Bitcoin [1] is an innovative form of currency that exists only in cyberspace. The Bitcoin monetary system is designed to allow people to pay each other over the Internet, without the need for intermediaries such as banks. An easy way to understand how it works is to imagine that the Bitcoin network is a big, public accounting book that is maintained and closely watched by all of its members. The book contains information about who has how many bitcoin and who transfers bitcoin to whom. Each bitcoin owner has a set of public and private keys that are used to write operations to the book. Thus, somebody who owns bitcoin can send them to another person just by writing that he is doing so in the accounting book and signing the operation with a private key.

This model is an extreme simplification, but it helps to understand that each bitcoin is not a piece of code, or a file, or something with its own entity. In fact, bitcoin only exist as a reference in a public registry that states that a certain user has a certain amount of them. In reality, that user does not have the bitcoin stored anywhere. All the user has is a set of public and private keys that allow changes to the registry in order to spend or receive money.

The Security Problem

Most desktop Bitcoin wallets are programs that manage the user's keys, allowing the user to manage digital money in a user-friendly way. However, most users keep their wallet software running in computers that are connected to the Internet and are not necessarily very secure. If an online computer is infected by a piece of malware that allows an attacker to steal the private keys stored in that computer, the attacker would then gain access to the money.

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