How does a Bitcoin wallet work?

So much misinformation on the wallets for cryptocurrencies …

Your coins are NOT IN YOUR WALLET! They are in the blockchain!

What is in your wallet?

Information that enables you to access the coins that are in the blockchain.

So each coin always remains in an address on the blockchain - that means NONE of your cryptoassets is in your hard/soft wallet or in your exchange account.

The main point, you do not know on what address on blockchain are your coins, there are simply too many possibilities to guess the address.

So many, so much so that it is more likely that all of your electrons in your body are doing quantum tunneling, and you go through a wall and get out on the other side without ever touching the wall, then you finding an address on a blockchain by a chance.

So what a wallet or an exchange does - it stores information, on which address of all addresses on blockchain is your money/coins.

You access to this information through a seed - for example about seed of 24 words or via a PIN or a password etc ...

Standard is the seed with a number of words (most commonly 12 words).

So if a wallet company closes, your money is not gone, but only the info, where your coins were. As long as you have the Seed that leads to your Private Key there is zero problems - you just enter the words or private key into another service or wallet and it knows where it has to look to find your money.

So it's enough that you write seed words on a piece of paper (paper wallet) or you remember the numbers (mental wallet) you are fine.

Now the problem with exchanges: You do not know what your private key /seed is and so you have no chance access your coins in case exchange company goes out of business.

Hope this makes sense.

As a new user, you can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.

A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued.

Bitcoins are completely virtual coins designed to be 'self-contained' for their value, with no need for banks to move and store the money.

Once you own bitcoins, they behave like physical gold coins: they possess value and trade just as if they were nuggets of gold in your pocket. You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.

Bitcoins are traded from one personal 'wallet' to another.

A wallet is a small personal database that you store on your computer drive, on your smartphone, on your tablet, or somewhere in the cloud.

For all intents, bitcoins are forgery-resistant. It is so computationally-intensive to create a bitcoin, it isn't financially worth it for counterfeiters to manipulate the system.

Bitcoin allows you to instantly send any amount of money to anyone in the world without needing a bank. It allows you to access your money without needing an ATM or credit card - bitcoin gives you back control over your money.

Plus you can pay friends back for dinner, buy your next computer, and donate to charity, all using bitcoin.

Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation.

Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.

What is Bitcoin and how does it work? Is it legal? Who's behind it?

What is Bitcoin?

Bitcoin is the first global, decentralized currency that allows you to send money from one person to another without involving a third party broker, such as a bank. You only need your computer to make transactions because Bitcoin is fundamentally software.

As a decentralized currency, Bitcoin isn’t controlled by anyone. It’s open so that anyone can benefit from it.

You might think that the lack of control could mean chaos, but that’s not true at all. That’s because Blockchain, the technology behind Bitcoin is one of the most accurate and secure systems ever created.

How Does Bitcoin Work?

A blockchain is a ledger that keeps records of digital transactions. Instead of having a central administrator, like a bank or the government, blockchain organizes data in batches called blocks. These data batches use cryptographic validation to link themselves together. In other words, each block identifies and references the previous block by a hash value forming an unbroken chain.

Blockchain solves two of the most challenging problems of digital transactions controlling the information and avoiding duplication. When a purchase is carried out, the ledger records it and sends it out to the entire network. Computers all over the world then compete to confirm the operation by solving complex math equations. The first to figure out the answer and validate the block receives a reward in Bitcoins (this process is called mining.)

The validated block is timestamped and added to a chain in chronological order. The entire chain is continually updated so that it’s always an accurate representation of who owns what at any given time.

Is it Legal?

The legality of Bitcoin depends on where you’re located. Bitcoin was legalized as a formal method of payment in Japan this year, and India might be next. In most countries, however, it somewhat operates in a gray zone, with no official ban or approval of Bitcoin.

Who’s Behind it?

The founder of Bitcoin is Satoshi Nakamoto, an anonymous online alias for a forum poster. The founder remains unknown, and no one truly knows who the actual founder is.

At the moment, Bitcoin is owned by the community as a whole, as it is an open source initiative, with no single owner behind it. It is a community movement.

These answers are given by quora.com experts.