 0.0002 BTC. Another popular marketplace of this kind is Wall of Coins that serves around 120,000 locations in the USA.
  2. Bitcoin ATMs. Use coinatmradar.com to find closest bitcoin machines near you. ATMs usually have variable maximum limits that depend on verifications, for example, anonymous users have the lowest limits. The general procedure of buying bitcoins via ATMs is the following:
    • buyer’s verification. As there are dozens of bitcoin ATMs on the market, the process is different depending on the operator settings (phone number check via SMS message, ID scan, fingerprint check, etc.) Usually, the greater amount is purchased, the more verifications are required.
    • providing a bitcoin address to place a BTC deposit on. Some machines can generate a brand-new wallet and print it on paper or send the bitcoin address to a user’s email. Other ATMs accept an existing wallet.
    • inserting money into the machine.
    • confirmation.
  3. Cash transfer at a bank or money transfer system. Many bitcoin platforms accept funds sent by Western Union, Perfect Money, AdvCash, MoneyGram and other electronic transfer services. Visit Cryptex24, a reliable crypto exchange platform to select the best USD/BTC market rate, make an order, send USD via a selected payment system and promptly receive what is due. Commissions for each trade vary between 2% and 8%. Another reputable platform that sells BTC for cash is BitQuick that features a 2% commission and a 3-hour period for bitcoin delivery to the buyer.

Considerations on anonymity

Almost every bitcoin user believes that transactions and a total workflow of bitcoins are conducted in such a way that guarantees absolute anonymity of peers. But the Bitcoin system, taken as a whole, is not anonymous by its nature – all BTC transactions are chained together and thus can be analyzed, identified and tied to specific persons involved in transactions. Those online casino customers who want to bolster their anonymity when buying bitcoins should select wallets and exchanges that require the lowest amount of personal information.

Every US-based exchange, e.g. Coinbase, asks U.S. residents to enter their SSN for verification purposes so a user’s name and his full ID goes on record, therefore, the anonymity of the user is broken at the stage of registering an account at a bitcoin exchange. The next step is buying bitcoins and even if you have given very little personal information at the exchange, bitcoins that you buy will be linked to your bank account if you pay with a debit or credit card. So full anonymity is hard to achieve; however, it is possible to reach a very high level of anonymity if following some simple rules:

  1. Select among the online wallets that are located outside of the United States. Some of the good web wallets are Bitstamp and Blockchain.info. Alternatively, use hardware wallets, e.g., Electrum that can be configured to connect via Tor (Note: some bitcoin sellers reject selling BTC if you connect via Tor).
  2. Give preference to exchanges that do not ask users to fill in their full name and a social security number, e.g., Kraken.
  3. Consider buying bitcoins with cash by means of direct contacts with the seller (see the LocalBitcoins platform) or cash transfer at a bank (visit the Paxful website that will show you the nearest bank to buy BTC for cash).

Best bitcoin wallets

A bitcoin wallet is similar to a bank account that you use to keep money and make transactions. Every bank account has a specific number that you inform a person who is about to transfer you money. As for the cryptocurrency environment, a bitcoin wallet has a public address that consists of a sequence of numbers and letters, which can be submitted to the party you want to receive a payment from. No one forbids you to go with more than one bitcoin wallet. If you are looking for a way to store your digital coins, you should know there are several types of wallets that range in cost, accessibility, security, anonymity level and some other aspects. Before setting up a wallet, you should think of how you are going to use bitcoins and make up your mind which type of wallet suits you best for a specific purpose.

Types of bitcoin wallets

There are two big subgroups of bitcoin wallets: Cold and Hot wallets. Cold wallets have no connection to the internet all the time and for this reason they are deemed to be more safe and carry less risk of being hacked. Hot wallets are always connected to the internet and provide easy access from a smartphone, PC and other user device. These are considered less secure as compared to cold storage wallets. Let’s have a look at each of the wallet types.

Online bitcoin wallets

Online, or web wallets are very attractive and comfortable for most users, especially newcomers, because of their accessibility, easy handling and very low cost. No downloads and installations on a user’s device are needed because they are hosted on a remote server and are accessed from a desktop, smartphone, laptop and any other device that has an internet connection. Online wallets are a good choice for not tech-savvy users or those who are going to have smaller bitcoin amounts. Because online wallets can be vulnerable to malicious cyber attacks, you need to entrust your bitcoins to proven services with good track record. In general, web wallets are a recommended pick for most users who are not going to store large amounts of cryptocurrency. Most experts discourage from leaving significant bitcoin amounts in online wallets and using them for long-duration storage.

Desktop bitcoin wallets

This is a hot storage option and is recommended only if the highest level of security is maintained for the device the wallet is on. If a desktop client wallet is installed on a PC, the routine operations online and browsing enhance the likelihood of infecting a device with Trojans and other malware or spyware that can subsequently steal your bitcoins. So if your PC is compromised with a malware problem, your digital wallet might be at a big risk.

Mobile bitcoin wallets

Smartphone wallet applications are handy when used for instant payments in restaurants, hotels, airports or corner shops, for some smaller services. Mobile wallets are usually less secure than other wallet types and the abundance of mobile apps makes it a challenging task to pick a trusted app for your device. It is recommended to avoid placing big sums onto a mobile wallet but use it as pocket money at land-based businesses that accept bitcoins. Online casino users can deposit their personal account at the casino via a mobile bitcoin wallet, too.

Hardware bitcoin wallets

In case of hardware wallets, bitcoins or other cryptocurrencies are stored on a separate offline device that is not exposed to online vulnerabilities. Private keys are normally stored on a hardware microcontroller and are immune to viruses, however the device can be physically stolen, which is arguably the only downside to hardware wallets. Anyway, hardware wallets are considered to be the most secure way of storing bitcoins and are perfect for considerable trades.

Paper bitcoin wallets

Keeping a private key printed on a piece of paper is the easiest and one of the safest ways to avoid tampering with your bitcoin wallet. The concept behind this approach is elementary: the code to your wallet is always created while offline and is stored on a physical media, not electronically. But paper is a very unreliable information carrier since it can be worn, spoilt and completely damaged, thus making information printed on it unreadable. Users who rather stick to paper as the means of keeping their private key are recommended to produce several copies of that piece of paper and put them in different locations. Unfortunately, every paper wallet can be cracked by a key logger spyware after you have typed the key on an infected device.

Brain bitcoin wallets

The software used for brain wallets allows a user to set their own passphrase consisting of 12 random words, instead of a conventional key generated by the wallet application. These 12 words must follow in the right order when entering the password. From the one hand, this seems to be a secure method as you can create a very strong password but from the other hand, attackers might use brute force computing methods to crack the password. Besides, the reality is that users tend to create less complex passwords than the ones generated automatically so brain wallets are recommended to advanced users who know how to eliminate related risks.

Top bitcoin wallets

Now that you know more about types of wallets, you can come to grips with what wallet you need for your current tasks. Normally, people have one or two wallets: a web wallet (a mobile app) and/or hardware wallet. For practical purposes, it is safer not to put all your eggs in one basket risking your money. It is a good practice to mitigate risks by breaking your bitcoins into several smaller parts and place them into two wallets; one of them would be for smaller sell/buy transactions and the other one, for example, a hardware wallet, will store most of your bitcoins.

Coinbase

This is one of the most popular, largest and reputed web wallets out there, which supports 32 countries as of writing, including the US. Coinbase has an Android and iOS mobile app in addition to a convenient web interface. Exchanging USD into bitcoins is made quick and easy, with just a few mouse clicks. Good news for US customers is that the amounts of up to $250,000 have an insurance coverage by the Federal Deposit Insurance Company. Creating an account with this service is free.

Blockchain wallet

Blockchain is another high-security free web wallet with the 2-factor authentication and multi-signature option. It has Android/iOS apps with a recently integrated feature of buying bitcoins on Android BTC wallets. The service stands out for its simplicity and intuitive interface.

Exodus

This is a multi-asset desktop wallet with very high anonymity as no account setup is required. Private keys are stored locally at a user’s device. The service does not support USD exchange into bitcoins so you would have to buy BTC somewhere else, e.g. in Coinbase, and then transfer coins into the Exodus wallet. User’s savings are displayed in the form of a pie chart for visual clarity. A great thing about the wallet is that it runs on your PC and features a backup wizard to increase your control of assets.

BTC.com wallet

The BTC wallet is an open-source web wallet with a 2-FA login and great recovery options. The wallet is available for desktop, Android and iOS devices, providing efficient security and an advanced Multisig technology.

Electrum

A free cold-storage wallet, Electrum (est. in 2011) is full of features that elevate security and anonymity. Private keys are encrypted locally and are not submitted to servers. Besides, private keys can be easily exported to other bitcoin services, and the Electrum platform is supported by hardware wallets like Trezor or Ledger. The two-factor identification involving TrustedCoin adds another layer of security to your bitcoin wallet.

Trezor

Trezor is one of the best hardware wallets on the market that secures your cryptocurrency from being stolen. This is a small 30×60 mm device that connects to desktop or mobile via micro USB. In case of losing the device, the user is able to recover the coins and regain access to accounts with the help of a PIN and a 24-word seed key. It features a multi-passphrase encryption, a small display that shows important transaction details, a multiweb interface for making and receiving payments, and un paralleled level of cryptocurrency protection. The device costs around $100 and is available on Trezor official website or at Amazon.

Which type of wallet to choose for online gambling purposes?

If you are going to buy and transfer small bitcoin amounts, online and desktop wallets are the best instruments to keep your funds at. The downside to many web wallets is low anonymity, for example, Coinbase asks U.S. taxpayers to enter their SSN when creating the account so moving bitcoins to and from the online casino account is not completely anonymous for your identity, and so is exchanging fiat USD into BTC. A full 100% anonymity is still a challenge for bitcoin wallets but some hardware wallets can provide a higher level of privacy, for example, Electrum which is an SPV client with simplified verification procedures for unconfirmed transactions. In case you plan to deposit much into online casinos that accept bitcoins, consider getting a robust and fully autonomous offline cold storage (paper or hardware wallet).