What is a bitcoin wallet and how does it work?
Anytime you have money, you also need a place to store it. A person can store their dollars in two ways, either keep them in cash tucked away somewhere safe, or have them in a bank account. So where does a person hide their bitcoins? Tucking them away is off the menu because bitcoin and other cryptocurrencies do not have a physical form. Bank accounts do not support cryptocurrencies, so they cannot be kept there either. It is for this purpose that special bitcoin wallet was created.
Simply speaking, a bitcoin wallet, or a cryptocurrency wallet, is an account used to store cryptocurrencies. It is similar in function to a bank account. It enables you to store your cryptocurrency, receive bitcoin from other users, and transfer them further.
BTC wallets have two unique keys:
Private key – should be treated as an access password. You should make sure that no one but you has access to this code.
Public key – can be safely shared with others in order to perform transactions.
Fortunately, when deciding to use a cryptocurrency wallet of some kind, you do not have to worry about these keys too much, because the wallets are constructed in such a way that the application, website, or external program you use can manage these keys by itself. You are only told how to use a given platform without the need to handle the keys themselves.
The best bitcoin wallet. Which one to choose?
Every wallet is different. Each type has its strengths and weaknesses. The type of wallet you choose is ultimately entirely up to you. You can choose one that ensures the greatest comfort of use or take safety as a criterion and choose the safest option at the expense of convenience.
Bitcoin wallet strive to combine security and convenience. Wallets can be divided into hot and cold types. A hot wallet means that a user uses it, more or less, every day, or at least regularly, which means that it should first and foremost be comfortable because it is bound to be used often. If I use a wallet on a regular basis, I don’t want the transaction execution or reading the history to be in any way tedious or inconvenient. With cold wallets, security should be the priority. A cold wallet, unlike a hot wallet, is rarely used. Such a wallet is designed to be used for long-term storage of the purchased cryptocurrencies. A cold wallet functions offline, the lack of internet connection increases its security.
Wallet types
The division into warm and cold is just one of the possible ways to classify btc wallets. Let’s take a look at other ways of doing so based on the wallets’ construction.
Software wallets
The easiest way to describe it is as a program that manages your keys. It guarantees great convenience because it can be used any time you have access to your device. Assuming that you have installed such a program on your smartphone, the wallet would be accessible at virtually any time. The risk associated with this type of wallet is the difficulty of regaining access to the wallet in the event of losing a device. You can, of course, create a backup, but this can often cause a lot of problems.
Paper wallet
Interestingly, a Bitcoin wallet can be made using just a regular sheet of paper. This is not the most convenient way, but assuming that you store that sheet properly, this method is definitely very secure. Later in the article, I will describe in more detail the process of creating a paper btc wallet.
Hardware wallet
Although bitcoin itself is not physical in any way, a physical wallet can be used to store it. Many kinds of hardware wallets serve exactly this purpose. Such a wallet is usually a device resembling a flash drive, which can be connected via USB to a computer. These devices both store and secure your private keys, giving you a lot of security at the expense of making any transaction dependent on the physical device. The biggest downside of such wallets is the fact that they can simply be lost. The second glaring issue is bound to be especially troublesome to less wealthy investors – this type of wallet is often quite expensive. Due to its price, it is worth thinking twice before buying a physical wallet, especially at the beginning of your cryptocurrency adventure, but safety and comfort can easily make the price worth it for more experienced users.
Is there such a thing as an anonymous wallet?
Anonymity and cryptocurrencies are very good friends with each other. Not only are transactions made using cryptocurrencies anonymous, but thanks to their decentralization, they are also not saved anywhere. Bitcoin wallet also give you complete anonymity, since they make sure no one is going to have access to any of your data during a transaction. The only thing visible when performing a transaction is your public code. However, you should always be careful. Wherever there is money, there are scammers. Before each transaction, check that the code you entered has not been changed by any malware. By maintaining security measures, crypto wallets guarantee anonymity and a fast and secure transaction.
How do you set up a bitcoin wallet?
Software wallet
Setting up a software wallet is very simple. The key issue when dealing with this type of wallet is choosing the right programme. I recommend that you carefully read the wallet’s description, terms of service, and technical aspects before deciding on specific software. Download the program and then follow the instructions provided by it. The program will guide you through the whole process and after a while, you will be able to enjoy your very own bitcoin wallet on your device of choice.
Paper wallet
To create your own, hand-made, paper wallet, you will need a sheet of paper, a printer or a regular pen, a computer without internet access (the computer not being connected to the Internet will increase the wallet’s security). Now, how does this all work? Earlier in the article, I said that BTC wallets are nothing more than a program or a device used to manage your keys – the private key and the public key. Therefore, to create a paper wallet, you have to manage your keys yourself. To do this, write your pair of keys down on a piece of paper, or simply print it out. Any time you would need to conclude a transaction you can read the appropriate key off your wallet and type it in where necessary.
Hardware wallet
After purchasing a hardware wallet, it needs to be set up when first launched. When setting up your new device, you will be asked to enter a new PIN – it will be used as a security measure if the wallet was to be stolen. When first launched, the device will generate a sequence of words, which will allow you to regain access to your funds in a crisis situation. It is definitely worth writing down this sequence and storing it in a safe place.
How do I use a wallet?
Using bitcoin wallets is very easy and intuitive. To perform a transaction, you need to scan or copy the public code of the person to whom you want to transfer your money. After entering their public key, you will be asked to choose the amount you want to transfer, confirm the choice, and… that’s it. To receive a payment, all you need to do is give someone your public key, which can easily be copied with one click using most wallets. Remember to always check that the code was copied correctly, as there are computer viruses that replace your code with someone else’s so that someone else would receive the payment.
The best way to learn the exact functioning of a wallet is by using it. Each one has a different graphic design, so it is best not to look for a suitable solution in advance. All wallets work on a similar principle. Remember that they are nothing more than software or devices supposed to help you manage your keys and keep them safe, and surely no bitcoin wallet will pose a challenge to you.