Bitcoin

Bitcoin is an open payment network and a digital money with no company or government in charge: in bitcoin.org’s words, “the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.” Its ledger, the blockchain, is public, and every computer running a full node checks every rule for itself. In Cole’s setup Bitcoin shows up three ways: the self-custody wallets on Cole’s list, a small open-source miner at home (a Bitaxe), and as the reference point for privacy, because every Bitcoin transaction is visible to anyone, forever. That last fact is why Cole points to Monero when privacy is the whole point.

This page explains what the software does. It is not financial advice, and nothing here suggests buying anything.

How it works, briefly

• A ledger of coins, not accounts. Bitcoin tracks individual chunks of value (unspent transaction outputs, or UTXOs), each locked to a key. A wallet’s balance is the sum of the coins its keys can spend.
• Keys sign, nodes verify. A wallet keeps a private key and uses it to sign each transaction. Nodes check the signature and the rules, and reject anything that breaks them.
• Miners order the transactions. New blocks arrive “approximately every 10 minutes on average,” each carrying a proof of work that took enormous computation to find. Miners are paid newly issued bitcoin plus fees, and the amount issued keeps halving until it stops at 21 million coins in total.
• Settled means permanent. Each new block buries the earlier ones deeper. Bitcoin transactions are, as bitcoin.org puts it, “secure, irreversible.” A payment sent to the wrong address is gone.
• The software is open. Bitcoin Core, the reference node, is at version 31.1 (released July 2026). Changes to the protocol are proposed as BIPs (Bitcoin Improvement Proposals), several of which appear below.

Self-custody

You can hold bitcoin two ways. On an exchange, the company holds the keys and you hold an IOU. In self-custody, your wallet holds the keys and nobody can freeze, lose or lend out your coins, which also means nobody can recover them for you.

A self-custody wallet starts from a seed, usually 12 or 24 words, from which every key and address is derived. Whoever has the words has the money. Write them down on paper or stamp them in metal, keep them offline, and never type them into a website or a chat window. (This wiki never publishes seed words, keys, extended public keys or addresses. Its public-safety check, which also screens every agent edit made through the wiki’s MCP server, rejects Bitcoin addresses outright.)

The two wallets on Cole’s list cover the two places you hold keys:

• Sparrow on the desktop: coin control, labels, hardware wallets, multisig, and a direct connection to your own node.
• Cake Wallet on the phone: Bitcoin with silent payments and PayJoin, plus Monero.

Running your own node finishes the picture. Sparrow’s guide puts it simply: “Not only are you keeping your transactions private, but you are validating them yourself.”

Running a node

A full node downloads every block since 2009 and checks every rule itself, so it never has to trust anyone about what the ledger says, and your wallet never has to tell a stranger which addresses are yours. The reference software is Bitcoin Core, and bitcoin.org’s full node guide lists what it costs to run:

• Disk. The full chain is over 750 GB. Pruned mode keeps only recent blocks and cuts that “to around 7GB,” at the price of features that need the old blocks (a transaction index and wallet rescans).
• The first sync. Expect about 740 GB of download the first time the node starts, before it is caught up.
• Ongoing traffic. Around 20 GB a month down, and “200 gigabytes upload or more a month” is common on fast connections, because a node serves blocks to other nodes.

Pruning is one line in bitcoin.conf, measured in MiB:

prune=10000

A node can live on an always-on desktop like the Mac mini (pruned, or with an external drive for the full chain) or on a small server. Point Sparrow at it and your wallet’s questions never leave your own machines; reach it from a laptop or phone over Tailscale rather than opening it to the internet. A node can also run its connections over Tor, so peers cannot tie the transactions you broadcast to your home IP address.

What the public ledger reveals

bitcoin.org says it plainly: “All Bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network.” Bitcoin is pseudonymous: addresses are not names, but the history attached to an address never goes away, and “once addresses are used, they become tainted by the history of all transactions they are involved with.”

Several things turn that pseudonym into a person:

• Heuristics. Analysts assume that all the inputs of a transaction belong to one owner, and they guess which output is change from its script type or a round amount. BIP 78 names these “common-input,” “change-scriptpubkey” and “change-round-amount.”
• Chain analysis companies. Firms like Chainalysis sell tools to “trace funds” and “uncover real-world entities,” and its government arm works with “United States defense, intelligence, law enforcement, and civilian agencies.”
• Exchanges know who you are. In the United States, a business that buys or sells cryptocurrency for customers is a money transmitter under FinCEN’s rules, covered by the Bank Secrecy Act, so it verifies identity, keeps records and reports suspicious activity. The day you withdraw from an exchange, your name is attached to those coins on its books.
• The tax system gets copies. US brokers must report gross proceeds on Form 1099-DA “for transactions effected on or after Jan. 1, 2025,” and basis on certain transactions from January 1, 2026. Form 1040 and other federal returns ask a yes-or-no question about digital assets.
• Your IP address. A wallet that talks to someone else’s server, or a node that broadcasts without Tor, tells the network where a transaction came from. bitcoin.org suggests Tor “so that it cannot be logged.”

Privacy tools are not out of reach of the law either. In November 2025, the founders of Samourai Wallet, whose Whirlpool service ran CoinJoins and whose Ricochet feature added extra hops, were sentenced to five and four years in prison after pleading guilty to a money transmitting conspiracy in which, prosecutors said, they knowingly moved criminal proceeds.

Privacy tools, and how far they go

None of these make Bitcoin private the way Monero is private, but each closes a specific leak. Status as of late October 2026:

Technique	What it hides	Where it stands
A new address for every payment	Links between your payments	Every good wallet does it; reusing an address undoes it
Coin control and labels	Which coins get spent together	Built into Sparrow and Cake Wallet
Your own node, over Tor	Your addresses from public servers, your IP from the network	Sparrow connects straight to Bitcoin Core, with Tor built in
CoinJoin	The link from inputs to outputs, by mixing many people’s coins in one transaction	Shrinking: Samourai’s Whirlpool is gone, Wasabi’s original coordinator shut down in June 2024 (the wallet now uses independent coordinators), and JoinMarket’s original code was archived in April 2026
PayJoin (BIP 78)	The common-input assumption: the receiver adds an input, so the inputs no longer all belong to the sender	BIP 78 is deployed; its asynchronous successor, BIP 77, is a draft. Sparrow has supported it since 2020, Cake Wallet since May 2025
Silent payments (BIP 352)	Links between payments to one published address: senders derive a fresh address each time	BIP 352 is complete. Cake Wallet has supported them since 2024; Sparrow can send to them since October 2025
Lightning	Individual payments, which move off the chain	Channel openings and closings are still on-chain

Two limits apply to all of them. The amounts and the transaction graph stay public forever, so analysis can be re-run years later with better tools. And a single careless step (a withdrawal from a KYC exchange straight into a “private” wallet, an address posted online, a reused address) links everything around it.

Mining at home

Mining is how new blocks get made, and anyone can join. Industrial miners run warehouses of machines, but open-source hardware like the Bitaxe puts a single mining chip on a board that sits on a desk, draws around 15 to 20 watts, and solo mines: it tries to find a whole block by itself. Its odds of ever finding one are small and the hardware will not pay for itself; what it does is make you a participant instead of a spectator, and teach how the network works. The Bitaxe page has the details and the math.

Bitcoin in the rest of the setup

• Keys are secrets like any other. Seeds belong offline. Anything that touches a wallet’s secrets follows the same rules as Cole’s other credentials (Env Files and dotenvx, PGP): never in a repository, never in a chat, never pasted into an agent’s prompt.
• The curve is everywhere. Bitcoin’s elliptic curve, secp256k1, also protects the keys of dotenvx, the encrypted env-file tool on the Env Files and dotenvx page.
• No financial advice, no addresses. The wiki explains tools; it never asks for money and never prints an address.

Gotchas

• Irreversible means irreversible. Check the address on the hardware wallet’s screen before sending. Clipboard malware that swaps a copied address is a known attack.
• Change outputs leak. Spending one coin usually creates change back to you, which ties the payment to your wallet. Coin control lets you choose which coins to spend.
• Public servers learn your wallet. A wallet that asks a public Electrum server about your addresses tells that server your whole balance. Sparrow warns that “sharing your balance with public servers may be making you a target.”
• Lost seed, lost coins. There is no reset. Bitcoin.org notes lost coins “remain dormant forever.”
• Taxes follow the coins. For US tax purposes, “digital assets are considered property, not currency,” so selling or spending can be a taxable event.