Does My Wallet Store My Coins?
No, not really.
Your wallet doesn't store your coins (that's actually the beauty of it!). Rather, it stores the ability to access and transact with your coins (i.e. your keys).
What does that mean and if my wallet doesn't store my coins, where are they stored?
Your coins are stored on the blockchain. Think of it as a huge, universal list that records every single transaction associated with said coin.
Each transaction shows who sent whom coins and how many they sent them.
For example:
- Bill sent Sally 2 coins
- Sally sent Tom 3 coins
- Tom send Bill 1 coin
- etc.
It wouldn't be very private if names were associated with the transactions.
So instead of names, each transaction shows the addresses generated from the respective persons wallet (think of it like an anonymous email address).
In fact, a wallet can generate a virtually infinite number of different addresses (thus, more anonymity) but they'll all be associated with said wallet.
The amount of coins you have are determined by adding and subtracting all of the transactions associated by the addresses generated by your wallet.
Back to our example:
- Bill started out with 5 coins.
- Bill sent Sally 2 coins (-2)
- Tom send Bill 1 coin (+1)
- Bill now has 4 coins.
So if my coins are stored on the blockchain, what does my wallet actually do?
When you generate a new seed or import a seed to a wallet, it uses those 12-24 words to generate a set keys (think of it like an actual set of keys but digital) which are stored on your wallet device.
Your wallet uses those keys to generate addresses.
When you receive coins, your keys generate an address you can provide others to send to.
When you send coins, your keys authorize sending coins from an address it generated to someone else's address (creating a transaction recorded on the blockchain).
Thus, those keys show ownership for all the transactions of the addresses that they generated to recieve and authorized to send.
Your wallet interface simply adds and subtracts all of those transactions of the address associated with your keys to show you the amounts.
So to be frank, your wallet stores your keys.
Concluding thoughts
It's honestly misleading to call a device a "wallet". It's more like a keychain since it doesn't store your coins, but allows access to your coins.
This is why securing your seed is so important.
From just your 12-24 word seed phrase, a wallet can use that re-create and recover all the data needed to access your coins.
It can inputted into as many devices as you want (at the same time) and they will all share the same authority over those coins. This means someone else can to without you knowing if they have access to your seed.
So it is imperative to keep your seed safe and ensure it's longevity in the event your wallet device fails.
If you're interested in learning more about seed security, check out the articles below:
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