How to Use Bitcoin

Bitcoin surrounded by various world coins

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Bitcoins are a form of electronic money, but they aren’t something you can stick in your pocket. You can't go to a bank and withdraw them either, as they exist only in the virtual cloud. So, how would you go about using them?

Understanding Bitcoin Addresses

If you own some bitcoin, the first thing you're going to need is a bitcoin address. This is not an address you are able to read or interpret. They’re long strings of alphanumeric characters, generated entirely at random.

You will also receive a private key with a bitcoin. This key prevents thieves from stealing any bitcoins sent to your bitcoin address. Each bitcoin address has a private digital key to access it.

A bitcoin needs this key to restrict access to the owner so that no one else can send bitcoins from that bitcoin address. You must keep this private key to yourself; otherwise, your bitcoins will probably be stolen. That private key is yet another long string of characters unique to that bitcoin.

The Bitcoin Wallet

It could get quite confusing and time-consuming if you had to track all the keys and bitcoin addresses yourself. Luckily, bitcoin wallets are available. These programs are designed to keep track of all your addresses so that you don’t have to write them down in a list somewhere.

You’ll need a bitcoin wallet to manage your bitcoins for you because when you send someone bitcoins, the rest of the bitcoin network needs to know so that the value can be tracked.

The only way that the bitcoin network knows that your address has some unspent bitcoins is because everyone on the bitcoin network agrees that you do. This is where the value of bitcoin lies—the value is there because people have placed a value on it. The status of the entire bitcoin network is held in a giant ledger, called the blockchain.

The blockchain is a large file that everyone on the network shares. It contains a record of which bitcoins were sent where, and when, going all the way back to the very first bitcoin transaction. This shared, and unalterable, information prevents any one user from tampering with the ledger and falsifying information.

Your bitcoin wallet tells the network to update that ledger, showing that bitcoins have been sent from one of your addresses to another address. All the other bitcoin software on the network then confirms that this happened, and it gets written into the ledger.

Getting Your Bitcoins

You can download a bitcoin wallet for free, and it will help you access your bitcoin by handling all of your bitcoin addresses for you, while also allowing you to make payments to others.

Some bitcoin wallets force you to cut and paste a bitcoin address if you want to send bitcoins to it. Others will let you scan a bitcoin address if it is displayed as a QR code. These square, blocky codes are like barcodes that can be used to visually encode an entire bitcoin address. They can be scanned with a bitcoin wallet running on a smartphone camera.

Other Ways to Access Your Balance

There are different kinds of bitcoin wallets. Some wallets are software-based only, running on desktop computers like your Mac or PC. They store your bitcoin addresses and the private keys to access them on your hard drive.

Others run on mobile devices, or on hardware wallets (much like a USB drive, but it stores your keys).

Many bitcoin wallets are now available in a smartphone version. When you get the bill at a local coffee shop that supports bitcoins, you can point the camera at the QR code displayed on it, hit the Scan button, and the software will turn it into a bitcoin address. Then all you have to do is click the Send button to pay the coffee shop.

You can also use online wallets. These wallets are services running on the internet and store your keys and addresses on secure servers. The advantage of these wallets is that if they’re set up properly, they can protect your bitcoin addresses and public keys from being lost to a hard drive crash or a misplaced phone.

The disadvantage of non-local wallets is that they can be stolen by being hacked into. Make sure you know how to protect your bitcoins with more secure wallets, and avoid any scams.