The Bitcoin Wallet
A Bitcoin wallet is a collection of addresses and private keys owned by one person. Having multiple Bitcoin addresses can help you organize your money. You may want separate addresses for paying rent, for shopping online, and for saving bitcoins to pay for a house in the future. So a person could have two bitcoins in his wallet that are distributed among many different Bitcoin addresses (see Figure 2-2).
Using multiple addresses, in the form of a wallet, also helps you maintain privacy. This is because the public ledger maintained by Bitcoin, which anyone can look at, has no way of knowing that any two addresses are in the same wallet and are owned by the same person (as long as that person hasn't done anything to show that the two addresses are linked, such as making a single purchase using bitcoins from both accounts).
To manage several addresses and private keys, people use Bitcoin wallet programs? Whereas a Bitcoin wallet is an abstract concept, referring to a group of Bitcoin addresses, a wallet program is a concrete tool that helps users with common Bitcoin tasks, such as creating new Bitcoin addresses, sending bitcoins to others, backing up private keys, and many others. But be aware that the terminology surrounding Bitcoin wallets is not always used consistently. Often, Bitcoin wallet programs are called Bitcoin wallets for short, confusing these two distinct concepts. When you save a Bitcoin wallet (perhaps to make a backup copy), you create a wallet file, which contains information for multiple Bitcoin addresses. Later, you can load your wallet files into a Bitcoin wallet program.
Figure 2-2: A Bitcoin wallet is an organized collection of addresses and their corresponding private keys. Bitcoin wallet programs exist to help perform common tasks like sending bitcoins and managing the bitcoins in your wallet.
Many Bitcoin wallet programs are available to choose from; most are free downloads and can be run on your laptop or phone, or even in your web browser. We'll explore the various Bitcoin wallet programs in Chapter 3, but in this chapter we'll use the Electrum wallet, which is open source, cross platform, and very simple to use.
GETTING SOME "STARTER MONEY" TO LEARN ABOUT BITCOIN
You'll need a small amount of Bitcoin (less than $1 USD) to work through this chapter. If you have a friend who's a bitcoiner, consider asking her to give you a little change to use for practice. Otherwise, go to newbiecoins.com/, which is a site we (the authors) will maintain as a public service and which will list other sites that are giving away small amounts of free Bitcoin. There are usually some reputable sites giving out coins for newbies, but the situation for such giveaways is fluid, with sites going up or down daily, so we can't cover specific ones in this book.
Gearing Your First Bitcoin Wallet with Electrum
To follow along in this section, download and install Electrum (electrum .org/). If you choose to use a different Bitcoin wallet program, most of the instructions on the following pages should apply to it as well.
When you run Electrum the first time, you'll be asked to create a new wallet (or restore an old wallet, which we'll ignore for now), as shown in Figure 2-3.
Figure 2-3: Creating a new Bitcoin wallet with Electrum
The next step is specific to Electrum; that is, it is not a standard feature of most Bitcoin wallet programs. The application presents you with a seed, which consists of 12 randomly chosen words, and asks you to write them down (see Figure 2-4). Electrum uses this seed to create your Bitcoin addresses and private keys; therefore, the seed must be kept secret, similar to your private keys. Because we'll be dealing with only small amounts of bit-coins in this chapter, you don't need to be too careful just yet. However, you should start keeping these security details in mind. A major benefit of a seed is that if you lose your computer (say, in a fire or theft), everything—your wallet, your Bitcoin address, your private keys, and (most importantly) your money—can be recovered from the seed.
The next step gives you the option of creating a password. Although the password is optional, it is very important. If your computer is stolen or somehow falls into the wrong hands, the password prevents others from spending your bitcoins. Because Electrum (and other Bitcoin wallet programs) uses the password to store your Bitcoin wallet on your computer in an encrypted form, the wallet is useless without the password. With many other Bitcoin wallet programs if you forget your password, you could permanently lose access to your wallet. But with Electrum, you can restore the wallet from your seed (without needing the password).
Figure 2-4: Electrum presents you with a seed.
In the final step, Electrum requests instructions on how to connect to a remote server. Select Auto connect and then click Next (see Figure 2-5).
Figure 2-5: Selecting your server connection
You should see a screen similar to the one in Figure 2-6. The green dot in the bottom-right corner indicates that you are connected to the Bitcoin network. Congratulations! You've just set up your first Bitcoin wallet! Now you can fill the wallet with bitcoins.
Figure 2-6: Here is your first Bitcoin wallet!
-  Also called Bitcoin wallet clients.