For those new to Bitcoin, you will find better ways to start understanding it than this article; I would recommend Wikipedia for starters. This article is designed for those who already assume they know what Bitcoin is, but have not yet traded in it. I was there – I thought I comprehended it, as well, but having since dipped the toe of mine in the pond, I’ve discovered an unexpectedly enlightening experience. There are plenty of nuances involved in the trading of Bitcoin as to ensure it is extremely educational. It forced me to think about a lot of the built in features which go unscrutinized as well as unrecognized in traditional currencies. In so doing, it made me assign my own values to those features, and allowed me to choose probably the most preferable ways of satisfying my various needs – choices that are usually taken from us.
There are aspects of Bitcoin which make it similar to fiat currency, but it’s not cash. There are buy cryptocurrency mining hardware like gold, but it’s not bullion. You will find aspects a lot like securities, but it’s not just a security. The question of “What is it?” is really much more involved than it appears. It exists solely as an entry in a distributed digital ledger; “having” Bitcoins really means having authority to transfer Bitcoins. No, in fact, that’s not actually technically correct. It means getting a degree of authority measured in Bitcoins to transfer that equal authority. Make an effort to wrap your brain around that. Moving forward, I’ll resort to referring to Bitcoins as the thing of value which is transferred, but understand my doing this is solely shorthand to make this essay readable. Having Bitcoins is the authority to transfer authority.
Thus, upon deciding to acquire my first Bitcoin, step one was to determine how to attain authority to transfer Bitcoins. One could theoretically print out the cryptographic code of a Bitcoin and hand the paper to someone else as a way of transferring the Bitcoin represented by the code, but the way would that recipient know that the printout had not been duplicated and already spent? For that matter, how would the recipient know that the printout even represented some value in Bitcoin instead of only a string of random characters? Transferring printouts of Bitcoin on paper may work (albeit inefficiently) between folks who implicitly trust each other, such as for gifts between relatives, but the genius of Bitcoin is the distributed but authoritative nature of its ledger, and for that to work, transactions have to be subjected to its network.
If a Bitcoin printout is transferred around amongst a group of people without being subjected to the network, none of them would know whether it was counterfeit or valid. It would be like passing around a bank draft made payable to “Bearer;” it might have previously been paid, or perhaps it may never ever have been great in the first place. No one would find out until they made an effort to present it for payment at the maker’s bank. As long as another person is ready to accept a potentially hot potato for goods or services, perhaps it doesn’t matter, but folks tend to be cautious about ending up with potatoes that are hot. I am one person which is such, so I wanted my receipt of Bitcoins to be verified by the network. This turned my focus to a study of digital Bitcoin “wallets.” Wallets are a digital place to store Bitcoin authority codes.