Bitcoin is a technology, but it expresses money, which is fundamentally a language for exchanging value between people. Let’s look, What are people actually using Bitcoin for? and some of the most common uses of the currency and protocol through their stories. We will re-use these stories throughout the book to illustrate the real-life uses of digital money and how they are made possible by the various technologies that are part of Bitcoin.
What are people actually using Bitcoin for?
North American Low Value Retail
Alice lives in Northern California’s Bay Area. She has heard about Bitcoin from her techie friends and wants to start using it. We will follow her story as she learns about Bitcoin, acquires some, and then spends some of her Bitcoin to buy a cup of coffee at Bob’s Cafe in Palo Alto. This story will introduce us to the software, the exchanges, and basic transactions from the perspective of a retail consumer.
North American High Value Retail
Carol is an art gallery owner in San Francisco. She sells expensive paintings for Bitcoin. This story will introduce the risks of a “51%” consensus attack for retailers of high-value items.
Offshore Contract Services
Bob, the cafe owner in Palo Alto, is building a new website. He has contracted with an Indian web developer, Gopesh, who lives in Bangalore, India. Gopesh has agreed to be paid in Bitcoin. This story will examine the use of Bitcoin for outsourcing, contract services, and international wire transfers.
Charitable Donations
Eugenia is the director of a children’s charity in the Philippines. Recently she has discovered Bitcoin and wants to use it to reach a whole new group of foreign and domestic donors to fundraise for her charity. She’s also investigating ways to use Bitcoin to distribute funds quickly to areas of need. This story will show the use of Bitcoin for global fundraising across currencies and borders and the use of an open ledger for transparency in charitable organizations.
Import/Export
Mohammed is an electronics importer in Dubai. He’s trying to use Bitcoin to buy electronics from the USA and China for import into the U.A.E. to accelerate the process of payments for imports. This story will show how Bitcoin can be used for large business-to-business international payments tied to physical goods.
Mining for Bitcoin
Jing is a computer engineering student in Shanghai. He has built a “mining” rig to mine for Bitcoins, using his engineering skills to supplement his income. This story will examine the “industrial” base of Bitcoin, the specialized equipment used to secure the Bitcoin network and issue new currency.
Real-Life Uses of Bitcoin
Each of the stories above is based on real people and real industries that are currently using Bitcoin to create new markets, new industries, and innovative solutions to global economic issues.
Getting Started with Bitcoin
To join the Bitcoin network and start using the currency, all a user has to do is download an application or use a web application. Since Bitcoin is a standard, there are many implementations of the Bitcoin client software. There is also a “reference implementation,” also known as the Satoshi Client, which is managed as an open-source project by a team of developers and is derived from the original implementation written by Satoshi Nakamoto.
When did Bitcoin Start?
Forms of Bitcoin Clients
Full Client
A full client, or “full node,” is a client that stores the entire history of Bitcoin transactions (every transaction by every user, ever), manages the user’s wallets, and can initiate transactions directly on the Bitcoin network. This is similar to a standalone email server, in that it handles all aspects of the protocol without relying on any other servers or third-party services.
Light Client
A lightweight client stores the user’s wallet but relies on third-party owned servers for access to the Bitcoin transactions and network. The light client does not store a full copy of all transactions and therefore must trust the third-party servers for transaction validation. This is similar to a standalone email client that connects to a mail server for access to a mailbox, in that it relies on a third party for interactions with the network.
Web Client
Web clients are accessed through a web browser and store the user’s wallet on a server owned by a third party. This is similar to webmail in that it relies entirely on a third-party server.
Mobile Bitcoin
Mobile clients for smartphones, such as those based on the Android system, can either operate as full clients, light clients, or web clients. Some mobile clients are synchronized with a web or desktop client, providing a multi-platform wallet across multiple devices but with a common source of funds.
Choosing a Bitcoin Client
The choice of Bitcoin client depends on how much control the user wants over funds. A full client will offer the highest level of control and independence for the user but, in turn, puts the burden of backups and security on the user. On the other end of the range of choices, a web client is the easiest to set up and use, but the tradeoff with a web client is that counterparty risk is introduced because security and control are shared by the user and the owner of the web service. If a web-wallet service is compromised, as many have been, the users can lose all their funds. Conversely, if a user has a full client without adequate backups, they may lose their funds through a computer mishap.
Demonstrating Bitcoin Clients
For the purposes of this book, we will be demonstrating the use of a variety of Bitcoin clients, from the reference implementation (the Satoshi client) to web-wallets. Some of the examples will require the use of the reference client, which exposes APIs to the wallet, network, and transaction services. If you are planning to explore the programmatic interfaces into the Bitcoin system, you will need the reference client.
