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I bought some bitcoin and have them saved on my PC on a MultiBit wallet.

I am a little confused as to how they are actually stored.

Are the bitcoins tied to my machine? So if I lose my PC the bitcoins are gone forever.

Or if I download the same multibit wallet on another computer can I enter my password and access my bitcoins from that machine?

Also what is a paper wallet?

And final question..... I have read Multibits policy on restoring wallet and the use of wallet words. Are wallet words used by all types of wallets or is that just a Multibit specific security measure.

All simplified and intuitive answers will be of benefit as more people are starting to become aware of bitcoin and are probably thinking and asking the same things.

Thanks in advance

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Welcome to the world of Bitcoin. One hint at the beginning: you raised too many questions at once, usually people here try to limit to one question, and answer it "accordingly". That makes it easier to follow up. Anyhow:

Bitcoins are not stored in a way you would have money in a wallet. The concept of Bitcoin circles around cryptographic keys (private and public keys). These keys are used to create and validate transactions, which transfer bitcoins from an address A to an address B, all noted down in the blockchain. Your wallet is an abstraction layer, so that you don't have to work with these cryptographic keys. And every wallet has it's own idea on implementation, though there are some common rules. One of the major rules is: as long as you have the private key (on floppy, USB disk, or noted down on a paper), you are quite independant of any wallet.

Now on Multibit: if your PC crashes, your bitcoins must not be lost. You can make backups, and re-install on a new PC. Multibit has some info on the support pages on how to secure your wallet, by making backups and restores. Better read it carefully, and give it a try on a test machine :-) The more precise answer is: if you lose you private key (which is linked to the words of the multibit wallet), then and only then the bitcoins have very, very low probability to be somehow recoverd (all your bitcoins are lost).

On paper wallet: generally a paper wallet is a private key or words derived from the private key noted on a paper, so they can be used at a later stage to recreate a wallet (eventually with all its funds). There is a tag in stackexchange for paper wallet: https://bitcoin.stackexchange.com/questions/tagged/paper-wallet you may find what it is, or do some web research. It has been answered before.

On Multibits use of words: it is not necessarily working in other wallets. It may work, or may not work. I haven't seen someone doing all the combinations - obviously already too many wallets out there!

My hints to all newcomers in rypto world: do some further research, e.g.: 1. the book „Mastering Bitcoin“, in many languages, by Andreas M. Antonopoulos. 2. „www.bitcoin.org“, with a description of the whole eco system, also in many languages.

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Bitcoins are not tied to your machine. They are linked to your private/public keys.

Basically, people send Bitcoins to a public address. Think of public address as a house address. Anybody can send a gift to a house address, which is publicly available. But only you, who have keys to your house, can stay in house and receive any gifts. These house keys are called Private Keys.

As long as your house keys(Private Keys) are safe with you, you alone can access your house.

For various security reasons, people transact using many public/private key-pairs. A wallet stores all these key-pairs mapped to one account.

This is good place to start: https://www.cryptocoinsnews.com/bitcoin-transaction-really-works/

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Your wallet stores the secret (or private) key and your public address to interact with the money on blockchain securely. There are two kinds of wallets for storing keys:

Cold Wallet (wallet which is not connected to internet):

Cold wallet is an offline wallet provided for storing bitcoins. With cold storage, the digital wallet is stored on a platform that is not connected to the internet, thereby, protecting the wallet from unauthorized access, cyber hacks, and other vulnerabilities that a system connected to the internet is susceptible to.

The most basic form of cold storage is paper wallet. A paper wallet is simply a document that has the public and private keys written on it. The document is printed from the bitcoin paper wallet tool online with an offline printer. The paper wallet or document usually has a QR code embedded on it so that it can easily be scanned and signed to make a transaction. The drawback to this medium is that if the paper is lost or destroyed, the user will never be able to access his address where his funds are.

Another form of cold storage is a hardware wallet which uses an offline device or smartcard to generate private keys offline. The device looks and functions like a USB, and a computer and chrome-based app are required to store the private keys offline. Like a paper wallet, it is essential to store this USB device and smartcard in a safe place, as any damage or loss could terminate access to the user’s bitcoins. Two popular hardware wallets are TREZOR and KeepKey. These are expensive to buy.

Another form of cold storage is offline software wallets on desktop or mobile. They are mostly offline and pretty secure as long as your computer is not hacked. Electrum, Exodus and Armory are often quoted as the best offline software wallets in this category.

Hot Wallet(wallet that is connected to internet):

Private keys stored on a hot wallet are connected to the internet are vulnerable to network-based theft. These wallets are known as hot wallets. Here all the functions required to complete a transaction are made from online device. The wallet generates and stores private keys; digitally signs transactions using private keys; and broadcasts the signed transaction to the network.

It is considered "unsafe" because hackers have easier access to this than a cold wallet. So a minimal amount is stored on a hot wallet. The exchanges are the type of hot wallets. Examples: Coinbase and Blockchain.info

Generally as a rule of thumb you should only leave as much money on your hot wallet as you would with a leather wallet that you’d keep in your pocket. Think of it this way, if you were held at gunpoint while holding a leather wallet, then you’d only lose that money in your pocket, and not your entire bank account. If you keep all your money in Coinbase it’s as if you are walking around town with all your money in your pocket.

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