Do Bitcoin actually exist on the bitcoin network?

Question

Where can I find the bitcoin on the blockchain? Do they exist? Are they physically being moved when transferred? How can I custody them in cold storage if they are on a public blockchain?

Answer 1

Bitcoins don't exist. At least, not in the way anyone might normally expect.

Where can I find the bitcoin on the blockchain?

The blockchain is a list of transactions. Each transaction can have many inputs (coins being spent and thus destroyed) and many outputs (new coins being created). Each unspent output is a coin and is called an unspent transaction output (UTXO).

Inputs use coins that are already under the control of the spender. Outputs create coins under the control of the recipient, usually using a recipe we call an address. The recipient provides that recipe.

A transaction input has (1) a reference to a previous transaction, (2) the index of the output in that previous transaction and (3) A proof to everyone that the author has the right to spend that money. E.g. It might indicate the 2nd input in this transaction is spending the 4th output in prior transaction with Transaction-ID abc...123

Do they exist?

Not in any more tangible sense. The blockchain is a list of transactions and so we can look at it to make a list of transaction outputs that have not yet been spent. This is called the UTXO set.

Are they physically being moved when transferred?

No. When you spend some BTC, some old transaction outputs get destroyed (removed from the UTXO set) and some new transaction outputs get created (added to the UTXO set).

Each Bitcoin node (wallet etc) keeps track of the UTXO set completely independently. No node trusts any other node at all.

How can I custody them in cold storage if they are on a public blockchain?

You use the cold-storage wallet to keep safe a secret number called a private key.

It is this secret number that allows you to spend some amount of money associated indirectly with that secret number using some mathematical functions borrowed from the world of secret writing. Cryptography. Secret is "crypto" in Greek, writing is "graph" in Greek. However, actual encryption is not used in the blockchain or Bitcoin network. Bitcoin only uses cryptographic hashes and cryptographic digital signatures.

A private key has an associated public key. Wallets typically can generate a whole series of such pairs of keys from a starting number called a seed number. This allows you to avoid using any key more than once. This makes it harder for others to pry into your private financial affairs.