Bitcoin Wallet: What is It and How Does It Work?

Bitcoin is a completely virtual currency. It has no physical form, so when you buy this currency, you have to store it in a virtual space. You cannot hide it in a leather wallet, in a backpack, or transfer it to a bank account. So, how does a Bitcoin wallet work?

What is a Bitcoin Wallet?

When Bitcoin was created, no one could have imagined how successful this technology would be and how many changes await people around the world. Bitcoins can be used to pay for goods and services, some countries have recognized the currency as official money for paying taxes. Not surprisingly, soon after the creation of BTC, many tools appeared that made storage easier, more feasible, and more realistic.

Bitcoin wallet is a tool that allows you to manage virtual currency. It also allows you to record trades, which is essential for successful trading. A Bitcoin wallet is similar to a bank account. It has similar functions, but it only works in the virtual space. It can be an app for a smartphone or can be installed on your computer or laptop.

How does a wallet work?

Every activity you take on the Internet is at risk of being hacked. To protect virtual currency from theft, wallets use two types of keys:

Public key

It can be compared to a bank account number, as it is used to verify the network account and its contents. This key can be freely shared with other BTC holders;

Private key

A password with which you authorize transfers.
The second key can optionally be protected by a password that you set yourself. Without the private key, no transaction can be completed, which is why its security is so important. The operation seems complicated and incomprehensible, but in fact they are relatively simple. You can treat your wallet like an account where you store Bitcoins.

Depending on its type, you can access your savings from any device, only from selected devices, or literally anywhere you have access to the Internet – using browser wallets. From your Bitcoin wallet, you can send funds, pay for hotel accommodation, coffee, advertising agency services, web developer.

What are the Bitcoin Wallets?

There are several types of wallets. Each type is different and each has strengths and weaknesses. Solutions can be divided into two groups:

• Hot wallets. This group includes those that run on devices connected to the Internet. They can store Bitcoins, but in small quantities. They allow you to send and receive BTC quickly and conveniently, the whole procedure is extremely simple.
• Cold wallets. They are characterized by a high level of security, but less convenient in everyday use.

Bitcoin wallets for computers

So-called desktop wallets, as befits a hot wallet, are constantly connected to the network. They are presented in the form of programs that are installed on a computer or laptop. There are two versions to choose from:

• Complete applications for which you need to download the entire block. This requires a large amount of space, as files can be up to 200 GB in size. Full applications can take up to several days to sync and use most of the hardware resources.
• Lightweight Applications. Blockchain of these applications resides on an external server, so they don’t need a lot of disk space. They sync and work fast.

Always connected to the network requires private key protection, such as advanced encryption. You can also encrypt the entire disk partition where the wallet resides. It is worth taking care of a good antivirus. Examples of desktop wallets are Electrum, Exodus or Wasabi.

Bitcoin wallets in the browser

Hot wallets also include browser-based solutions. Their big advantage is wide accessibility. You can use them wherever you are on the Internet. The disadvantage is the presence of a “third party”, an operator that controls the platform. Theoretically, he could have access to your key. Therefore, browser wallets should be selected with extreme caution.

Mobile applications

Mobile wallets for iOS or Android smartphones are a convenient form of storing BTC because they are suitable for scanning QR codes, so there is no need to rewrite a long and complex key when you want to make a transaction.

Mobile wallets often support FIAT currencies, which is a huge advantage
Hardware wallets are considered the most secure, but the least comfortable. They take the form of a separate device, often resembling flash drives.

To use them, you need to connect them to a computer, laptop or other equipment. High security is due to the fact that transactions are signed within the portfolio, in a closed environment.