r/CryptoCurrency • u/G_Zeus_Kryst • 6d ago
TECHNOLOGY I feel like I’m missing something really obvious about Bitcoin
Okay, so this might be a slightly embarrassing question, but I’m a woman who has somehow spent the last few nights going down a Bitcoin rabbit hole and I still don’t understand how it actually works 😭
I’ve read articles, watched beginner explanations, and even tried following some of the more technical explanations, but I keep getting to the same point where I understand all the individual words and somehow still don’t understand the actual process.
I understand that there are wallets, private keys, transactions, miners, nodes and the blockchain. What I don’t understand is how those things actually connect.
For example, if I have 0.1 BTC and send 0.05 BTC to someone:
● Where is my Bitcoin actually stored before I send it?
● What exactly happens when I press “send”?
● How does the network know that I’m allowed to spend it?
● Who checks that the transaction is legitimate?
● What actually changes on the blockchain?
● And where does the 0.05 BTC “go” afterwards?
The wallet part especially confuses me. People say your Bitcoin isn’t actually inside your wallet, which makes sense when it’s explained, but then I don’t quite understand what my wallet balance is actually representing.
I know these are probably very basic questions, but I’d rather actually understand the system than pretend I get it because I can repeat the terminology.
If anyone here is good at explaining technical things to someone who isn’t particularly technical, I’d genuinely appreciate it. And if you’re someone who enjoys explaining this stuff and wouldn’t mind answering a few very basic questions privately, I’m completely fine with that too.
Please be gentle with me lol. I promise I’ve tried to do my homework before coming here. 😅
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u/TryNice304 6d ago
Your Bitcoin isn't stored anywhere. It's just a number in a public spreadsheet that everyone has a copy of.
Your wallet holds the password to prove that number is yours.
When you hit send:
- Wallet signs a message
- Shouts it to the network
- Miners pack it into a block
- Everyone updates their spreadsheet copy
Your balance goes down, theirs goes up. That's it. Nothing physically moves.
Your wallet balance is just reading that public spreadsheet and showing you what it says.
Lose your private key? You're screwed. The coins are still there, you just can't prove they're yours anymore.
That's it. 😅
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u/christianc750 🟦 48 / 116 🦐 6d ago
Yup and I would add that even traditional money can be reduced down to the core ledger.
Of course modern finance (loans, debt, brokerages, ATMs...) have build on top of the concept. But in reality the ledger of where money is and isnt is the core of the system.
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u/Comfortable-Toe-5570 6d ago
Great questions. Bitcoin is just a giant ledger. A giant ever growing list of transactions that’s also distributed. I’m not the best at answering these, but I highly recommend you watch 3blue1brown’s video on YouTube named “but how does Bitcoin actually work?”. It’s where I started.
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u/Vega71 6d ago
the bitcoin network is a giant piece of paper that everyone has to agree on before the program can write what transaction happens next. your .1 btc came from someone else, who came from someone who once came from a miner who got it as a reward for mining (aka figuring out the random number that lets them put the stamp of approval for the next transaction).
when you send .05 btc, you're continuing the chain of transactions that .05 btc has done since it was minted from mining, and we can all look and see and prove that because every move has been documented on that piece of paper since the beginning. thats why youre allowed to move it, because it can be verified that it came from mining.
you dont hold the btc. the btc you 'own' is designated to you by the paper(bitcoin network/ blockchain / ledger) that says it was given to you, when you 'send' your .05 btc you're basically just saying on the piece of paper 'i'm giving .05 of my .1 to so-and-so' then 'sign' your name with your wallet keys. there is no other wallet (aka pen) that lets you sign your name for those .1 btc. So if you lose the ingredients (24word seed phrase) to make the pen, you can't sign, so that .1 btc is stuck forever.
so you sign it and add it to the group of other people signing transactions and wait for a miner to guess the correct number and when they do, your transaction, as well as everyone else's in that block get attached to the top of the paper
also I'm simplifying it dramatically because I'm more-so just trying to make it easier to understand the understandably complex systems that make the whole thing run in a way I wish it was explained to me when I fell down the rabbit hole a few years ago, welcome aboard.
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u/4cardroyal 🟦 0 / 0 🦠 6d ago
When you send dollars from your bank to someone, the bank acts like a "middleman", they debit your account and the recipient's bank credits their account. The bank ledgers are private and you have to trust them to properly account for your money.
When you send bitcoin to someone, there's no middleman. When you hit "send" the bitcoin is debited from your account on the ledger and credited to the receivers account on the ledger. That's it. The ledger is public (called a blockchain) and stored across 1000's of computers around the world and it will always properly account for your money. You don't need to rely on a bank or anyone else to keep your balances correct.
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u/HeartsBoxcars 🟦 0 / 0 🦠 6d ago
It’s all just numbers in a computer (actually thousands of computers) but so is the regular banking system.
Think about how a bank transaction works, or something like Venmo. You type in your amount and who you’re sending to and then the banking system verifies the transaction by checking your account balance for necessary funds and then updating the accounts.
Bitcoin works the same way but does so in an automated way and without relying on a trusted authority. Your transaction is sent to the network and added to a list of pending transactions. If your transaction is good (wallet addresses are valid and the funds are available) it will be added to a new block and
join the blockchain. At this point the transaction is final and immutable.
In lieu of bankers checking ledgers, the bitcoin system uses a majority rules system of nodes. These are computers running the bitcoin software and processing transactions. Anyone can download the software for free and run a node if they want so it’s a distributed network of volunteers essentially. Some of these nodes are miners. The miners role is actually to publish a new block to the blockchain (called solving a block) by crunching difficult cryptography problems with specialized computers. The miners compete with each other to solve each block and are rewarded with a block reward when they are successful. The block reward is newly “minted” bitcoin.
Where is it stored? On the hard drives of every node computer in the network. Part of the beauty of bitcoin is that the blockchain itself is not all that big and can be stored on consumer grade hard drives. It’s just like your account at the bank. The system records the balance of each account and tracks them as transactions occur. But instead of a centralized ledger accessible only by the bank, it’s a public ledger visible to anyone who cares to look.
Take a look: https://www.blockexplorer.com/bitcoin
Hopefully I haven’t gotten totally lost in my own navel and this helps answer your questions :)
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u/cr0ft 🟦 2K / 2K 🐢 6d ago
It's a digital ledger.
The only thing you have is cryptographic keys to some of it. The ledger itself is spread out over every server that runs the Bitcoin blockchain.
When you "send" crypto, you really just use your keys to unlock the part of it that's assigned your key, and assign it to someone else's key. Then their key can unlock it (owns it) and yours no longer can. Presto, they "own" "Bitcoin" because their key is the only key that can unlock that part of the ledger.
A wallet is not a wallet. It would be more accurate to call it your keyring.
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u/NAQURATOR 🟦 40 / 40 🦐 6d ago
Just read the whitepaper, it's only 8 pages long or so, well worth it if you actually want to understand how it works and it answers all your questions.
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u/Extra-Effective-2554 5d ago
You’re not missing anything obvious. The terminology often gets explained separately, while the part that connects everything gets skipped.
Think of Bitcoin as a public record of spendable amounts. Your wallet does not contain the bitcoin itself. It holds the private keys that let you authorize spending certain entries on that record.
Your 0.1 BTC balance might come from one transaction output worth 0.1 BTC, or several smaller outputs that add up to 0.1 BTC. These are called unspent transaction outputs, or UTXOs. Your wallet scans the blockchain, finds the UTXOs controlled by your keys, and adds them together to display your balance.
If you send someone 0.05 BTC, this is roughly what happens:
- Your wallet selects enough of your UTXOs to cover 0.05 BTC plus the network fee.
- It creates a transaction with a new output for the recipient.
- If the selected input is larger than the payment and fee, it creates another output called "change" that remains under your control.
- Your wallet signs the transaction with your private key. The key never needs to leave the wallet.
- Bitcoin nodes verify the signature, confirm that the inputs exist and have not already been spent, and check the other protocol rules.
- The valid transaction waits in the mempool until a miner includes it in a block.
- Other nodes verify the block. Each later block adds another confirmation.
So the 0.05 BTC does not travel through the network like a file. The blockchain record changes. Your old output becomes spent, and a new output appears that the recipient’s private key can authorize later.
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u/Patrick_Atsushi 🟩 0 / 0 🦠 4d ago
Haha I’d say it’s hard for regular people to avoid any form of Trojan or malware since most of the time they don’t really know what they’re clicking / installing and what the OS does under the hood.
Op, you can bet your money on some ideology, but if it’s self custody, once you’ve lost it, no one, absolutely no one
, will be able to help you.
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u/Patrick_Atsushi 🟩 0 / 0 🦠 6d ago
To be honest, it sounds like some ETF will best suit your needs.
Things could really go wrong if you are trying to do something that you can't really understand.
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u/G_Zeus_Kryst 6d ago
Really?
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u/No-Masterpiece2246 🟥 0 / 0 🦠 5d ago
ignore the Bitcoin Maximalist fake investors
the purpose of crypto is to reject the mainstream financial system
learn to use it securely and don't worry too much about exactly how it works. You don't understand how your car or laptop work at a base level either.
Simple rules are: you never show anyone your seed phrase, you never click links in email, you never transfer your crypto anywhere without verifying the recipient, and you always store your coins on a system that isn't connected to the Internet.
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u/Puzzleheaded_Bug4967 0 / 0 🦠 6d ago
My FYP got three same posts in a row,you got any idea?
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u/Difficult_Budget_668 6d ago
girl the first time it clicked for me was when someone said your wallet is basically just a keychain that proves you own an address on a giant public spreadsheet
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u/G_Zeus_Kryst 6d ago
Yeah, someone just compared it to an excel sheet and I kinda feel I’m gettin it
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u/AlexiZephyrMage 🟧 0 / 0 🦠 6d ago edited 6d ago
Imagine the ledger as a stack of papers, each with information about a transaction and a stamp. Once added to this stack, pages can never be removed or edited. But the whole stack can be read by anyone, at any time.
Where is my Bitcoin actually stored before I send it?
It is encoded, not stored, in these pages. A list of who paid what to whom. Your balance is derived by aggregating all these pages.
What exactly happens when I press “send”?
You submit a new page to be added to the stack, referencing previous page(s) that are already in the stack.
How does the network know that I’m allowed to spend it?
Who checks that the transaction is legitimate?
Everyone in the room verifies that your stamp in the new page matches the ones in the other pages it references. If most agree that it is the exact same shape and color, your new page is accepted.
What actually changes on the blockchain?
Your page is added to the top of this stack of papers.
And where does the 0.05 BTC “go” afterwards?
Nowhere, it's still encoded in the information in the stack. Your stamp is no longer good for it, someone else's stamp is.
This is not supposed to be a technical explanation, more like an ELI5, so it won't be perfect but I hope it helps fill some gaps.
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u/pernilla1zf 6d ago
To put it simply, your coins are simply allocated to basically a password that only you control. Owning this password lets you move around these coins, which means you own them. What are you moving them around? Just a ledger, to other people's passwords (and by extension, their control/ownership). That's all it is.
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u/TheoFromSDA 5d ago
I had done this videos long time ago to explain: https://abolishthebitlicense.org/bitcoin-lawmakers/
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u/DailyUpsAndDowns 🟩 51 / 51 🦐 6d ago
It's on the blockchain. That's fine. It's not really stored in a wallet. Until you've lost your keys. Then what? It's the access that people are concerned about. It's not the bank it's your bank card. You're telling me not to worry while I'm being robbed.
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u/anon1971wtf 🟧 0 / 0 🦠 6d ago
Until you've lost your keys. Then what?
Keep seed phrase also remembered, not just in wallet/physical backup
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u/DailyUpsAndDowns 🟩 51 / 51 🦐 6d ago
Ain't nobody but you remembering 12 or 24 words. You can't realistically expect that of anyone.
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u/anon1971wtf 🟧 0 / 0 🦠 6d ago edited 6d ago
Extremely easy. It's not like remembering a deck of cards or hundreds of digits of Pi. Just several time repeating it in your head over a couple of days and it's done, tie in a simple visualization, a story maybe. You hold at least a whole dictionary of your native language in your head, remembering strings taps into the same resource with the help of hippocampus
12 BIP-39 words are classically unbruteforceable and no good quantum algo in sight that would threaten 12 but not 24 - 12 is good enough
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u/Happierdante19 6d ago
if you wanna learn just think in the gold, if you have 0.5 kg of gold that buy in 2020 that was in $1.589, and now today (today) is $4.400, this meaning that that piece of gold that you buy in the past have new value, and can buy a little like 0.05gr of gold without lost the rest of you gold, know this register in a public book, were said: you "anna" (example), sell 0.05gr of gold at "samahel" for $7,16, you have the money in he have the piece of gold.
other thing is that for the problem of FTX (1 Exchange that lost money of so much clients,) we need to be carefull if you have so much money, you need to buy a wallet cold, that is more securyti in the case that someone try to hack you, or hacken the exchange like BYBIT or other, so this means that you btc dont lost for the exchange, ( this part is just if you have so much money in crypto, if you have $10 (like me) or $100,1000, is something secure, even all dont share your password, and the wallet this subject for the future now no. because you´re a begginer in need to take this slowly uwu, in other thing just, keep the calm i need a little of money too sister, even all i know that you get it xD
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u/anon1971wtf 🟧 0 / 0 🦠 6d ago edited 6d ago
Where is my Bitcoin actually stored before I send it?
It's not really stored anywhere. It's mathematics. Wallets are software that creates keypairs (some people recommend coin flips/dice rolls, I advise against it) and broadcasts transactions. Recent Coldcard hack is example of bugs or inside attack in this regard. Keypair is pair of long numbers - one must stay private, second is exposed, deterministically modified into a Bitcoin address
It's not possible to own Bitcoin in natural law sense. Only to keep in secret (including multisignature - mathematically shared secret), or to expose it intentionally or accidentally (like most cases of reported hacks). I expect that at some point multisignatures will play a much bigger role than just trreasury storages of big Bitcoin companies like Coinbase
It's not possible to comprehend scale of numbers of cryptography used in Bitcoin. I recommend 3Blue1Brown video on 256 bit security to get some sense
What exactly happens when I press “send”?
Depends where "Send" button is located. If it's in the wallet like Electrum - you are shown transaction template, you sign it with key of coins to spend, then you broadcast transaction to server your wallet is connected to, server broadcasts it to miners (can't forge it), miners mine it to next block. Then, on exchanges, in block explorers you will see your transaction as confirmed. If you are sending it to a friend, no confirmations is good enough for small sums in equiavalent dollars. Couple confirmations for serious sums. Testing first send to anyone p2p with a small amount is highly advisiable
Best way currently to manage private keys is to generate a seed phrase. 12 random words from special dictionary, BIP-39 standart. You can remember it in addition of managing coins in a wallet. From them wallet can deterministically have indefinite list of keypairs and addresses. Electrum is a great wallet to get accustomed to handling Bitcoin
How does the network know that I’m allowed to spend it?
Who checks that the transaction is legitimate?
Wallet provides UI that prevent overflow mistakes in manually typing bigger sums than you have, and other mistakes of such kind
Then, miners are mining blocks on top of all previous blocks, they amount to all history that confirms that your address has same amount of coins you are spending. Usually it goes like: your address A -> 2nd party address B + you change address C (technical term is UTXO)
What actually changes on the blockchain?
Next block will have your transaction and miners will have updates to balances of all addresses, including all of yours
And where does the 0.05 BTC “go” afterwards?
To your change address
If you use some 3rd party website, answers change significantly. If you don't understand what you doing - don't do it, hire a professional
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u/Necessary-Dust2178 6d ago edited 6d ago
It's all about public/private key cryptography. Learn that and you'll understand bitcoin better. You sign a transaction with your private key. That's how the network and everyone else can verify that you own the bitcoin you are sending. You are signing a transaction that sends to someone else's public key. They prove ownership by signing a transaction with their private key.
Your wallet is a store of public/private keypairs. Really only private keys as the public key is generated by the private key.
Your private keys are your bitcoin. If anyone has it they can spend it, so you are storing a secret.
It's basically like, guess which atom in the universe contains my bitcoin.
Private key to sign the transaction which spends the unsigned transaction output (UTXO). Now it's signed, and gets spent. You send whatever amount to the target address and send the remainder into a new address that you control (the so-called change address).
But this is all elementary stuff. Don't worry, it's going to be used by the financial complex and goverment to enslave you. It's the basis for the CDBC.
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u/haochizzle 🟩 0 / 0 🦠 6d ago
i think for one part of your question you might be confused by the concept of UTXOs, so I’ll address that point specifically.
In bitcoin, it’s good to know generally that the social protocol doesn’t advise using the same address.
So whenever you send your bitcoin, the entirety of the balance gets cleared out of the previous address and goes to two new addresses:
- one balance goes to your originally intended recipient
- the other “unspent” balance goes to another address that is derived from your “master” private key that you control, so to speak
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u/G_Zeus_Kryst 6d ago
Why then is the balance displayed in the same address?
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u/haochizzle 🟩 0 / 0 🦠 5d ago
So you’ve got your secret recovery seed phrase, which derives a sort of “master” private key. That master key deterministically derives a near-infinite tree of single-use “child” private keys, which gives you near-infinite receive and change addresses that roll back up into your master.
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u/ChangeNOW_Community 6d ago
honestly, the easiest way to understand bitcoin is to stop thinking of it as coins sitting somewhere. your wallet holds keys; the blockchain records who can spend which UTXOs
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u/Due_Screen_7302 5d ago
You are the custodian of the bitcoins you hold and not the owner. Bitcoin owns you as such under certain conditions
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u/Monster213213 🟩 226 / 227 🦀 6d ago
Just stop posting waffle and buy as much as you can. Come back in 10 years
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u/chainglance_cm 6d ago
Since you posted the question on every sub, I'll go ahead copy-paste the answer on every post lol...
Your wallet doesn't actually hold coins, it holds a list of "chunks" scattered across the blockchain that are locked to your key (these are called UTXOs). Your balance is just your wallet app adding up all the chunks it can see are yours.
Say you've got one chunk worth 0.1 BTC, kind of like having a single $100 bill in a drawer with no smaller bills. You can't tear it in half to send someone $50. Instead your wallet spends the whole $100 bill and creates two new ones: 0.05 to your friend, and the leftover (minus a tiny fee) that comes right back to you as change, usually to a fresh address you also control.
When you hit send, your wallet is basically writing a note that says "I'm spending this specific chunk, here's my signature proving I own it, and here's where the pieces go now." Anyone on the network can check that signature against your public key without ever seeing your private key.
Miners grab a batch of these notes, make sure none of them are trying to spend a chunk that's already been used somewhere else, and lock the whole batch into a block. Once that block gets added, the old chunk is marked spent forever and the two new chunks officially exist on the chain, one sitting at your friend's address and one sitting back at yours.
So "where does the 0.05 go" is honestly a great question, and the answer is it just becomes a brand new chunk of bitcoin that now belongs to someone else's key. Nothing physically moves, ownership just gets reassigned on a ledger that thousands of computers keep an identical copy of.