Even if you’re convinced that Bitcoin is legit and even after you decide to make your first few investments into it as a long-term savings vehicle, you will have growing
control concerns as you realize that your financial future is truly in your own hands (that’s a good thing)!
primer and overview of many of the common questions that I get around these important topics — hope it helps!
Now, this topic can be exciting as it is scary as the prospect of being financially “impregnable” is awesome! I love the fact that no one can mess with my money and my financial security!
But, I also know that since I’m “sovereign” over my own finances it means that I can also screw things up big time and, in the worst way, I could lose everything if I muck it up. Yikes.
Like most things, the more you know the more empowered you become but it doesn’t have to happen all-at-once. Per usual, I’ll walk with you step-by-step and I’ll try to keep this as simple as possible.
Okay, Recap… What is Bitcoin?
Bitcoin is a
scarce digital money that can be sent securely over the internet without needing any intermediary.
Bitcoin was concepted in 2008 and launched publicly in 2009 by a developer named “Satoshi Nakamoto”. No one really knows who he / she / they are. Nakamoto saw the problems with modern, centralized monetary policy and the results of inflation due to “fiat” currency and systems of money.
Consequently, Satoshi understood that the world needed a better system of exchange; a better money for a modern world using modern internet-centric technologies. This “sound” money could not be centrally controlled nor artificially inflated.
Bitcoin is often times called “digital gold” because it has all of the important properties that
sound money offers: Scarcity, fungibility, divisibility, and (easy) transmissibility.
But perhaps what is not often remembered is the fact that
no one can take your bitcoin from you or change any of the aforementioned properties of bitcoin! This makes it a very powerful concept, idea, technology, and store of long-term value.
Why Would I Use Bitcoin? Why Do People Use It?
Bitcoin is, most simply,
Bitcoin is money that can preserve your wealth and is a model of personal property protection, liberty, and fundamental sovereignty over your own life and your own finances. No one, not even the government, can take it from you.
With a mathematically-transparent total supply of 21,000,000 million total minted, built-in security, and a globally-accessible, decentralized infrastructure that can provide universal and fast access via peer-to-peer technology, it is unrivaled in sophistication and simplicity.
It’s the way money used to be and how it can and should be for our collective, digital future. The more folks who are financially free, the better.
How is Bitcoin Secured? How is it Protected?
The Bitcoin Network is secured by the very people it serves, normal, everyday people like you and me who run the bitcoin application on their own device, wherever they might be around the world. This creates a distributed layer and network which provides real antifragility due to the fact that it does not have any “single point” of failure.
Professionals and much larger organizations who run the bitcoin software at-scale are often called “Bitcoin Miners” because they have institutionalized their efforts (i.e. created businesses, products, and services) that serve the greater community and are rewarded by receiving bitcoins in proportion to the computational power they have contributed (and paid for) to run the cryptographic algorithm that secures the network, validates transactions, and maintains distributed consensus.
This is called “Proof of Work” and is a technologically-akin to “putting in the sweat at the gym” so you can be rewarded for a healthier, more fit (and sexy?!) body. In this analogy you pay for access to the gym (the tools, technology, community, and software / systems) and then you “do the (physical) work” to get the results you want.
The more you invest, the more you get in return. The more time in your own bitcoin gym, the better!
But everyone can contribute as long as they have an internet connection and a computer that can run the bitcoin software.
Can Bitcoin Be Hacked or Held Hostage?
The Bitcoin Network has never been successfully hacked, although there have been many, many attempts. This, of course, is different than an individual holder of bitcoin getting hacked through poor, personal security measures or being stolen via other nefarious schemes.
Bitcoin is always secure but your own security may not be; the point of this is that your growing education around your most valuable asset is of prime importance so that it can continue to be your most important (and available) asset in the future!
But this doesn’t mean that Bitcoin is impossible to hack because it could but it would require an incredible amount of computational power (and money) to secure the network in such a way that you could control it by simple majority. This is not a simple task in any way, shape, or form.
It is far easier to hack an individual than to hack the entire network thus the Bitcoin Network cannot be held hostage or centrally controlled by anyone person.
Is Bitcoin Anonymous, Private, Both, or Neither?
Bitcoin is considered “
pseudonymous,” not “anonymous” because it is a distributed network of computers connected via the internet. As such, one should never consider the Bitcoin Network as anonymous or completely private by default.
This is because every transaction on the Bitcoin Network is recorded in a visible, public, and open source ledger (or “blockchain”) that shows bitcoin addresses, the balance of those addresses, and the interactions (e.g. transactions) that happen between the addresses on the network.
Although there are ways and alternative technologies that can create additional layers of greater anonymity, it also requires more knowledge and greater tooling to pull off.
But this doesn’t mean that the Bitcoin Network can’t be upgraded or eventually include additional, programmatic layers of privacy! They can be proposed by the community and then built-out by motivated developers as the larger network evolves and grows.
What is the Best Way to Secure Your Bitcoin?
The single best way to secure your own bitcoin is to have end-to-end control of your “
private keys” in a way that only you (and your family, estate managers, etc.) control, manage, and operate.
But, if you’re like most folks, you won’t start with “Cold Storage” out-of-the-gate and you’ll level-up your knowledge and security as time progresses.
I’m confident of this pathing because anyone who has experienced the real power of bitcoin will continue to value it more and more as their own use and appreciation grows. Consequently, they’ll spend more time and resources to secure, protect, and defend it.
Most folks will start with an “Cryptocurrency Exchange” much like Coinbase that I referenced in the Bitcoin Basics overview. Although Coinbase is as “safe” as they come, it’s still not as safe as managing it yourself.
This is the difference between “managed custody” and “self custody” where the former is having someone else (or a business / institution) hold your bitcoin while the latter is where you do that yourself.
The more scarier prospects is not that one of these exchanges gets hacked but that outside forces could pressure the organization to compromise access or even give them up entirely. The consensus among security experts is that users should custody their own private keys and learn to manage it themselves instead of a centralized service.
This is a bit like never learning to drive a car that you own yourself as one could literally never learn to drive it given modern technology (thanks Elon…?!).
A hardware wallet is one of the best, consumer technologies that can help secure your bitcoin. It’s a small electronic device that holds the private keys on a computer chip inside the device itself. And since it’s not connected to the internet it greatly increases security.
The “Final Boss” is strategically using “Multisig” technology which is short for
multisignature which pretty much does what it sounds like it does: Doing anything with your bitcoin requires a certain number of signatures in order to transact.
And, when done properly, it can stop in-person attacks, hacking, phishing, disasters both natural and man-made, confiscation, seizure, and even accidental loss (which is very common).
Only the most technically-savvy, capable, and experienced folks can do this by themselves but there are a growing number of services that can assist with this.
What is a Bitcoin Wallet? How Does it Work?
A bitcoin wallet is a system that stores and secures your bitcoin. It can be in the form of a computer, an application (on a computer of any size), or a hardware / IRL device.
As you might imagine, every type of wallet has different degrees of security so you’ll have to pick the one that you’re the most comfortable with and upgrade your wallet as you upgrade your knowledge, skill, and experience.
Choosing your wallet infrastructure for most bitcoiners is the most important decision you make, outside of owning some of course.
A wallet contains the (digital / analog-captured) private keys that you need to transact on the Bitcoin Network. Most wallets have a “backup” process that can help give you a bit more peace-of-mind as you secure your most valuable financial asset.
The most secure wallet is a multi-signature (“multisig”) hardware wallet which are small, electronic devices that keep your private keys secure and disconnected from the internet which reduces your surface area of attack. The least secure way is to keep them on an exchange or in browser-based (web) apps.
The saying goes: “Not your keys? Not your bitcoin!“
Is There a Leader / CEO of Bitcoin? Board of Directors?
There is no leader of the Bitcoin Network. There is no CEO or Board of Directors either. Bitcoin is a decentralized network that is controlled by owners and participants; anyone who helps secure the network and validate transactions.
Each participant has the same proportion of control and influence as any other, based on their resource commitment(s). It does not care where you are geographically or how much you know (or don’t know) about how it all works.
The Bitcoin Network, as a whole, is programmed to self-regulate, propagate, and operate without a centralized authority. In essence, it “runs itself” and any change made undergoes a system of consensus where the majority of participants (miners and node operator(s)) can elect to agree with upgrades or not (90% agreement over a 2-week period to “lock” changes in the core).
This “consensus algorithm” keeps the network secure while minimizing the ability for attacks or nefarious activity to control the network.
How Many Bitcoins Are There?
The total number of bitcoins that will be mined is 21 million; 20,999,999.9769 BTC to be precise. As of this moment of publication (July 8, 2021) there are 18.751 million in existence with 2.249 million left to be mined. This is almost 90% of all bitcoins issued with a current issuance of about 900 coins per day.
Every 4 years the reward for mining is cut in half as the number of coins available to mine decreases and all coins will be mined around the year 2140. The reason that this isn’t as precise because the time adjusts based on of things, a more obvious one being the changes in the number of miners who are mining in the Bitcoin Network.
On a personal note… I’ll be honest with you: When I think about the number of bitcoins that are left to be mined I get worried and even a bit scared because I want to get as many as I possibly can!
I can’t seem to get enough!
Can Governments (Legally) Ban / Stop Bitcoin?
Governments have tried and they have continued to fail because there is not a direct or easy way to shut down the Bitcoin Network nor is there a way to stop people from using it.
Governments can (and have) passed laws with prohibit ownership and use of bitcoin (and other cryptocurrencies) but this does not stop individuals and businesses finding legal (and now “illegal”) ways of transacting.
China, more recently, banned the business practice of mining through legal, authoritarian decree and all that did was decentralize the Bitcoin Network even more as those Bitcoin Miners packed up their gear and moved to other (and more cheaper) sources of energy for their operations. Thanks China.
There is no, real jurisdiction that can stop bitcoin.
Is Bitcoin Legal to Use, Own, and Operate?
Most places in the world allow bitcoin to be used and owned; that’s great news! But there are a number of growing (financial) cryptocurrency-centric regulations that governments are working on to define the “legality” within their own borders.
But, most countries have either explicitly or implicitly determined that Bitcoin is legal and in cases where it isn’t, bitcoin just gets stronger (i.e. greater decentralization of the Bitcoin Network).
People passionate about bitcoin often will spend a good portion of their time in community with other “bitcoiners” to stay updated with the changing legal frameworks, certifications, and regulations that are constantly evolving.
What is “Cold Storage” for Bitcoin?
Using “cold storage” for cryptocurrencies simple means keeping the access to them disconnected from the internet, or “offline” as we often call it. This reduces the ability for a hacker to access your bitcoin directly because they have literally no way of connecting to it electronically.
Their attack goes “cold” which is different than a “hot” wallet which is almost-always connected to the internet and is easily / readily accessible.
You sacrifice security for convenience in this situation so it is often the practice to store your “BTC Savings” in your “cold storage” while maintaining a much smaller balance for in a “hot storage” for ease of use and accessibility.
How Many “Bitcoin Networks” are There?
There is only one, real “Bitcoin Network” and all the others are fake as there is only one, true Bitcoin (BTC). But, it’s open source software so many folks have copied / modified the code to create alternative coins.
The question and the answer can always be determined by the mining conditions and the rewards — is your mining efforts rewarding you with BTC? If so, that’s the real Bitcoin Network because there is no other network that rewards you (while securing it!!) with real BTC.
Why Does the Value Change (So Often)?
Because the value of bitcoin is exactly like any other asset that one might invest in: It’s price is whatever folks are willing to pay!
The unique thing about bitcoin is that it has a limited / fixed supply, unlike most-other securities and fiat-based investments that are subject to inflation and centralized-control. This means that your investments sit on shaky math and thus shaky ground.
The bitcoin “market’ doesn’t close; it’s always open (just like the internet and the metaverse) and exchanges happen 24/7/365 via a universally-accessible, global marketplace. Bitcoin never sleeps; it’s always ready.
A bitcoin can be divided into 100 million satoshis. Unlike the US dollar which is divisible by 100 pennies, you can have many more units of bitcoin than you can in any other currency. This is why it’s important that you get some bitcoin, not that you have “whole” bitcoin.
Like I’ve repeated many times: It’s not about the price of btc; it’s the fact that you have some (and in growing number). A fraction of a bitcoin is better than none.
What Do I Do Now?
The next thing is to get into a community that loves bitcoin and that loves to talk about these types of things! I have a number of recommendations at the bottom of the Bitcoin Basics post and that’s where you’ll learn, grow, and profit.
Life is about relationships and bitcoin is a relationship-driven, human-powered network. It’s better on this side of the equation.