Before starting with Storing Bitcoins, we take a peek into the last session of our tutorial where we had discussed in detail the advent of digital transactions and the steps through which the cryptocurrency came into being, the way it has shaped up today.
Background to Storing Bitcoins
To start with, if an individual who is more or less aware of the basic functionalities of Bitcoin or Cryptocurrency for that matter, is asked about the way Bitcoins are stored, a general answer to it would be that Bitcoins are stored in wallets.
However, the answer gives rise to quite a few fundamental questions, the foremost one being, if Bitcoins are stored in wallets, then copying the same should also double the number of Bitcoins one has in their own possession, which is in stark contrast with the fundamental principles and transactions.
How does the process of Storing Bitcoins take place?
To clarify, the very first thing that we should know is, Bitcoins are not stored in wallets. The possession or ownership of the Bitcoins and its allied transaction details are actually stored in the blockchain of the Bitcoin. The blockchain is used for Storing Bitcoins in a decentralized manner that happens over a distributed database spread over 10,000 computers that has the record of every single Bitcoin transaction.
Taking a look at the database would reveal the Storing Bitcoins against a particular address for example, the blockchain would store the fact that the address “1Jco97X5FbCkev7ksVDpRtjNNi4zX6Wy4r” had 0.5 BTC sent to it, and that those 0.5 BTC have not yet been sent elsewhere. Bitcoin’s blockchain doesn’t store balances of accounts (it is not a list of account numbers and corresponding BTC balances), it stores transactions. So to get the current balance of any account, you need to look at all the inbound and outbound transactions through that account.
In a nutshell, Storing Bitcoins takes place in wallets store private keys (not bitcoins!) and their software makes it easy for the user of the wallet to see how many coins they control and to make payments. Hence, going back to the question at the very beginning of the topic as to the cloning of Bitcoins would result in doubling of the same, its actually the address that gets stored and not the actual coins, which renders such a replication as impossible.
Storing Bitcoins – Wallets
Bitcoin wallets are apps that can at least:
- Create new Bitcoin addresses and store the corresponding private keys
- Display your addresses to someone who wants to send you a payment
- Display how many bitcoins are in your addresses
- Make Bitcoin payments
In the next session of Storing Bitcoins, we explore all the above mentioned functionalities of the wallet in details starting with Address Creation for wallets.
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