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Can someone who knows crypto ELI5 how this can even happen? Surely your bitcoin isn’t literally stored on a single hard drive? Otherwise if it fails you just lose everything. Or you could just clone the drive and you’d have twice as much. There must be a way to back it up or something
The bitcoin isn't stored on the harddrive, it's on the bitcoin blockchain, but he stored the key needed to access it on only that one harddrive. Without that no-one can access it.
That makes a lot more sense. Presumably you can back up the key however you like to avoid situations like this?
Absolutely, but do mske sure the backups are secure, anyone with access to them can move those bitcoins.
You can. However, it's easy to not bother, particularly when bit coin were a few pence each. Now the price is sky high, it's suddenly worth millions.
So TLDR, he stored the password or an equivalent to the password on a hard drive, and this password is needed to access the Bitcoin
Bitcoin are associated against addresses which are held in wallets. To transfer coins away from an address (i.e. to spend them or to sell them) you need to create a transaction on the blockchain - as part of doing this you need to “sign” the transaction with a private key associated with the address which holds the bitcoins.
In this case the guy doesn’t have an extra copy of his private key so cannot transfer the coins - he still “owns” them but cannot transact them. It’s like having gold bars locked in a safe but you can’t remember the combination - except the combination is so huge that the chances of guessing it are effectively zero.
Most people who hold more than a trivial amount of bitcoin will have backups of their private key or use mnemonics to remember it but in the early days when 8,000 bitcoins were worth pennies there was no real incentive or knowledge that it was a good idea to keep backups of the key.
The bitcoin are noted in the blockchain belonging to X. The thing that identifies you as X is saved on the drive.
And yes, that is a cautionary tale about making proper backups.
Basically you have a bitcoin account. That account has a username and a password. You can share the username to have people send money to your account. However you can only send money yourself if you know the password to the account. He had his only copy of the password on the hard drive. So if you make two copies of one, you just have two copies of the password to the same account.
What's so special about it is that it's not centralised. With maths you can generate a declaration using your password to attach to your username saying you are sending money and that everyone should update their records. These cannot be faked without a password.
A lot of cryptography and maths goes into it. And the passwords are long strings of random letters and numbers that you cannot choose, same with the username.