Bitcoins have been around for five years. In 2010, the cryptocurrency was worth a fraction of a cent, an early fan spending 10,000 of them on a pizza. With the price of Bitcoins often hovering $1,000 each, those 10,000 Bitcoins would be worth $10 million. Bitcoins are now in the headlines on a regular basis (but not always for good news), and they can be spent in more and more places, including Overstock.com as of this week.
Bitcoins are a big deal among the tech set, but remain a mystery to the mainstream public. A local group, Bitcoin Hawaii, aims to change that.
Founded by McKay Davis and Sam Durham, Bitcoin Hawaii LLC started as a Meetup group, inspired by the Bitcoin 2013 conference in San Jose last May. Since then, Davis and Durham have been sharing the Bitcoin story around the community.
“To increase public awareness of Bitcoin, we have started giving free talks… the first was on Nov 12th at UH Manoa in coordination with The Entrepreneurs Club, and the second was on Dec 9th at The Box Jelly,” explains Davis in an email. “Both talks have been very well received and we are now coordinating with The Box Jelly to provide ‘Bitcoin 101′ classes on a recurring monthly basis.”
Bitcoin Hawaii also hosted the “Blockchain Bash” last week, celebrating Bitcoin’s fifth anniversary.
The group’s next Bitcoin workshop will be held on Thursday, Jan. 16 at 6:30pm at The Box Jelly. And on Wednesday, Jan. 22, Davis and Durham will be the featured guests on Bytemarks Cafe on Hawaii Public Radio. I look forward to our conversation (and questions and comments from listeners!), as I’ve always been curious about Bitcoins but never delved much deeper than tech news headlines.
Even before the show, Davis was eager to answer some of the specific questions I had about Bitcoin.
Q: As Bitcoins become more valuable, we’re hearing about online Bitcoin wallets being hacked. I just signed up for Coinbase. Would your recommendation be to keep bitcoins offline?
A. That depends on various factors including your investment strategy and on your perspective of perceived risks involved with the various ways to hold Bitcoins:
- Storing BTC on Coinbase: The two biggest risks are hacking or Coinbase failing/going bankrupt. Coinbase is at least a U.S. company with large backing. If it were hacked and your coins went missing then you would at least have legal recourse against them. My opinion of Coinbase is very high and I would be suprised to see this happen – but large corporations get hacked all the time. I do know Coinbase has been very good in the past at refunding people’s lost coins not even necessarily when Coinbase was at fault. I doubt Coinbase is going to go under anytime either. Overall pretty safe.
- Storing BTC on a Paper Wallet: The biggest risk here is physical loss or damage to the private key. This includes the typical things covered by a safe: theft, fire, & water damage. Here’s a Reddit post about a person who lost 7 BTC to water damage.
- Storing coins in a software client: This includes a client wallets such as Bitcoin-QT, one of the many Android Apps, or Blockchain.info for iOS (the only wallet on iOS). Here you control your own keys. Coins are vulnerable to theft via physical access, such as someone taking your phone or logging into your keyboard. Unlock screens and password encrypting the wallet helps a lot in this case. There is also potential of theft via viruses or malware apps. In general, Windows OS machines are also more susceptible to exploits that can allow attackers to gain access.
Q: Which strategy do you follow?
A: I do all three.
- I keep my long term savings on offline wallets I’ve printed on waterproof paper and placed in my safety deposit box. This also serves to prevent me from spending them unless I go to the bank. The brilliant part of this setup is I can deposit more coins without having to go to the bank by sending to the public address.
- I keep a pretty small amount on Coinbase, I trust them, but I like to control my own coins. This allows me to sell back to coinbase quickly if I have the need.
- I keep a bit on my up-to-date and firewalled Linux desktop. I also keep a small amount for spending / showing people on my phone that I carry with me. I make sure all keys on my phone are accessible elsewhere so that if I lose my phone I can still recover the coins.
Q: Does that mean a Bitcoin can be in several places at once? Could you have a Bitcoin in your safety deposit box that’s also the same Bitcoin stored on Coinbase or on your phone?
A: The short answer to your question is an emphatic ‘yes’. The ‘coin’ is really just a balance of the sum of all transactions in/out of an address stored in the public ledger called the Blockchain. When someone ‘holds a coin’ they are really just holding the ‘private key’ which enables the digital signing of transactions moving the balance out of that address (i.e. spending the coin by sending to another public address). Without that private key, it is impossible to forge a transaction moving a balance from an address. The private key is a 256-bit random value, usually encoded as a 52-character string (like ’5JGqzQLXcBw154hUatR6CX5ibbs7eyEWfCpu7otbTonHVU1GjKU’). So, that private key can be stored on my computer, my phone, and a piece of paper simultaneously. Spending it anywhere in the world will be recorded in the shared Blockchain.
“I’m sure that explanation just brings more questions, huh?” Davis adds. “You’re also welcome to come to the Bitcoin 101 talk.”
For more information, head down to The Box Jelly on Jan. 16, tune in to HPR2 on Jan. 22, or visit the Bitcoin Hawaii website, Facebook page, or Twitter feed.