Quote Originally Posted by OldPhiKap View Post
Okay, so does that mean I have two options to trade Bitcoins -- either through an exchange (for money, lira, Magic The Gathering cards, Kugerrands, whatever is traded there) -- or I can also exchange directly from my private/offline wallet with someone? If I have two Bitcoins, I can put one into an exchange like E*Trade and the other I can send to hurleyfor3 in exchange for that Dick Vitale bobblehead you listed on Ebay?
Sort of.

Anyone who knows a valid private key can transact the bitcoin associated with that key. Meaning if you tell me your key, and you go onto some exchange that hasn't failed yet and spend it before I can, I'm SOL. It would be like being able to spend a $100 bill just by telling someone the serial number.

If you have 2 BTC and want to split them (say, so that one is kept offline), there's also the issue of getting each single bitcoin its own private key. This needs to be done online so it can propagate through the system. Merchants and traders have to worry about this all the time, otherwise it's like having a giant pile of bitpennies.

I made the analogy to stock certificates, but there are differences. If I keep a certificate for 100 shares of AAPL under my mattress, and you break into my house and take it, you haven't stolen the shares. Apple Inc. and the transfer agent still recognize me as the owner, and the dividend checks are still made out in my name, I get to vote on corporate actions and so on. You could try transferring the shares into your name but you'd have to successfully forge some identity documents and do a few other illegal things along the way, and hope I haven't been trying to do the same legitimately.