What Is Bitcoin? Here’s the Bitcoin Primer You Need


| Deep Dive

Page 2 – Bitcoin Is a Commodity, Bitcoin Wallets, and Bitcoin Faucets

Bitcoin Is a Commodity

Another thing to know is there are a fixed number of Bitcoins available. Some are still available to be mined (a process of solving complex math equations), but some time in the year 2140 the last fraction of a Bitcoin will be mined, and no new ones will be created.

The fact that Bitcoin isn’t controlled by any one entity or government combined with the fact that no one can make any more of them makes it an attractive commodity for a lot of reasons. Combine that with the anonymity of transactions – not even the IRS knows if we sent you a Bitcoin for reading this (we didn’t) – and it gets even more attractive.

Bitcoin sitting on gold nuggets

Bitcoin, a Digital Commodity

It also is perhaps the most efficient way to send money to someone overseas, and that’s attractive, too. If we converted dollars to Bitcoin and sent that to you (nope), you could then take that Bitcoin and convert it into whatever your chosen currency is. Doesn’t matter who you are or where you live. And no one knows where that money came from (though, obviously, once you convert it into government-approved currency there will be records of that).

Bitcoin Wallets

Bitcoins are stored in digital wallets. There are various types of wallets, but they’re generally just a piece of software that connects to that network of computers we mentioned. Everyone knows about everyone else’s Bitcoins, but it’s mostly anonymous. Yes, we all can see every Bitcoin transaction on something called the Blockchain, but transactions only have account numbers attached—like Swiss bank accounts—not names.

A couple of points about this:

  • Beware! If you lose access to your wallet, there’s no way of getting it back!
  • There are sophisticated ways agencies like the NSA have employed to attach names to some Bitcoin addresses. Bitcoin is pseudonymous, not completely anonymous

You can download Bitcoin wallets from Bitcoin.org. These are software wallets you can run on your Mac or PC. There are also dedicated wallets for iOS and Android.

Web-based wallets are another option. There are significant tradeoffs in operating a web wallet because you’re putting your trust in a third party. We have personally used Blockchain.info‘s wallet, which we like because we own the keys. Of course, if we lose those keys, we lose access to our wallet, but that’s actually the point.

Another option is Coinbase, a hosted web wallet where you don’t control the keys. Coinbase’s main benefit is that it is also an exchange where you can buy and sell Bitcoin. Many people trade Bitcoin there, and then move it to a more secure wallet.

We’ve used both Blockchain.info and Coinbase and have been pleased with our experiences.

Bitcoin Faucets

Bryan has been running a Bitcoin faucet guide here at TMO for years. Bitcoin faucets give you a fraction of a Bitcoin in exchange for loading up a page full of ads. Bitcoin faucets won’t make you rich, but it’s a way of getting into Bitcoins without buying them, and a lot of them are even fun.

If you have additional questions, let us know in the comments below.

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Adam Wysocki

Simple tool for converting Bitcoins to USD/EUR/GBP.

[Edit: The link is to satoshitobitcoin.in – Bryan]

1 satoshi = US$0.0001591387 (as of this writing)

jackadoodle
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jackadoodle

I really keep searching, and searching for one main question (which breaks into 2 or 3 smaller ones): Things like coinbase seem like “middle men” that could go away or trap my funds. How can I truly own my bitcoins without danger of funds being frozen etc? Another version of the above: what is the truly, best, safest, realest “middle man” if I do decide or need to go with one? Perspective: I don’t trust companies just because they are well known. Coinbase shmoinbase. A few people in an office somewhere, and yes they could go away, could be compromised,… Read more »

geoduck
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geoduck

People keep trying to call Bitcoin a currency. It is not. Currencies have a country, an economy, a Central Bank backing it up. Somebody is minding the store. Somebody cares what the value of the Pound or Dollar, or Euro, or Yen is. Bitcoin has NO ONE backing it up. Its value is set by whatever people are willing to pay for it. People keep trying to say Bitcoin is like a commodity. It is not. When you buy a commodity, you have SOMETHING, gold, diamonds, iron, oil, wheat, some physical thing that can be sold again. You may make… Read more »

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Creigh Gordon

One small quible: Bitcoin is a commodity, but a virtual one. Maybe more like virtual tulip bulbs than virtual gold, but you get the idea. No usefulness IRL. And not really like a derivative either, which is a promise backed by some agent (though it could be very difficult to determine who that agent is) that might or might not be kept. With Bitcoin, there is no agent making a promise, just a hope of a bigger fool.

geoduck
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geoduck

Exactly right. Fools bought an imaginary bag of nothing and are hoping someone else will pay them more for it