Back to Basics – Part 1: Where are My Coins?

07/08/2019 | Blog posts

Ledger Back to Basics: Where are my Coins?
This series of articles is not intended to be technical. We’ll be using analogies and images to try to make difficult concepts easier to grasp.

With the recent bitcoin price rally, people are (re)discovering cryptocurrencies. Now is a good time to get back to the basics of cryptocurrencies.

In a previous series of articles, we explained in detail why you need a hardware wallet, why security matters, and what are the best practices.

In this new series, we will focus on the most common questions we receive through our Support channel.

At Ledger, we believe there are no wrong questions. Each time one of our users does not understand something, we consider it an opportunity to help our community.

“Where are my coins ?”

The most common question we receive relates to the location of the cryptocurrencies.  When you own cryptocurrencies, what you really own is a “private key.”

By keeping your crypto assets on an exchange, you are entrusting a third party with these private keys and mandating them to serve as a safeguard.”
E. Larcheveque, Executive Chairman at Ledger

Your “private key” is comparable to an actual key: This key unlocks the right for its owner to spend the associated cryptocurrencies.
As it provides access to your cryptocurrencies, it should – as the name suggests – remain private.

The same way you wouldn’t share the key to your bank safe with anyone, you should not share this private key with anyone.

Private and Public Keys

In addition to a private key, there is also a public key. This can be compared to your bank safe number.There is a cryptographic link between the public key and the private key.

It’s possible to recover the public key if you own the private key.
However it’s impossible to find the private key using only the public key.

Re-using the above analogy, the public key indicates your bank safe identification number. Knowing it can help you identify which safe is yours, but you are still unable to open it.

OK, so there is a  “private key” and “public key” set. That still doesn’t answer the question, however: Where are my coins?

When you save a picture on your phone, there is a file stored in the phone’s memory. When you use Outlook there is a local copy of your emails on your computer.

Your crypto assets are not physically present anywhere, nor stored in any folder. There is no physical entity representing your cryptocurrencies.
Instead, there is a relation between the public key and the associated coins, much like a certain amount is held within your bank safe. Blockchain technology makes it possible to know the balances associated with a public key.

This information is distributed and replicated across a network of computers machines (for instance, several thousands in the case of the Bitcoin network)

So to summarize : Where are your coins ?

– Your coins do not physically exist on any device — not even your Ledger hardware wallet.

– Your coins are associated with a set of “public/private key”

– Ledger hardware wallets store and safekeep your private keys.
Only by owning and using the private key can you actually spend the coins.

– The information linking a public key and the associated balance is distributed and copied over several thousand computers.

“Are the coins stored in my hardware wallet?”

Following the first part of this article, the answer should now make more sense. No, coins are not stored in your hardware wallet.

Your hardware wallet only stores your private keys.

People are used to store bills and coins in their wallet, but in the blockchain world, your wallet doesn’t contain coins – it contains private keys.

In the next article we will explain in more detail what kind of keys are stored in a hardware wallet and why Ledger devices can be used to securely manage hundreds of crypto-assets by using different applications.

Nano X

Back to Basics – Part 2 >