Wrong conception

[Coyster]

There is a mistaken belief (misconception) amongst many Bitcoin users, and that's that their coins/funds are stored in their wallets. I know it's a pretty easy term to understand that it's not, but with how many people share their seed phrases on public platforms, write them down on pieces of paper left unattended to on the table or even post them in open forums when seeking assistance, I beg to differ that many people don't understand this. Scammers do also ask for private keys and seed phrases on different kind of giveaways and other patterns they use to steal people's funds.

So i have been thinking that one cause of this could be that newbies think their funds are in the wallet in their possession and if you do not get their PC, phones or their hardware device, then you can't steal/spend their funds. Imo it'll be better for a lot of people to understand this (mis)concept(ion), I think it will help, because it could be confusing for some, notwithstanding the warning the wallet comes with. "How can someone steal my coins with my seed or private keys when I have my wallet on me"? Sounds pretty easy for us to understand how, but it may not be for others, and hell when I started using BTC newly, it wasn't easy for me.

I'll update newbies here that their funds/coins are not stored in their wallet, but on the Bitcoin network, and with your private keys or your seed phrase, a scammer can import your funds (you feel is in your possession/wallet) in another interoperable wallet and spend your funds, what that means in another form is that your private keys/seed phrase is your wallet, and any other person other than yourself who has it, is at liberty to spend the funds in it. I'll finish this off with a quote from 'mastering Bitcoin':

A common misconception about bitcoin is that bitcoin wallets contain bitcoin. In fact, the wallet contains only keys. The "coins" are recorded in the blockchain on the bitcoin network. Users control the coins on the network by signing transactions with the keys in their wallets. In a sense, a bitcoin wallet is a keychain.

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[jackg]

Can you put a tl:Dr of a summary or the quote at the top?

The post looks quite big and I'm not sure newbies will stick around until the end.

[mk4]

It's definitely a common misconception, and I've pointed out a few such wrong statements too in the past. Recently though, I've been thinking about things like this and the "layman" side of Bitcoin— do the masses really need specifically need to know things as specific as this one? Or might it be a bit unnecessary and what's important is just that people secure their wallet's keys?

Now I'm not saying that pointing out stuff like these out are unnecessary, but just something to think about.

[Pffrt]

In short, bitcoins are stored in bitcoin blockchain, not in a wallet as they are just some numbers and records are kept in the blockchain. Private key allows user to spend the fund.
Many users including a lot of old buddies still have this misconception.

[stompix]

I think it will help, because it could be confusing for some, notwithstanding the warning the wallet comes with. "How can someone steal my coins with my seed or private keys when I have my wallet on me"? Sounds pretty easy for us to understand how, but it may not be for others, and hell when I started using BTC newly, it wasn't easy for me..

You can explain it pretty easy when it comes to the private keys or seed phrase by using the CC analogy.
Compare the private keys to your credit card number, someone can spend the money on our credit card even if it doesn't have your physical card as long as he has your information, also, just like a private key that once known is accessible by anyone and nobody can do a thing about it, so is credit card information till it gets closed down by the bank.

The same stands for the security, just as you shouldn't tell anybody your cc details, keep your PRIVATE keys , well...private!

[Upgrade00]

do the masses really need specifically need to know things as specific as this one? Or might it be a bit unnecessary and what's important is just that people secure their wallet's keys?

Imo, it depends on how important those specifics are, and if they can affect the user's security and privacy. Take dust attack as an example; for one to understand how it could affect their pseudo anonymity, they would need to understand what inputs and outputs are in a transaction and then learn how to protect themselves. Such useful information should be learnt by anyone who wants to hold bitcoins.
However, there are lots of pretty complicated information about Bitcoin, or it would seem so to a newbie, getting through it all would take a lot of time and effort. If the user simply wants to buy and safely hodl bitcoins, they could only focus on the security details.

[mk4]

Imo, it depends on how important those specifics are, and if they can affect the user's security and privacy. Take dust attack as an example; for one to understand how it could affect their pseudo anonymity, they would need to understand what inputs and outputs are in a transaction and then learn how to protect themselves. Such useful information should be learnt by anyone who wants to hold bitcoins.
However, there are lots of pretty complicated information about Bitcoin, or it would seem so to a newbie, getting through it all would take a lot of time and effort. If the user simply wants to buy and safely hodl bitcoins, they could only focus on the security details.

Yeap, people doing proper coin control is definitely heavily recommended, but this is one of the things that I think it's really unrealistic to expect that most people will be doing. I really don't expect the masses to be using Electrum/Wasabi-ish wallets instead of the far-more-convenient Blockchain.com-ish wallet.

[Coyster]

The post looks quite big...

Big? The post does not look big at all to me, just three paragraphs, with none more than five lines is concise.

do the masses really need specifically need to know things as specific as this one? Or might it be a bit unnecessary and what's important is just that people secure their wallet's keys?

There is nothing technical about this that will be a problem for the 'bitcoin layman' to understand, telling them to protect their keys is good enough, but adding why it's important and where their coins are stored as opposed to where they think is better for deeper understanding. For someone who is going to be their own bank, they should know this.

The same stands for the security, just as you shouldn't tell anybody your cc details, keep your PRIVATE keys , well...private!

That's it exactly. But another thing is that the fiat system is quite old and people already know how it works, what they should and should not do with the cc and pin, but Bitcoin can be called a 'new asset', that is why I think new users should be reminded of this more often.

[CryptocurencyKing]

I'm quite sure it skipped your notice that your article comes without a heading. By that I'm implying, it shouldn't just end with a topic sentence in the topic section for such a lengthy post.
You can do something to effect that and the article will be more appreciated.
If the private keys and seed phrase is understood, I guess a lot of newbies or users would know better than to forward their private keys to any user or organization. A huge difference exists between your public wallet address and your private key or seed phrase as clearly seen in it's names. One says private, the other days public. Note them.

[mk4]

There is nothing technical about this that will be a problem for the 'bitcoin layman' to understand, telling them to protect their keys is good enough, but adding why it's important and where their coins are stored as opposed to where they think is better for deeper understanding.

Pretty easy for us(who has been in this space for years) to say. But the fact that some people could barely even grasp the non-custodial nature of bitcoin and why intangible magic internet money is worth something, we could easily assume that explaining stuff like this is easier said than done.

[Smartvirus]

The miscommunication begins from the word wallet itself. It's not so obvious, many newbies would assume the same meaning for pocket wallet in actual to confer on the online wallet and see it to perform same function (holding storing your fiat currency and storing your Bitcoins/Altcoins) respectively, except that one comes with a key of some sort (private key or seed phrase) due to it's intangible nature. It's fair. Not far from it but, in the case of wallet as per Bitcoin/Altcoin/cryptocurrency and all, the wallet performs an entirely unique function and has a pattern of operation. I'll put it simple in three points.

1. You need to understand the concept that, your Bitcoin/Altcoin is stored on the block chain, not your wallet.
2. Your wallet is just an address that allows for the transfer of your Bitcoin/Altcoin and
3. Your private key or seed phrase enables you to access your Bitcoin/Altcoin.

Point three(3) is what makes your private keys or seed phrase more important as it is your first level of security as regards protecting your funds in the cryptosphere.

[Febo]

The miscommunication begins from the word wallet itself.

Exactly. People imagine with what they can link word wallet. Much better word would be an account. But even that is not good. Key to a ledger.

[pooya87]

Can you put a tl:Dr of a summary or the quote at the top?

The post looks quite big and I'm not sure newbies will stick around until the end.

this. and your title is also not good at all. when choosing a title you should try to be concise and to the point. "wrong conception" is too broad and vague to interest anybody to click on it and check it out. it also is not possible to find it by searching. but a clear title that says what the topic is about like "keys are stored in wallet, coins on blockchain" is so much more comprehensible.

[bitsurfer2014]

~snip~

@OP, A few days ago, I've read some technical information about the topic from @mocacinno on a separate thread but I think it is related, I do hope it could enlighten us more about the topic at hand.

When you use the same recovery seed to create 2 wallets on 2 devices (as mentioned by hosseinimr93), both devices will use the same master private key (since this master key is calculated using only the seed phrase, not the password).
This master private key is used to derive private keys, the private keys are used to calculate public keys, the public keys are hashed to create addresses.

In other words, both wallets will contain the same private keys/addresses. If you fund one of these addresses, both wallets will update/increase their balance. If you spend an unspent output funding one of the addresses managed by your wallets, the balance of both (identical) wallets will decrease.
It's a difficult concept for new members... Most new members think the wallet actually stores your bitcoins... This is not true... Bitcoins aren't anything physical. Your balance is actually just the sum of unspent outputs funding addresses whose private key(s) you controll. These unspent outputs are registered on the decentral ledger: the blockchain. So, your two wallets actually only contain keys to spend unspent outputs that are registered on a decentral database.
Your wallet is merely a "window" to the blockchain. It's a nifty tool that parses the decentral database for you, and sums up all entries funding an address that is controlled by your wallet. So, both wallets can contain the same keys, and offer the same "view" of the blockchain.

The password is used to encrypt your wallet file... But the wallet files itself should contain more or less the same data (i say "more or less" because you can also store metadata, like labels...)

[DdmrDdmr]

I prefer the concept of keychain that Andreas Antonopoulos used to explain what a wallet is:

Stefan Tilkov: So even though I'm dragging this out a bit, I still want to ask about one or two technical terms... One that everybody mentions is the wallet. What role does the wallet actually play? Does it store my money, or what does it actually do? What is it, from a technical standpoint?

A. Antonopoulos: So it's a keychain; from a technical standpoint, it is a keychain, first and foremost. What most people call a wallet doesn't store coins. The currency is never in the wallet, it's always on the blockchain, it's on the global decentralized network. Everybody can see all of the coins that are sitting on the ledger, everybody has a copy of the ledger... Everybody has the coins, they just don't own them. What they own is the keys that allow them to make digital signatures to actually spend these coins. So your wallet is a keychain; first and foremost, it stores private keys. It calculates public keys, it calculates public addresses, and it's able to apply digital signatures on transactions to prove that you are the authorized owner of those funds. But in order to do that, it also has to be able to receive the state of the blockchain and understand which of the coins that your keys control have been spent and which ones have not, so it can construct this second-layer abstraction which is a balance. Bitcoin doesn't have a balance, there's no account; you have to count all of the coins that you can address with your keys, and say "Okay, it looks like I can move this much total", but it's maybe stored under a hundred different keys that can sign for these coins.

See: https://www.case-podcast.org/16-bitcoin/transcript

One can envision that, if someone gets hold of your keychain, or you hand out the (private) keys, they can duplicate your keys or steal whatever they give access to. As an analogy, that may work. The problem is though how to lay it out in layman’s terms to a complete neophyte. I mean, as one gets to know the ropes a bit, he can understand that there are TXs that need to be signed and so forth, but from a real beginners point of view, for somebody who is never going to get to know the technicalities well, neither a wallet not a keychain facilitate signing transactions in real life. Even hinting that Bitcoins are not really coins is too confusing for many to assimilate …

[Harlot]

I think the general idea here is how newbies can easily be fooled by giving away not only their private keys but also the passwords and emails they have on phishing websites and applications. Yes there is a big misconception about wallets and private keys with newbies but what I don't get is why are there still newbies getting fooled by phising websites. These kinds of traps in the internet existed long before cryptocurrencies became popular so I still wonder why people are getting scammed by these. Maybe people are just too gullible when it comes to “easy money” stuff they see in the internet.

[BIT-BENDER]

Guys do they -newbies- really need to know too much technicality before knowing some -information- are private?
As when I was brand new to bitcoin I had the senses that these information -private key, password- are important and private.
They use mobile banking, automatic teller machine -Lets leave crytocurrency- the privacy instinct on those forms should make them at least cautious with this informations.

[yazher]

I get your point since most newbies don't really know the importance of keeping private as they think it's just something you can skip until they got robbed by some scammers lurking all around the internet. Just like the MasterCard and other alike of it, when they know the necessary information even they don't have the card with them, they can use all the money inside the card and spent in as if there is no tomorrow.

[erikoy]

I think the general idea here is how newbies can easily be fooled by giving away not only their private keys but also the passwords and emails they have on phishing websites and applications. Yes there is a big misconception about wallets and private keys with newbies but what I don't get is why are there still newbies getting fooled by phising websites. These kinds of traps in the internet existed long before cryptocurrencies became popular so I still wonder why people are getting scammed by these. Maybe people are just too gullible when it comes to “easy money” stuff they see in the internet.

Cryptocurrency is new to us especially the newbie. Old school tricks of scamming still going to work with an upgraded version using the technology. With vast audience or number of users of cryptocurrency then high chances with the numbers that there will be few that will became a victim in scamming. Some scammer using fake phishing sites or malware that can disclose details of the accounts of individuals especially in digital wallets of cryptocurrency.

[joniboini]

While the word itself is probably not the best choice to represent what it actually is, I think if new users spent some 15 mins to read a bit about the whole concept, they will at least understand that wallet is not a pure "wallet".

Like it or not, they have to learn more about new techs before they are familiar with it. Just like when 2FA is a new thing and some people still give it away when people pretend to be a technician from X company trying to solve the problem of their accounts.