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LESSONS

Keys: what you actually own

You do not store bitcoin; you store the keys that control it. A seed phrase recreates every key. Whoever has it has the coins.

5 MIN READ
COURSE · Bitcoin explained: what it is and why it mattersSTAGE 2 · UNDERSTAND BITCOINLESSON 6 OF 8
Seed phrase derives private keys, which derive public keys, which derive addresses, each step one-way.
LEVEL · Beginner
IN THIS LESSON · 6 OF 8
BY THE END YOU WILL BE ABLE TO ANSWER
  • What should you back up?
  • Who can recover your coins if you lose the seed and the device?
  • Where do a modern wallet's keys come from?
  • Two people each have a copy of the same seed phrase. How many of them own the coins?

Then prove it: a 3-question quiz · a challenge. The lesson marks itself complete at 100%.

After this lesson you can: explain what you actually own when you own bitcoin.

Your wallet does not contain bitcoin. The coins are entries on the shared ledger. What your wallet holds is the private keys that can sign transactions moving them.

The chain of derivation

Modern wallets start from a seed phrase: 12 or 24 words from a fixed list of 2,048. From that seed the wallet derives an unlimited tree of private keys, from each private key a public key, and from each public key an address. Every arrow runs one way. You can regenerate everything from the words; you cannot work back from an address to a key.

One-way chain from seed phrase to private keys to public keys to addresses.
Back up the words once and you have backed up every address the wallet will ever make.

What that means in practice

  • Back up the words once, on paper or metal, and you have backed up every address the wallet will ever create.
  • Anyone with the words has your coins. No service will ever legitimately ask for them.
  • Lose the words and the device, and the coins are gone. There is no "forgot password".

Custody is a choice

Two routes: a custodian holds the keys and you hold a claim; or you hold the keys yourself.
A custodian gives you a claim. Self-custody gives you the key.

You can hold keys yourself (self-custody) or let a company hold them (custodial). A custodian is convenient and can help with recovery. It can also be hacked, go bankrupt or freeze your account, and what you own then is a claim against the company. The Self-custody essentials course covers the practice.

Tap a card to flip it.

MINI CHALLENGEWho owns it

Two people each have a copy of the same seed phrase. How many of them own the coins?

people
CHECK YOURSELF
1/3 What should you back up?
2/3 Who can recover your coins if you lose the seed and the device?
3/3 Where do a modern wallet's keys come from?
pick an answer for each question

SOURCES

  1. What are public and private keys? (River Learn)
  2. What is a seed phrase? (River Learn)
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