What is Bitcoin Made of?

Bitcoin is made of computer code. As one of the original cryptocurrencies, and by far the largest, one of Bitcoin’s key defining elements is that it has no physical form. It exists entirely in a digital state on a public ledger known as a blockchain. At any time, anyone can download the entire transaction history of the Bitcoin network.

Bitcoin was originally created in 2009 by an anonymous programmer known by the name Satoshi Nakamoto. It was created as a purely electronic, peer-to-peer cash system that would allow anyone in the world to transfer wealth, without the need for a trusted 3rd party such as a bank or a credit card company.

Whilst Bitcoin itself has no physical form and exists only as computer code, it is necessary to use a security password in order to access your coins. This password, known as your “keys” simply be memorised, and there is no requirement to hold a physical copy. In reality though, most people are uncomfortable in relying on only their memory to access their money, so there are a number of different ways that bitcoin keys are stored in physical form.

The storage methods used are varied, but they are all broadly known as ‘Wallets’. There are a number of different types of wallets that are common amongst Bitcoin holders.

Paper or Metal Wallets

A paper or metal wallet is literally just a piece of paper or metal which has the owner's keys written down on it. Paper has the benefit of being easy to get hold of and write on, and multiple copies can be made and kept safe in the event of one being destroyed. Obviously, damage or destruction of a paper wallet is very easy, and this is the main reason that metal wallets gained popularity early in the Bitcoin community.

Metal wallets are effectively the same as paper wallets, with the key difference being that the keys are stamped into the metal. This method costs slightly more money and takes more time and effort, but results in a more durable wallet that is more resistant to damage such as water. It is still susceptible to other risks such as theft or fire.

The other main disadvantage of this form of wallet is that there is no security. If someone finds or steals your wallet, they have your keys and access to all of the bitcoin that is associated with them.

Digital Hardware Wallets

Paper and metal wallets are known as hardware wallets, because they exist in physical form. The next step in the evolution of hardware wallets are physical devices that exist solely to store bitcoin keys. The most common brands of these are Ledger and Trezor, and they allow you to store your keys with additional security measures in place.

In essence, a digital hardware wallet is really the same as a paper or metal wallet, in that it stores your bitcoin passphrase. The difference is that it enables you to set up security on the device, which can make it impossible for someone to access your bitcoin even if they manage to get hold of the device.

There are many stories of people having forgotten the password to their own digital wallets, and in some cases have millions worth of bitcoin stored on a hard drive that they can’t access.

How Do Physical Bitcoins Work?

There are some physical bitcoins in circulation, which were created by Mike Caldwell from Utah in the USA. He created a number of physical coins which housed the digital keys inside, behind a tamper sealed hologram. These coins are known as Casascius coins. In essence, these coins are just like a paper or metal wallet, in that they are simply a storage device for private keys used to access the bitcoin digitally.

Caldwell sold these until 2013, when the US Treasury informed him that by creating a physical form of the digital currency, he was operating as a money transmitter business. A money transmitter business is a catch all term that encompasses most financial institutions such as banks and investment management firms. 

Obviously to officially register and be approved in this capacity takes a significant amount of resources, time and money, and therefore Caldwell elected to stop selling at this point. In part due to these regulatory issues, physical bitcoins have not become a mainstream part of the bitcoin community.

Software Wallets

So far all of the wallets we’ve covered have been what are known as hardware wallets. These are devices or storage methods that have a physical form and are designed solely to store bitcoin private keys. 

A software wallet is an app or computer program that exists on a device such as a computer or phone, and stores bitcoin keys in much the same way as a digital hardware wallet. The main difference between these is that a digital software wallet is less secure than a digital hardware wallet. Anyone who is able to gain access to your phone or computer will be able to gain access to your bitcoin private keys.

As always, there are additional steps that can be taken to improve the level of security of a software wallet, but it is widely understood to be a less secure way to store your bitcoin. The benefits of storing bitcoin on a software wallet are that it is easier to transact your coins and more convenient to keep with you. 

Many trading platforms such as Coinbase and Gemini have wallets attached to their exchanges, which means you can buy, sell and store your crypto and bitcoin assets all in the same app. This is much more convenient than having to transfer them to a separate hardware wallet and back again each time you want to make a transaction.

Summary

Bitcoin does not have a physical form and is made up of nothing more than computer code. It exists purely as a digital asset on a public ledger, and there is technically no need for any physical representation for the bitcoin network to be fully functional. In practical terms, most bitcoin users elect to hold their bitcoin in physical form of some type. 

There are many different ways to create a physical copy of your private keys. The decision on which of these methods is right for you will require you to weigh up many different factors such as cost, convenience and security.