Bitcoin wallets (also called Bitcoin wallets or Bitcoin wallets) is a program that allows you to send and receive Bitcoin. However, to choose the best Bitcoin wallet according to your needs there are many factors to take into account.
In this lesson you will learn everything you need to know about Bitcoin wallets. Including what a Bitcoin wallet is, how it works and what needs to be taken into account to choose one.
What you will learn in this video
1. What are Bitcoin wallets?
A Bitcoin wallet is a program for sending/receiving Bitcoins, storing Bitcoins, and monitoring Bitcoin balances. Just like you need an email program like Gmail or Outlook to manage your emails, you need a Bitcoin wallet to manage your Bitcoins.
Wallets connect to the Bitcoin network (or blockchain); that global ledger with all bitcoin transactions that we talked about in our previous video. Bitcoin wallets monitor Bitcoin addresses on the network and update their own balance with each transaction made.
Like emails receiving Bitcoins requires a unique personal address. This unique address is called your Bitcoin address. And just like your email address, you can share it with anyone who wants to send you bitcoins. Bitcoin Address Example: Sample of a Bitcoin address displayed in its text string and QR code.
(Bitcoin addresses always start with a “1” or a “3”)
The final missing ingredient is your password. With email you choose your own password. Whereas with Bitcoin the wallet chooses it randomly for you. This password is called your private key. And just like your email password – it should never be shared with anyone.
Now, one of the most important things you have to remember about a Bitcoin wallet is the following:
What defines a Type of Bitcoin wallet is where your private key is stored.
2. What is a private key?
Well, a private key is simply a very long string of numbers and letters that acts as the password for your Bitcoin wallet. It is from this number that your wallet gets its power to send your Bitcoins to other people. You can also consider this number as the secret coordinates to locate your Bitcoins.
In other words, whoever knows your private key has control over your Bitcoins.Sample of a Bitcoin private key displayed in its text string and QR code.
The private key is also used to generate your Bitcoin address. This is the equivalent of your email address in Bitcoin. That is, it is the public address that you give to whoever wants to send you Bitcoins.
In general, the process is as follows:
1.Download a Bitcoin wallet on your mobile phone or computer.
2.The program (also known as the client) randomly creates a private key.
3.Then create a Bitcoin address by running a kind of mathematical algorithm on your private key.
However, although the Bitcoin address is generated from the private key, it is impossible to perform the process in reverse. The process is unidirectional.
That is, it is impossible to find out what the private key is simply by examining a Bitcoin address. This is thanks to the cryptography that the Bitcoin protocol employs in its programming.
In short, the main function of the Bitcoin wallet is the creation, storage and use of the private key. In other words, it is responsible for automating for you the complex cryptography that Bitcoin uses.
You could say that Bitcoin apps or wallets themselves aren’t that important; what really matters is the private key. For example, if you have a Bitcoin wallet on your phone and you lose it, but you’ve written your private key on a piece of paper before this happened, you can download a new Bitcoin wallet to another phone, import the private key into that new wallet, and regain control of your bitcoins again.3. The evolution of HD portfolios
As Bitcoin wallets evolved, HD or hierarchical deterministic wallets were created… That without going into technicalities are basically Bitcoin wallets that generate an initial phrase known as seed or mnemonic phrase. This seed is a string of common English words. Which is much easier to memorize than the long and confusing private key.
If your Bitcoin wallet is destroyed or stolen, you can insert the seed to rebuild the private key. In addition, an HD wallet can create many Bitcoin addresses from the same seed… All transactions sent to addresses created by the same seed will be part of the same wallet.
Because these private keys and seeds have complete power over your Bitcoins, you must keep them safe and EXTREMELY secret. If you FAIL to protect your wallet’s private key or seed, the bitcoins you control could be irretrievably lost.4. How to choose the best Bitcoin wallet
The first thing to keep in mind is that different types of people will use different types of Bitcoin wallets for different purposes. For example, if I need to store a large amount of Bitcoins securely I will use a totally different type of wallet than I would use if I only wanted to have a little Bitcoins for small payments in my day to day.
Typically, Bitcoin wallets vary on a scale between security versus convenience. The most secure wallets are usually the least convenient and vice versa. You need to decide where you want to be on that scale depending on your personal preferences and how you’re going to use your Bitcoins.
Some of the questions you should ask yourself are:
- How many Bitcoins will I store?
- How often will I use my wallet?
- Can I afford a hardware wallet?
- Do I need to carry the wallet with me at all times?
- Do I need to share the Bitcoin wallet with someone else?
- Am I a technology expert?
- How much do I value my privacy?
- Do I trust myself to protect my wallet or do I want to entrust a third party with the task of doing so?
When you have the answers to these questions, it will be much easier for you to choose a Bitcoin wallet.
Most of the most popular Bitcoin wallets are listed here on our website… So now it’s just a matter of you choosing the best one for your needs.
Keep in mind that you may want to use various types of Bitcoin wallets. For example, you can use a hardware wallet for large amounts of Bitcoins. And also have a mobile wallet with a small balance for day-to-day payments. This way, even if your mobile phone breaks or you lose it and in the worst-case scenario you don’t have backups, you’re not risking a lot of money either.5. Bitcoin Wallet Types5.1 Cold Storage: The Safest Way to Store Bitcoins
Cold storage refers to any type of Bitcoin wallet that does not have access to any internet connection. And therefore it cannot be hacked remotely. Examples of cold storage wallets are hardware wallets, paper wallets, and mental wallets.5.1.1 Hardware wallets
Hardware wallets or hardware wallets are specialized physical devices that securely store the private key. So it can’t be hacked. Typically, hardware wallets come in the form of USB devices that you connect to your computer to interact with it. Sample of 2 of the most popular hardware wallets: Ledger Nano S and Trezor.
Hardware wallets are specially built to protect your private key. Even if the device they are connected to is compromised by viruses. In fact, you can use them on a public computer you don’t trust.
To send your bitcoins to someone using a hardware wallet, you’ll need to have it connected to a computer. And also use some type of software or website that allows control over the hardware wallet.