The blockchain keeps account of every transaction ever made with Bitcoin. It in this part of the operations of Bitcoin that all things are transparent. However, while the transaction itself is present in the Bitcoin, the identity of the entities involved in the transaction remains secret. The identities are encrypted. The transactions are not.
Identities are secret because the only identifying information associated with a Bitcoin transaction is a secret key. This key generated and assigned by your ‘wallet’. Once you have the key, you are the only one who will ever know your key. It can’t be recovered if lost. It’s not possible for the vast majority of people to remember. The key is a random string of letters and numbers that look like this:
That’s just a sample key, so don’t use it or send Bitcoin to it. You’ll lose your Bitcoin. That’s the price of a decentralized system. The user is ultimately responsible for their actions.
A legendary story out of the United Kingdom tells the story of a man who mistakenly threw away his desktop computer’s hard drive that had $700 million dollars worth of Bitcoin in 2015. Today, those coins would be worth several billion dollars. Since he used a desktop wallet which kept his Bitcoin’s on his hard drive there is absolutely nothing he can do to recover his lost Bitcoins short of finding the hard drive in a landfill.
This has actually presented problems for landfills in his area (the area in the UK where this unfortunate man lives won’t be disclosed here) as many people go into the landfills to hunt for the lost billion-dollar hard drive.
But first, I still haven’t really figured out what Bitcoins are. What do I do with them once I have them?
Simply stated, Bitcoins are stored in a wallet. Like in the story of the man who lost his $700 million hard drive, you can store your Bitcoins in a local wallet on your computer. Another option is to store them in a cloud wallet. Both methods contain risks to your Bitcoin. Online cloud-based wallets have been hacked and far more than $700 million in Bitcoins has been stolen in hacks.
Some of the wealthier and more paranoid Bitcoin investors have chosen to keep their wallets on SD Cards and store them in deep underground vaults near Antartica.
Whichever method you chose, remember to keep your key in a safe place. More people lose their Bitcoins to lost keys than to any kind of hacking or theft.