I have seen people say that you just need the private key and "some software" to recover your bitcoin. What does this actually mean in the real world? Can someone give an example? Also, if you are using some company's wallet to store the bitcoin, you are relying on that company's computer for storage. How would you get the bitcoin to be stored on your own computer? I am sorry if these are poor questions; I am finding it difficult to wrap my head around the actual storage of bitcoin.
When Alice pays Bob, she creates a Bitcoin transaction. Her payment to Bob is defined in an output of the transaction. This output is encumbered with a cryptographic challenge tied to Bob's public key. You can think of this as the funds getting stored in a lockbox addressed to Bob. When Alice's transaction gets confirmed, it gets recorded in the Bitcoin blockchain, the network's shared transaction journal.
Later, when Bob wants to spend the funds, he creates another transaction which references the output of Alice's transaction in a transaction input. To spend the funds, he will need to provide a signature with his private key, the private key corresponding to the public key Alice used to address the lockbox. The signature is a form of zero-knowledge proof, it proves that the signer knew the private key, but doesn't leak any information about the private key itself. Since the private key is only known to Bob, this means that only he can spend the funds that Alice locked up for him.
So, while the funds are tracked decentrally on the blockchain, Bob needs to keep his private key safe in order to be able to spend the funds. If Bob loses his key and does not have a backup, nobody can open the lockbox and the funds are lost forever.
We call the software that keeps track of private keys and the associated funds "Bitcoin wallets". There is a range of different wallet types from software wallets you can run on your own computer or phone via hardware devices that store private key material to service providers that you trust to do the heavy lifting for you.
If the computer that stores the bitcoin is destroyed, how does someone access their bitcoin?
Buy a new computer, download and install almost any wallet program, then either restore a backup of their wallet data file or key in their secret number or key in a phrase of typically 12 or 24 words that is turned into their secret number.
I have seen people say that you just need the private key and "some software" to recover your bitcoin. What does this actually mean in the real world?
The "private key" is a large number. Much like any other number, but very large. When shown to people, to save space, computers show the number using letters as well as digits - See Hexadecimal and Base58.
That number is what gives you control over Bitcoin money. So its important to keep it secret. Anyone else who knows it can spend the money associated with it.
The software that stores that number is called a wallet. The wallet doesn't contain money, the only really important data it stores is the secret number. There are many different software programs, written by different people or businesses, that can act as Bitcoin wallets. You can put your secret number into any of them and then use the wallet to spend the associated money.
Can someone give an example?
Examples of wallet programs are Bitcoin core, Electrum, Wasabi and many many more.
Also, if you are using some company's wallet to store the bitcoin, you are relying on that company's computer for storage.
That is kind of true for "custodial wallets" but false for normal "non-custodial wallets (sometimes called self-custodial wallets).
You are relying on one computer only for storage only of the secret number that controls spending of money. Sensible people make backups of important data like that secret number and make sure not to lose it, not to let other people see it and make sure a family member knows where it is and what to do with it if they die.
How would you get the bitcoin to be stored on your own computer?
Bitcoin money isn't exactly stored anywhere, not on individual computers really.
Many wallets act as what are called "full-nodes" - this means they keep a complete list of Bitcoin transactions since the beginning of Bitcoin. By looking at money sent and received, they can work out how much money is controlled by the secret number they know, and can spend it. But it is important to remember that this list of transactions is public and many other computers have the exact same list. The list is stored as a chain of blocks of transactions - hence it is called the Blockchain.
So your money isn't stored in one place, it is stored in every full node. It doesn't matter if some nodes die. So long as a some are left, new nodes can always be created and can make new copies.
I am sorry if these are poor questions;
Good questions. Frequently asked, in different ways. Try the search facility if you have other questions - it's good.
I am finding it difficult to wrap my head around the actual storage of bitcoin.
You are not alone. Bitcoin terms are sometimes confusing
- Wallets never really have money in them.
- Addresses don't identify places or people.
- Bitcoins are not really much like coins.
- Bitcoin.com isn't in charge of Bitcoin (like Dollar.com isn't in charge of dollars)
- Blockchain.com isn't in charge of the blockchain.
- No one is in charge of Bitcoin. No one person or business or consortium controls it.
I have seen people say that you just need the private key and "some software" to recover your bitcoin. What does this actually mean in the real world? Can someone give an example?
What it means is that your funds are secured cryptographically, and not on a server somewhere.
If you lose your private key(s) there's no customer service rep that can get you back in, no password reset -- it's all on you. Unlike the old way where paypal could freeze your funds or banks close your accounts, you are in complete control of your funds.
If you save your private key(s) you will always have access to your funds and be able to spend whenever you wish.
Also, if you are using some company's wallet to store the bitcoin, you are relying on that company's computer for storage. How would you get the bitcoin to be stored on your own computer?
You've given control to someone else. You would need to move the coins off of the company's wallet and to an address(es) you control the private key(s) to.