Bitcoin wallet | Detailed and simple explanation
Today’s article is all about Bitcoin wallets and how to choose the best one, we will cover a lot of topics like mobile wallets, web wallets, desktop wallets, paper wallets, brain wallets, HD wallets, multi-sig wallets, and of course hardware wallets. So, even though we have a lot to talk about, don’t worry, we’ll simplify it for you, and in the end, we’ll also help you choose the best wallet that suits your needs.
What is a Bitcoin wallet?
A Bitcoin wallet is software for sending and receiving Bitcoins, storing Bitcoins, and monitoring Bitcoin balances. Just as you need an email client like Outlook or Gmail to manage your emails, you need a Bitcoin wallet to manage your Bitcoins through the wallet interface with the Bitcoin blockchain.
How a Bitcoin wallet works
Wallets monitor Bitcoin addresses on the blockchain and update their balance with each transaction. Now here’s one of the most important things to remember about a wallet. What defines a wallet is where its private key is stored. Private key? What does it mean? Well, a private key is just a very long string of numbers and letters that acts as the password to your Bitcoin wallet. From this number, your wallet gets the ability to send your bitcoins to other people.
You can also think of it as secret coordinates to locate your bitcoins. In other words, anyone who knows your private key can control your bitcoins. The private key is also used to generate your Bitcoin address.
What is the basic function of a Bitcoin wallet?
The primary function of the wallet is to generate, store, and use the private key. In other words, it automates the complex Bitcoin encryption process for you. As Bitcoin wallets evolved, high-precision wallets, or hierarchical deterministic wallets, were created. HD wallets generate a seed phrase known as the seed phrase or Mnemonic phrase.
This seed is a string of common words that you can save instead of the long confusing private key. If your wallet gets destroyed or stolen, you can enter the seed to rebuild the private key. Additionally, HD Wallet can generate multiple Bitcoin addresses from the same seed.
How does a Bitcoin wallet hold coins?
A standard Bitcoin wallet will create a Wallet.dat file that contains its private key. You should back up this file by copying it to a safe place like an encrypted drive on your computer, an external flash drive or even copying it onto a piece of paper and hiding it away. A high-resolution wallet, on the other hand, will provide you with a raw password of up to 24 words you should write in a safe place.
Types of Bitcoin wallet
Let’s move on to the different Bitcoin wallets available to us, some wallets contain a complete copy of the Blockchain to validate each transaction, these are also called full nodes, other wallets.
SPV wallets or light wallets
It does not contain a full version of the Blockchain. They rely on full nodes that they connect to to validate transactions, SPV stands for Simple Payment Verification, and these wallets are faster and take up less disk space. As today’s blockchain becomes increasingly large, many wallets offer an SPV solution for devices with limited capacity such as mobile phones, tablets, and desktop computers.
Bitcoin hot wallets
A hot wallet refers to any form of Bitcoin wallet that is connected to the internet in some way, this could be a wallet connected to a web service, a wallet installed on a computer connected to the internet, or even a wallet installed on your mobile phone, assuming you have data transfer to and from your phone.
Bitcoin wallets web services
Markets, exchanges, betting sites, and other Bitcoin services often ask you to deposit funds into their online wallets to run your business. These web wallets are the least secure option for storing Bitcoin since you don’t have access to your private keys. You’re essentially asking someone else to hold your coins for you. Such wallets are also more vulnerable to hackers as there are many vulnerabilities along the way.
On the other hand, web wallets are very convenient because they allow you to buy, sell, and send bitcoins at any moment. More efficient web wallet services will offer multi-factor authentication options such as validating each account login with a text message, to protect against external hackers.
Desktop bitcoin wallets
This type of hot wallet stores your private key on your computer. So, as long as your computer is free of malware or any security vulnerabilities, your bitcoins are safe. However, we all know that this is not the case for most of us, today it is difficult to be 100% protected, and this makes internet-connected desktop wallets a valuable target for hackers.
Portable Bitcoin wallets
These are wallets that store your private key on your mobile phone, although many wallets can be accessed via mobile apps, doing so represents the worst possible scenario for security.
Mobile wallets offer low security and terrible privacy, due to the possible association of your Bitcoin wallet, phone number, and geographical location. Since phones are frequently lost, broken, or stolen, we highly recommend you enable multi-factor authentication, protect your wallet with a password, and create a backup of the private key.
