Bitcoin is a form of cryptocurrency, which is a digital form of currency you can use to trade and make financial transactions. It was introduced anonymously by a person or group under the name “Satoshi Nakamoto” in 2008 as a peer-to-peer electronic payment system.
There are many different types of cryptocurrencies out there such as Ethereum and Litecoin, and new cryptocurrencies are still being made today. Bitcoin, however, is the most popular cryptocurrency as it is the first to be widely used, has a high value, and is increasingly accepted by merchants and major companies such as Microsoft.
Since bitcoin is intangible and decentralised, which means it is not held and controlled by any single body or institution, it is important to understand where and how bitcoin is stored if you would like to use it.
Bitcoin is not a physical coin or any form of tangible money that can be held in our hands like cash. It, therefore, cannot be physically exchanged to make purchases in person. Bitcoin is a form of digital currency.
Digital currency bears the same functional properties as physical money. We use it to make purchases and transactions. Digital currency can only be accessed through digital means such as with computers or mobile phones. Digital currency, however, allows for instant and convenient borderless transactions, such as transferring money to another bank account instantly or making an online purchase from a merchant in London.
In a way, using bitcoin is much like using a debit card. The difference is how this currency is stored and the nature of the transactions. With Bitcoin, transactions are direct and do not require the mediation of banks or any middle-man companies.
Since bitcoin is not physical, the issue of where it is stored can be confusing and hard to understand. Like other cryptocurrencies, bitcoin does not have a physical location where it is stored, nor is it some data neatly kept in a file you access with your personal computer.
Instead, bitcoin depends on an advanced network sustained through cryptography and very sophisticated math. This network is called a blockchain and bitcoin is “located” on this blockchain.
In order to access your bitcoin, you will need a “private key” which essentially functions much like a real key! “Private keys” or seeds helps you unlock your coins so you can use them when you want to make transactions. These keys form part of crypto wallets or Bitcoin wallets.
Blockchain technology is what cryptocurrencies fundamentally depend on though it can also be used for other purposes and applications. Blockchain can be understood as a shared public ledger or accounting system that records every confirmed transaction made by Bitcoin users.
Think of blockchain as blocks of data with information on transactions made and the balance of bitcoin available within the whole network. These blocks are then secured together with advanced math, making it difficult to hack or to meddle with the records.
The blockchain can also calculate each wallet’s remaining balance and confirm if transactions can be made and if the balance is verifiably owned by the spender. Therefore, bitcoin is stored in the blockchain in the sense that it has the record of how much bitcoin is in a specific address or Bitcoin wallet.
The money that we use today is primarily stored in banks and is therefore not completely owned and controlled by us. Our money is subjected to the bank’s terms, rates, and we rely on the bank to be stable so that our money will be kept safe and we can make reliable transactions.
This is where bitcoin is different. It is decentralised, meaning that it is not within the control of a single institution or authority or dependent on its stability and security. Instead, the Bitcoin network is sustained communally through all the computers plugged to the network. It doesn’t matter if one computer fails or loses all data since all other computers can continue to function unbothered.
All the computers are running the same software and code and constantly updating and verifying every transaction made as it happens. Additionally, transactions can only happen if there is consensus within the network that it is legitimate. This way, it is practically impossible to enter a transaction that others disagree with or to commit fraud.
In fact, this network is so secure that governments and banks are thinking of using its system for other purposes than cryptocurrency.
Bitcoin cannot be lost physically the way cash can be lost. The immutable nature of the blockchain network makes it hard to believe that bitcoin can simply escape its grip since the computers are constantly tallying the same balance. Bitcoin, however, can be lost when the access to these coins are disrupted.
Some ways bitcoin have been lost are:
It is therefore important to be extra diligent when making transactions and to remember one’s private keys and seeds. While the network is safe, humans would still need to practice their own safety measures.