How Not to Sell Bitcoins

26Dec17

This post is the dark mirror of Tim Bray’s How to Sell Bitcoins, and explains how I accumulated some Bitcoin in the first place, then utterly failed to cash out before the (latest) bubble burst.

Background

I might have seen Bitcoin in my peripheral vision earlier, but by the time I started paying any real attention mining was hurtling into ASICs (so I’d missed the days when mining was practical on CPUs then GPUs then FPGAs[1]). At the tail end of 2013 I bought a couple of Bitfury ASIC boards to learn about mining.

Mistake #1 – ASIC Mining was a mugs gameIf I’d just spent the money on buying some Bitcoin I’d have something more than 10x the Bitcoin I earned by mining. It didn’t take long for it to become clear that the people fabbing the ASICs were mining the heck out of them before selling them to end users. Quite often this was part of a pre pay scam, where prospective miners paid for ASICs in advance, the fabbers then made the ASICs, mined, drove up complexity, and when the ASICs were economically wrung out they’d finally be delivered to those who funded them.

Paranoid but not paranoid enough

Bitcoin was already becoming the chosen currency of Internet scammers as I started dabbling, so it was obvious that malware would start looking for any unprotected wallets. I therefore chose a very strong password to the private key in my wallet, and furthermore decided not to put it into my password manager on the basis that anything that compromised my wallet might also get into my password manager. This was fine whilst I was frequently using my wallet and exercising the neurons that held the password. It wasn’t great years later – I’d forgotten the password to my wallet.

Mistake #2 – if you’re worried about information security then backstop with physical security. I should have written down my private key password and put it in a safe place (maybe an actual safe).

This story would end there if I hadn’t taken the precaution of backing up my wallet’s private key with a different password – one I could actually remember. The problem I hit then was that the pass phrase had spaces in it, and the wallet software was quite happy using it for exports, but not so much for imports. I had to write a script that was very careful at separator handling to extract my key.

Mistake #3 – I hadn’t tested by backup.  In part this was because I didn’t want to create a greater vulnerability surface by creating another wallet, and a silly assumption that the software wouldn’t let me use spaces in the export if they couldn’t be used again for import.

Paying the right transaction fees

With my private key in hand, and a freshly created Coinbase account I was all set. All I had to do was transfer the Bitcoin from my existing wallet and make a sale – simple…[2]

It was clear that the Multibit wallet I’d been using was hopelessly outdated, so a little research took me to Electrum. I even found a HowTo video showing the process of exporting from Multibit to Electrum. This totally didn’t work for me.

Mistake #4 – I should have paid more attention to the options. The version of Electrum shown in the video didn’t have an opening option import a key, it showed using a standard wallet then importing a key to it, which totally didn’t work for me. Had I tried the opening option I’d have been all set, but instead I gave up on Electrum.

When I’d been learning my way around Bitcoin four years ago transaction fees weren’t really a thing. The blocks being added to the blockchain weren’t full, so miners were happy to add transactions without fees. That all changed over the past year, and as the recent bubble has driven transaction volume against the Bitcoin scaling problem it’s become necessary to pay higher fees to get transactions confirmed.

Mistake #5 – I should have researched fees more carefully. A quick Google revealed that fees had spiked, but I didn’t have a good measure of how large (in bytes) my transaction would be so I ended up low balling the transaction fee and sending it into transaction purgatory.

Transactions don’t time out

Bitcoin myth has it that a transaction with too low a fee will be timed out of the mempool after about three days and returned to your wallet. At the time of writing my transaction has been bouncing around for over two weeks. Every time it looks like it’s about to expire it pops up again. I may be going a little conspiracy theorist here, but it feels like ‘Once is happenstance. Twice is coincidence. The third time it’s enemy action‘, and I suspect that the mining community is deliberately keeping the transaction backlog high in order to keep mining fees high.

Mistake #6 – I thought that my transaction would gracefully fail if I got the fee wrong. But instead my Bitcoin are lost in space and time.

Transaction accelerators don’t work

Something new to the Bitcoin scene are transaction accelerators – sites that claim to be able to move your pending transaction into an upcoming block for confirmation. I tried submitting to ViaBTC a few times, but they only take 100 transactions an hour and my timing was never right. The first time I tried ConfirmTX it said my transaction would be accelerated (it wasn’t). I tried again and paid $5 in Bitcoin Cash (BCH) and once again nothing happened, so I suspect reports of it working likely coincide with transactions that would have gone through anyway. PushTX wants hundreds of dollars, so I’m not chancing that.

Mistake #7 – accelerators don’t seem to work, and may also be unhelpful in getting my transaction to expire from the mempool.

The end? Not really

This story hasn’t reached its end. After weeks of hunting for keys and waiting for a transaction to complete I’m still not in a position to actually try selling my Bitcoin. My fingers are crossed that the transaction pools will be quiet over the holiday period and maybe 2018 will bring the chance for me to sell.

Updates

27 Dec 2017

I found this Reddit comment saying that a change was made so that transactions would expire from the mempool after 14 days rather than 3. On checking my wallet (which I’d been keeping closed to prevent it rebroadcasting) I found that the hung transaction had indeed expired and I was able to try again with a higher fee.

5 Jan 2018

Following Adrian Mouat’s suggestion on Twitter I sent my BTC to Coinfloor, waited for the New Year to sell and transferred out my GBP. It took a couple of days for the money to land in my UK bank account, and Coinfloor charged its stated £10. So ultimately this was a (very frustrating) learning experience, but I got what I wanted.

Notes

[1] When I say ‘ASIC’ in a pub conversation I see the eye glaze thing for anybody that’s not spent time at the border of electronics and computing. The point here is that there was a mining arms race as the mining complexity went up and people found more specialist ways of turning electricity into hashing. At the birth of Bitcoin it was possible to mine with CPUs, but then people figured out it could be done with GPUs, and ultimately ASICs (after a brief diversion to FPGAs). Of course each time more efficient hashing came on the scene it drove the complexity up, making any previous approach hopelessly slow and inefficient.
[2] Since I’ve not got my Bitcoin as far as Coinbase I can’t (yet) comment on the ease of selling and cashing out, but I know there was some friction and expense ahead with SEPA payments etc. (as Coinbase doesn’t transact in GBP or connect directly into the UK banking system).



4 Responses to “How Not to Sell Bitcoins”

  1. Clearly the currency of choice for the average non-technical consumer. ;-)

  2. As we discussed, while I agree with everything, I think your “Mistake #1” was less a mistake on your part than an operational reality at the time. You didn’t, if I remember correctly, go in to mining because “Baby needs a new set of orthodonture”, but rather because you were curious about the ecosystem and wanted to understand it from the bottom up. I’d say the education you got covers the Delta between what you mined and what you could have had in BTC had you simply ponied up and put them on your Maestro card.

    • I agree with Nick, “Mistake #1” is more a learning process action that enabled you to understand the topic in deep.

      • Perhaps the real mistake was that once I’d figured out what was going on (which didn’t take that long) I should have hedged with a cash purchase of BTC (especially once it was languishing below that end of 2013 peak); but I guess I’d made the decision that what I’d accumulated from mining made me long enough. I also didn’t reckon on how abruptly my ASICs would stop generating income (or how the mining consortium I’d pooled with would disappear without notice or trace).


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