Want to know what a Bitcoin Wallet is? Read on…
A Bitcoin Wallet is essentially a piece of digital software program which stores your Bitcoins.
More technically, it stores your collection of private keys (cryptographic keys to access your assets). Alongside a log of transactions done from / to each of your accounts tied to that wallet, and other information.
To be technically accurate and true to the Bitcoin ecosystem… Bitcoins are not actually stored anywhere. What you own and store is a private key. Your private key is a secret alpha-numeric code, obscured by cryptography, and associated with a Bitcoin address.
The Bitcoin ledger is what determines how much Bitcoin is known to ‘exist’ or be associated with that address. In this way then, Bitcoin wallets facilitate the assignment of ‘ownership’ of Bitcoin.
Bitcoin Wallets allow for the sending and receiving of Bitcoin balances.
A Bitcoin wallet may come in one of a number of forms. Whether that be desktop software, mobile apps, web apps, or hardware (hard disk drives, USB sticks) etc.
A Digital Wallet
You might also hear people refer to a Bitcoin wallet as a ‘digital wallet’. This is made in reference to the fact that Bitcoin is essentially digital money. For more info. on that discussion – see What is Bitcoin?, or What is Cryptocurrency?.
Acquiring and setting up a Bitcoin wallet is a key first step in the process of acquiring Bitcoins. You can’t actually acquire Bitcoins or take custody of them without a Bitcoin Wallet!
Much in the same way as you use a wallet or purse to store your cash in everyday life, a Bitcoin wallet is doing similar. Thus, a Bitcoin Wallet provides a storage facility, and a place to go when you want to send or receive (i.e. make a transaction or transfer).
Types of Bitcoin Wallet
A desktop wallet is installed direct onto your desktop computer. It gives you complete control over the wallet. Thus, allowing you to create a Bitcoin address for sending and receiving your Bitcoins.
Next, we have mobile wallets which overcome the limitation of desktop wallets. The difficulty there being that desktop wallets are inherently difficult to transport, being physically stored on a large clunky desktop PC!
Mobile wallets typically come in the form of mobile apps downloaded from the appstore. They run direct on your smartphone and are capable of performing the same tasks as a desktop wallet. As a result you can transact, purchase or pay directly from your mobile device, regardless of wherever you are. Mobile wallets will typically interface with “touch-to-pay” facilities via NFC, RFID, or by scanning a QR code.
A third alternative are web-based wallets. These are often what you get when you setup an account on a cryptocurrency exchange such as Coinbase. Web-based Bitcoin Wallets allow you to use Bitcoins from anywhere, on any browser or mobile.
The Security of Bitcoin Wallets
Where large and very public Bitcoin hacks and thefts have occurred in the past – they have generally occurred on exchange platforms. Typically these thefts have occurred where servers containing users private keys or cash currency accounts have been hacked and taken from.
Ultimately, keeping your Bitcoin wallet safe and secure is crucial – your private key being the most valuable asset in the equation!
Wherever private keys are stored online, they are vulnerable to being found and acquired by hackers. The advice here then, is to choose online providers wisely and read up about their reputation and level of security.
To keep your keys completely safe from unwanted access, you can always store your Bitcoin wallet offline. This is the idea behind hardware wallets.
As with many other things these days, a Bitcoin wallet which is not connected to the internet cannot be hacked via the web. This practice of downloading your digital wallet to an external hard drive or USB stick, is commonly known as ‘cold storage’.
The two most noteworthy issues with it are:
- If you want to trade with your Bitcoin balance – you need to be online, and
- If you lose or damage that hardware device, you lose access to your Bitcoin forever (unless you have stored copies of your keys elsewhere or written it down on paper!).
Want to dip your toes into the world of Cryptocurrency?