Introduction to the Bitcoin Wallet

What Is a Bitcoin Wallet?

A Bitcoin wallet is a type of digital wallet used to send and receive Bitcoins. This is analogous to a physical wallet. However, instead of storing physical currency, the wallet stores the cryptographic information used to access Bitcoin addresses and send transactions. Some Bitcoin wallets can also be used for other cryptocurrencies.

Understanding Bitcoin Wallets

A Bitcoin wallet is a device or program that can interact with the Bitcoin blockchain. Although it is common to think of these wallets "storing" Bitcoins, a Bitcoin wallet actually represents cryptographic control of a blockchain address.

Each Bitcoin wallet contains a set of secret numbers, or private keys, corresponding to the user's blockchain address book. These keys are used to sign Bitcoin transactions, effectively giving the user control over the bitcoins in that address. If an attacker can steal a wallet's private keys, they can move the Bitcoins in that address to their own wallet.

The main types are desktop wallets, mobile wallets, web wallets, and hardware wallets.

Desktop Wallets

Desktop wallets are installed on a desktop or laptop computer and provide the user with complete control over the wallet. Some desktop wallets also include additional functionality, such as node software or exchange integration.

However, desktop wallets are considered relatively insecure, due to the danger that the computer could be compromised.  Some well-known desktop wallets are Bitcoin Core, Armory, Hive OS X, and Electrum.

Mobile Wallets

Mobile wallets perform the same functions as a desktop wallet, but on a smartphone or other mobile device. Many mobile wallets can facilitate quick payments in physical stores through near field communication (NFC) or by scanning a QR code.

Mobile wallets tend to be compatible with either iOS or Android. Bitcoin Wallet, Hive Android, and Mycelium Bitcoin Wallet are examples of mobile wallets. There have been many cases of malware disguised as Bitcoin wallets, so it is advisable to research carefully before deciding which one to use.

Web Wallets

A web wallet is an online service that can send and store cryptocurrency on your behalf. The main advantage of web wallets is that they can be accessed anywhere, from any device, as easily as checking your email.

However, security is a major concern. In addition to the risks of malware and phishing to steal users' passwords, there is also significant counterparty risk. Many Bitcoin users have logged in to a third-party service, only to find out that their Bitcoins have vanished.

Some of the most popular services are Coinbase, Blockchain, and Gemini.

Private Keys are used to control a Bitcoin addresses. Anyone who steals your private key can steal your coins.

Hardware Wallets

Hardware wallets are by far the most secure type of Bitcoin wallet, as they store private keys on a physical device that cannot access the Internet. These devices resemble a USB drive. When the user wishes to make a Bitcoin transaction on their computer, they plug in the hardware wallet, which can sign transactions without compromising the user's private keys.

Hardware wallets are practically immune to virus attacks, and successful thefts have been rare. These devices often cost between $100 to $200. Ledger and Trezor are both well-known hardware wallet manufacturers.

Special Considerations for Wallet Security

Wallet safety is essential, as cryptocurrencies are high-value targets for hackers. Some safeguards include encrypting the wallet with a strong password, using two-factor authentication for exchanges, and storing large amounts in an offline device.

Most modern wallets are generated from a twelve-word mnemonic seed, which can be used to restore the wallet if the device is lost or damaged. These words should be carefully stored in a safe place, since anyone who finds them will be able to steal your cryptocurrency.

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