What does it mean to ‘own’ bitcoin?

I know what it means to “own” a hundred dollar bill. I can touch it. If I have it, (and I didn’t steal it), then I own it. The bank plays no role here. We could say possession is 10 tenths of the law in this case. What about $10,000 in my checking account. I own that because the bank says I do. This depends rather heavily on the bank. If they wipe their records of my $10,000 clean, I no longer own it. At least the burden would be on me to prove that it was deleted from their records. So ownership in the case of cash seems simple. In the case of money in the bank, its a little less so but still not too complicated. The bank says we own it so we own it. Clear, if not a bit troublesome. But what about bitcoin. Let’s say I claim I have .2189 of bitcoin. What does this mean. Is there a bank I can go to check and make sure it’s there? Nope. No bank. Is there a record? And if there is, where is it if there is no bank in scenario. To understand what it means to ‘own’ some bitcoin, we need to take a short detour into something called a private key.

Private Keys

Private keys are a topic in math or computer science (I tend to see these as the same subject). You start out with a string. No, not the kind that you use to tie your shoes. A string is simply a sequence of characters. For the purposes of this discussion, we will focus on strings made up of the characters 0–9 and A-F. Also, our strings will have 64 characters. So 64 numbers and capital letters from A to F. If you are wondering where this comes from, I will tell you. The strings we will consider are numbers from 0 to 2²⁵⁶ -1 . That last bit is one less than 2 to the 256th power. But we usually express the number in hexadecimal instead of our usual decimal form. If you don’t know what a Hexadecimal number is, don’t worry about it. Hexadecimal numbers in this range consist only of digits 0–9 and the Hex digits A to F. Anyway, this gives us a string of 64 characters taken from 0–9 and A — F. An example is:

E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262

If we wrote this number in binary form it would be a string of ones and zeros 256 characters long.

Now what does all this have to do with owning a bitcoin? Be patient, gentle reader. Didn’t authors use to write things like that in the past? But I digress. Let us proceed. There is something called a bitcoin wallet. It can be made of software or it could actually be a hardware device. In any event, if you own some bitcoin, say .2189 of a bitcoin, it will ‘be in a bitcoin wallet’. But what does this mean? It means there will be what is called a ‘private key’ which is just a number like the 64 character number above, stored in the wallet. Every chunk of bitcoin that somebody owns has its own private key. If you have that key, you own the bit coin. If you don’t, you don’t. Now I have to clarify this because the reality is apparently different. (But not really). You can possess your private key in whats called a hardware wallet, which is simply a device that safely stores your private key. You can also simply write it down on a piece of paper and do your best to keep it safe. Maybe make multiple copies and hide them in various places. So in those two cases you actually have the private key. But most people get their bitcoin on an exchange, like CoinBase or Gemini. In this case, the exchange is the custodian of your keys. You are trusting them to keep them safe. You can take the bitcoin out of the exchange and keep the private key yourself but most people choose to let the exchange keep them. But they are just holding them (securely) for you. They are your keys. (Otherwise it wouldn’t be your bitcoin). It is important, when buying bitcoin from an exchange to get the from a reputable one. I recommend Gemini.

Now you having your private key (or a reputable exchange having it) is part of what it means for you to own bitcoin. Why couldn’t I just create a private key (this is fairly easy to do) and claim I have, say, 100 bitcoin. The complete answer requires a good discussion of the bitcoin blockchain which is coming soon in another blog post. For now, I will say a little about it. The blockchain is what as known as a distributed ledger. This means a ledger (think accounting) distributed over thousands of computers running bitcoin software. Each one of the computers, or nodes, has a copy of every transaction completed with bitcoin since the very first bitcoin transaction. Anybody can get the (free) software, install it on their laptop, and if you have enough hard drive space, download the entire blockchain with all the transactions. (Currently, the blockchain takes up about 350 gig of hard drive space). Somewhere in the blockchain will be a transaction or transactions that demonstrate that you are the owner of your bitcoin. The records in the blockchain do not have any names or personal information about you. It does contain a public address. That address is where bitcoin are sent. It is public because there is no way to get your bitcoin from that public address. You can only send bitcoin there. Now if somebody happen to connect your public address to your name, then they could look at the blockchain and figure from your transactions how much bitcoin you have. In general, it’s good to use different public addresses for different purposes. This would make it harder to trace. When we discuss the bitcoin blockchain, in another blog post, we will dive into just how all the computers or nodes on the bitcoin network have the same exact copy of the blockchain distributed ledger. It is one of the more elegant pieces of the system. Suffice it to say that all the nodes do have the same copy of the ledger, the ledger is immutable, that is, nobody can modify it and it is the reason the bitcoin blockchain is so secure and reliable. But that is another discussion for another day.

I hope this cleared up a few things and feel free to leave questions or comments below.