For those unfamiliar with Bitcoin, you can find much better ways to get started on understanding it than this article; I’d recommend Wikipedia for starters. This report is intended 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, too, but having since dipped the toe of mine in the pond, I have discovered an unexpectedly enlightening experience. There are so many nuances involved in the trading of Bitcoin as to help it become tremendously educational. It forced me to think about a great deal of the built-in features which go unscrutinized and even unrecognized in traditional currencies. In so doing, it made me assign my own values to those features, and allowed me to decide the most preferable ways of satisfying my various needs – choices that are typically taken from us.
There are aspects of Bitcoin which make it similar to fiat currency, but it is not cash. There are aspects similar to gold, but it’s not bullion. There are aspects like securities, but it’s not just a security. The question of “What is it?” is in fact way more complicated 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 is not even technically correct. It means having a degree of authority measured in Bitcoins to transfer that equal authority. Try and wrap your brain around that. Moving forward, I will resort to referring to Bitcoins as the thing of value which is transferred, but understand that my doing so is solely shorthand to make this essay readable. Having Bitcoins is the authority to transfer authority.
Thus, upon deciding to acquire my first Bitcoin, the first step 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 means of transferring the Bitcoin represented by the code, but the way would that recipient know the printout hadn’t been duplicated and already spent? For that matter, how would the recipient know that the printout even represented some value in Bitcoin as opposed to only a string of random characters? Transferring printouts of Bitcoin on paper may work (albeit inefficiently) between folks who implicitly trust one another, like for gifts between relatives, but the genius of Bitcoin is the distributed but authoritative nature of the ledger of its, and for that to work, transactions have to be exposed to its network.
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If a Bitcoin printout is transferred around amongst a group of men and women without being subjected to the network, not one of them will know whether it was valid or counterfeit. It would be like passing around a bank draft made payable to “Bearer;” it might have previously been paid, or it may never ever have been beneficial in the very first place. No one would know until they tried to present it for payment at the maker’s bank. As long as another individual is willing to accept a potentially-hot potato for goods or services, perhaps it doesn’t matter, but folks tend to be wary of ending up with hot potatoes. I am one person that is such, so I wanted the receipt of mine of Bitcoins to be validated by the network. This turned my focus to a study of digital Bitcoin “wallets.” Wallets are a digital place to store Bitcoin authority codes.