If the computer that stores the bitcoin is destroyed, how does someone access their bitcoin? I have seen people say that you just need the private key and &quot;some software&quot; 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 &quot;Bitcoin wallets&quot;. 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.