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I've been reading about wallets, web wallets, software wallets, hardware wallets...and there is one question that I could not clear up from other threads:

  • Your bitcoins are stored in the chain. Use them it's as easy as ask to the chain how much you have + use your private key associate to the address.

  • Based on previous statement (whether is correct) nothing happens if your software wallet installed in your machine gets corrupted or the web wallet site decides to shutdown, as soon as you use another wallet that is connected to the same blockchain platform (supports that cryptocurrency) and provide your private key or seed is enough (right?). This remembers me kind of "cloud" ledger phylosophy.

  • So how the hell can something like this happen? --> https://money.cnn.com/2013/11/29/news/bitcoin-haul-landfill/

  • Are not the balance of this guy replicated in the blockchain , and having his private keys or seed he can still use them?

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Your bitcoins are stored in the chain. Use them it's as easy as ask to the chain how much you have + use your private key associate to the address.

Correct.

Based on previous statement (whether is correct) nothing happens if your software wallet installed in your machine gets corrupted or the web wallet site decides to shutdown, as soon as you use another wallet that is connected to the same blockchain platform (supports that cryptocurrency) and provide your private key or seed is enough (right?). This remembers me kind of "cloud" ledger phylosophy.

Correct.

So how the hell can something like this happen? --> https://money.cnn.com/2013/11/29/news/bitcoin-haul-landfill/

The guy's private keys were stored on the hard drive, and he apparently didn't have a backup. The article was written for non-experts, so it isn't very careful in its use of language, but when people say that bitcoins are "stored" on some device, what they really mean is that the device contains the private keys that can be used to spend the coins.

Are not the balance of this guy replicated in the blockchain , and having his private keys or seed he can still use them?

Yes, if he had the private keys. But he doesn't, unless he can recover the hard drive.

The moral is that you should always have secure and reliable backups of your private keys or mnemonic seed. (In 2013, the date of this article, mnemonic seeds had not yet come into common use.)

  • Hi Nate. Thanks for the clarification :) The thing is, even if you lost your private key (the "wallet" file) if you remember it, does it not enough? Probably the guy did not remember the private key, and that was the problem, right? Just based on my first statements, as soon as you enter your private key, due to its related with your public key, you can use your wallet, even if you "loose" it. – 3Chicken Oct 14 '18 at 15:58
  • Sure, if you can remember the private key, or a mnemonic phrase for a seed that generates the private keys of an HD wallet, that's another form of "backup". The article is from 2013, when HD wallets were not yet in common use, so the keys probably weren't generated from a seed. Thus the keys were just random 256-bit strings, maybe several of them if the coins were distributed across multiple addresses. People can't very well memorize that, so he was depending on having the keys stored on his hard drive. – Nate Eldredge Oct 14 '18 at 16:03
  • Hi Nate. I think thst I just realised the problem of my logic :_) I was thinking the private key as the password that you specify to use your private key, but I guess that that private key is a file (or string or similar) , so it does not mater whether you remember the password associate to the private key, if there is no key, there is no party right? Anyway, what happen with the web wallets? Do they have your private key? Is that not dangerous (whether they guess or store the associated password in a unsecured way)? – 3Chicken Oct 14 '18 at 16:06
  • @DanielFernandez: That's right. With wallets like Bitcoin Core (which is probably what this guy was using), the private keys are stored in a file (e.g. wallet.dat) which may optionally be encrypted with a passphrase. So you necessarily need the file, and if there's a passphrase, you need it also. – Nate Eldredge Oct 14 '18 at 16:09
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    @DanielFernandez: Also, they have ample opportunity to try to guess or brute-force your passphrase, so you had better choose a really good passphrase - long and ideally random. But such passphrases are hard to remember, so you'd want to keep a copy of it somewhere... you see the problem? – Nate Eldredge Oct 14 '18 at 16:43
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Every p2pkh bitcoin address has a key pair behind it i.e. a private key which remains secret and a public key.

There are two ways in which you can generate these keys. There is the old fashioned approach where the wallet is Just a Bunch of Keys (JBOK) and the newer approach where the wallet is a deterministic wallet.

In JBOK wallets the private keys are totally random and unconnected to each other. You need to backup all the private keys in this type of wallet. Furthermore, because address reuse is a bad thing new addresses are created by the wallet software all the time so you need to periodically create fresh backups of your wallet. If you fail to do this you might find that your coins were sent to some change address whose private key you don't have.

In the case of deterministic wallets also known as hierarchical deterministic wallets (HD wallets) all address specific private keys are derived from a seed. You backup the seed once and that's enough to restore your entire wallet. The downside is that if the seed is exposed you lose all your bitcoins and what's more the person who has your seed can wait for an optimal time to steal from you because all future addresses' private keys are also derived from your seed.

In recent years there has been a shift towards HD wallets. What is the reason for this shift? The reason is that the vast majority of people who lose bitcoins lose them because of their own mistakes and not because they got hacked. They lose them because they forgot their password or didn't backup their wallet file. HD wallets make backups easier and so they prevent such losses.

Regarding that bitcoin hard drive guy he didn't make a backup of his wallet. Back then the wallet would have been a JBOK type one. We don't know whether he didn't make any backups at all or whether he had outdated backups. If it's the former then not even HD wallets would have protected him because you still need to backup the seed by writing down the mnemonic or making a copy of the wallet file.

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