Start Small to Prevent Expensive Bitcoin Mistakes
To prevent expensive mistakes, in your own Wallet, start by sending and receiving no more than a Dollar’s worth of Bitcoin from your Wallet to another Wallet, and select low fees. Both Wallets can be on your own computer. Mistakes made using Bitcoin are usually permanent, so start small and practice until you are comfortable with the process. Now, let’s open our Electrum Wallet. To open our Wallet, we must enter the password we created when we first installed it. If you downloaded Electrum, you may need to enable some options from Electrum’s Preferences, available from the tools menu, to see all of the options shown in this demonstration. Press “Help” from the Electrum toolbar for instructions.
Main Tabs on Electrum Wallet
On the top of our Electrum Wallet are four tabs:
The History tab shows my Bitcoin transaction history. The Send tab allows me to Send Bitcoin from my Wallet to another Bitcoin Address. The Receive tab allows me to enter details of Bitcoin funds that I am expecting to receive into my Wallet. Take note of the first four characters of this displayed “Receiving Address” for our Wallet. When I click on the Addresses tab, we can see the same Bitcoin Address is shown in the list of our Wallet’s available Addresses. Usually, every transaction we make from our Wallet will use a new and unique Bitcoin address, as this helps to maintain confidentiality. Our wallet will make more unique Addresses whenever they are needed.
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Let’s now explore Sending funds and Fees by clicking on the “Send” tab. In the “Pay To” field, we enter the Bitcoin address for the Wallet that we are sending Bitcoin to. We can Copy and Paste the recipient’s Bitcoin address, or if we are using a Bitcoin Wallet on a Mobile device we can scan the QR code, which is a random square of digital blocks containing the recipient’s Bitcoin Address. In the “Description” field, enter a good description that will remind you to whom and for what these Bitcoin were sent. My Wallet allows me to enter an amount in Bitcoin or US Dollars. Local currency entry is an option that can be enabled from Electrum’s Preferences. If I enter a dollar amount, my wallet will calculate the Bitcoin price, or I can simply enter the Bitcoin price directly. You need to be careful when sending or receiving Bitcoin, as there are several different types of Bitcoin units.
If I open the preferences window for my Electrum wallet, and click on the Appearance tab, you will see my chosen “base unit” is in Bitcoin, or BTC. There are two other common Bitcoin units, which are MilliBitcoin or “mBTC”. One thousand “mBTC” are equal to one Bitcoin. Bitcoin could also be quoted in units called “Bits”, which are one millionth of one Bitcoin. These alternative unit sizes make managing Wallet funds easier for some people. They are essentially the same; it’s like the difference between one hundred cents, or one dollar. To prevent expensive mistakes, just make sure when sending or receiving Bitcoin, that you are using the same Bitcoin unit as the other party.
Bitcoin Fees can be complicated.
Fees are taken by the Miners, for the task of processing and confirming each transaction and writing confirmed transactions into the BlockChain Public Ledger. Electrum offers a slider to set my fee, with the lowest fee on the left, and higher fees on the right. Bitcoin fees are based on the size of the transaction, in bytes, leaving your Wallet. Usually this is a very small number.
The Fee is calculated in Satoshi’s per byte, which is the smallest possible fraction of a single Bitcoin. Average Fees can change almost daily, depending on how busy the Bitcoin Network currently is. The larger the fee you select, the faster the Bitcoin Miners will confirm your transaction. By sliding all the way to the right, the description box tells me this transaction will be confirmed by Bitcoin Miners in the next block of transactions written to the BlockChain. This usually means about an hour. It also shows the cost in Satoshis per byte. If I move the slider all the way left, this transaction will be confirmed within twenty-five confirmed blocks on the Blockchain. This means a delay of hours, a day, or sometimes longer. However, the fee charged is a lot less. During times of high or low traffic, the fee slider could cause you to overpay or underpay fees. You can also change Electrum’s Preferences to enable you to enter a manual Fee amount, but this should be avoided by the beginner, as it is possible to enter a fee that is far too high. A good estimate of the current Bitcoin market fees are available from estimatefee.com
The numbers to look at are the number of blocks to confirm within sixty minutes, and the number of satoshis per byte to enable this for a transaction. This also gives me a cost in cents or sometimes dollars for how much this actually is in local currency. When I return to Electrum, to confirm this transaction within the hour, I simply move the slider to a place where it falls close to the number of blocks and satoshis that estimatefee.com showed me.
I now know approximately how much this fee is, in dollars or cents, and that this transaction should confirm within one hour.
Next, it’s a good idea to click on the Preview button. The top of the window shows us the details of the transaction, and the fees we have selected. On the bottom, in the output section, you might see two outputs. Think of each of these outputs as separate digital coins. Like cash transactions, Bitcoin sometimes generates small amounts of change from a transaction, that must be returned to the person sending the Bitcoin, which is me. The first output address will match the Bitcoin Address we entered into the “Pay to” field. This is where our Payment is actually going. The second output is a small amount of Bitcoin change returning to my own wallet through one of my own Wallet’s unique Addresses. We could sign this transaction here, which uses our Private key to authorise the transaction, then press the “Broadcast” button to send this transaction out into the Bitcoin Network for confirmation, or we can close this window.
From the Send screen, I can now press the Send Button to send this transaction, which uses our Private Keys to sign and authorise the transaction. If you have setup a password for your Wallet, you will be asked to enter that before the transaction actually leaves the Wallet. As we setup Two-Factor Authentication for our Wallet, we must enter a random six-digit code using Google Authenticator on our Cell Phone, before the transaction can be sent. Once we send our transaction, we can check how it’s going in the History window. The transaction will appear as “unconfirmed’ until the Miners pick up the transaction, agree that it is valid, and then write our transaction into a new Block of transactions, which are added to the BlockChain Public Ledger. Only when this is done, and more Blocks of transactions are confirmed after it, will the transaction change to “Confirmed” in the sender’s and receiver’s wallets. The recipient will not be able to spend the Bitcoin until the transaction changes to Confirmed.
Receiving Bitcoin into an Electrum Wallet
Unless you are using a permanent Bitcoin address, which is generally only done by businesses or Websites with a donation button, every time you receive Bitcoin, your Wallet will provide a new receiving address to protect your confidentiality. Before you can receive Bitcoin, you must create a Receiving transaction in your Wallet and Save this, so that the Receiving Bitcoin address is saved against this particular transaction. The QR code on the screen can be scanned by the other person sending you Bitcoin, or you can copy and paste the Receiving Address. Enter a description for the receipt, and the amount of Bitcoin that you are expecting. “Request Expires” can be left as “never expires”. Then press the Save button.
Our Bitcoin Receipt transaction and our receiving Address have now been saved to our Wallet. It’s now safe to give the person or Website sending us Bitcoin a copy of our Receiving Bitcoin address. The History tab will show us the status of the transaction. As I explained earlier, the length of time it takes for the transaction to move from “unconfirmed” to “confirmed” depends on the size of the fee that the Sender has chosen. So we can expect our Bitcoin in an hour, a few hours, a day, or even longer.
We can only spend the Bitcoin we receive when the state changes from “unconfirmed” to “confirmed”.