Where is my bitcoin, really?

The short answer

People often say "my bitcoin is on my phone" or "on my hardware wallet". It's a handy shortcut, but it isn't what really happens.

Your bitcoin isn't stored in your wallet. It's recorded on the blockchain, and your wallet holds the keys that let you spend it.

Where the bitcoin actually is

The blockchain is Bitcoin's public ledger: "an ordered and timestamped record of transactions" (Bitcoin developer guide: block chain). Every payment is announced to the network, and it's confirmed once a miner includes it in a block.

Thousands of independent computers, called nodes, each keep a full copy of that ledger and check every new block against the same rules. No single computer, company or phone holds "the" copy.

Each amount on the ledger comes with a lock. Only someone who can prove they control the matching private key (or, for multisig, enough of the matching keys) can spend it (Bitcoin developer guide: transactions). Your balance is simply the amounts on the ledger that your keys can unlock. Your wallet finds them and adds them up for you.

What your wallet actually holds

A wallet, whether it's a phone app or a hardware device, holds your private keys: secret numbers that prove you're allowed to spend. The Bitcoin developer guide puts it simply: "Bitcoin wallets at their core are a collection of private keys" (Bitcoin developer guide: wallets).

When you send bitcoin, your wallet uses a key to sign the payment, and the network checks the signature before the ledger is updated. The white paper describes a coin as "a chain of digital signatures" (section 2).

Modern wallets make all of their keys from one backup: your recovery words, usually 12 or 24 (BIP 39 also allows 15, 18 or 21) (BIP 39). The same words, plus your passphrase if you set one, always rebuild the same keys in a wallet that follows the same standards.

Why this matters to you

• Lose the device, keep the words, and your bitcoin is safe. Your bitcoin never left the blockchain. Restore your words on a new wallet (for a hardware wallet, a new device bought direct from the maker) and the same balance appears. If you set a passphrase, you need it too. A multisig wallet also needs its wallet descriptor and enough of its other keys.
• Anyone with the words can take it. They don't need your phone or your device. With your words, a thief can rebuild your keys on their own wallet, anywhere in the world, and send your bitcoin away.
• Lose the words and the device, and nobody can help. The bitcoin is still recorded on the blockchain, but nobody can spend it. There is no company that can reset it for you.
• On an exchange, the exchange holds the keys. You hold the company's promise to pay you, not the keys. See why self-custody matters.

Your recovery words are the real backup. Write them on paper, never photograph them, type them into a website or save them online, and check that your backup works.

A simple way to picture it

Think of the blockchain as a public notice board, copied in thousands of places, that lists every amount and the lock on it. Your wallet is a key ring. Your recovery words are the pattern for cutting those keys.

Drop the key ring in a lake and you can cut new keys from the pattern. The amounts on the board never moved. But if someone copies your pattern, they can cut their own keys and get there first.

Can other people see my bitcoin?

The ledger is public, so anyone can see amounts moving between addresses. The white paper explains that the public can see "that someone is sending an amount to someone else, but without information linking the transaction to anyone" (section 10). Things like exchange records or reusing addresses can link them to you, so keep your holdings private.