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What is a Bitcoin Wallet?

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What is a Bitcoin Wallet?

This is the first step to accessing and using cryptocurrency. Without a wallet, you are not able to receive, store, or spend bitcoin.

Contrary to what many think, a Bitcoin wallet isn’t a wallet per se as bitcoins do not exist or do not have physical forms. A bitcoin wallet does not have nor store coins. It can be a website, a program, or a device that allows a user to send and receive bitcoins. It stores and monitors bitcoin balances. Primarily, it monitors bitcoin addresses and updates balances. Your bitcoin wallet also has access to your transaction history. It is needed in the creation, storage, and use of private keys or secret codes. The original bitcoin client creates a “wallet.dat” file that contains private keys. These keys or codes allow you to carry out transactions.

As bitcoin wallets evolved, deterministic and non-deterministic wallets were created. This is distinguished by whether the keys they contain are related or not.

From the word itself, deterministic wallets are determined and or derived from a master key. This is a more modern type of wallet. This master key is also known as the seed. A seed is a string of common words, which makes your keys easier to remember. It has a single origin, so you can easily go back to it. This makes the process of transferring or backing up easier as there is a sole source.

On the other hand, the non-deterministic wallet is where keys are randomly generated. These keys do not have any relation or connection to each other. With this type of wallet, it is a must to back up frequently; managing transactions would also be quite challenging.

BIP-32 is the first standard for HD or hierarchical deterministic wallets. HD wallets generate seeds. The seed has either 12, 18, or 24 words, which are called mnemonic codewords or passphrases. Words, in general, are easier to remember rather than a mix of random letters and numbers, which hold no meaning at all. BIP-39 and 44 are a more recent form of standardization of passphrase for a given language. BIP-44 made it possible to use multiple accounts. Mnemonic phrases and mnemonic passphrases go hand-in-hand as they act as a two-factor authentication before you can access your crypto wallet.

Importance of Securing Your Keys

A private key, from the word itself, should always be kept private. A private key is a string of random numbers and letters that act as a password to your wallet. Hence, a need for it to be backed up. With the private key, you can send bitcoin to other people. Do remember that anyone with the knowledge of your private key will have access and can control your bitcoin.

Types of Bitcoin Wallets

The two main types of wallets are Cold and Hot wallets. Cold storage or cold wallets are considered as a secure way of keeping bitcoins. This refers to any type of wallet that is not connected to the internet. This makes it secure as it cannot be hacked remotely. Under this type of wallet are hardware wallets, paper wallets, and brain wallets. For hot wallets, you must be connected to the internet for you to gain access. Being convenient, this is the most popular type of wallet, albeit less secure.

1 - Cold Storage

  • Hardware Wallets:
    This type of wallet has a physical device wherein you can store your keys. An example would be a flash drive. You can connect this flash drive to your computer to gain access to your keys. You must have access to a software or web page that allows control of your wallet before you can use or send your bitcoins. It is relatively secure; however, the only con for this type of wallet is that you must bring the physical device if you would like to access your coins.

  • Paper Wallets:
    This type of wallet might be considered an old school as you only need a pen and paper to store your keys. It’s the very basic way of saving your keys by writing it on a piece of paper and storing this piece of paper to avoid being stolen from. The con is that paper can easily be misplaced or destroyed. That’s why products like the Cryptotag emerged.

  • Brain Wallets:
    The main point of this wallet is to memorize your private key so that no one else can gain access to your wallet unless you’ve personally shared your key with them.

2 - Hot Storage

  • Desktop Wallets:
    You store and manage your private keys on your computer via programs that are saved in your computer’s hard drive. You should make sure that your computer is malware-free, so your bitcoins are safe.

  • Mobile Wallets:
    This is a highly convenient type of wallet as your keys are easily reached, just a few taps on your phone, and you can send bitcoins anytime, anywhere. However, phones are easily lost or stolen. It is advised to make use of multi-factor authorization, and have a backup of your keys. This isn’t a suggested wallet for large sums and is more suitable as a day-to-day transactional wallet.

  • Web Wallets
    This is the least safe type of wallet since anything on the internet is vulnerable to hackers, albeit being highly convenient. Web wallets rely on third parties, which means these companies would know your private keys and could gain access to them or leak them.

Best Wallets in the Market

Ledger Nano S

This wallet is developed by the French company, Ledger. It is a popular hardware wallet that only weighs 16.2g and comes in a size of 56.95mm x 17.4mm x 9.1mm. According to its website, it is built around the most secure type of chip on the market, which promises optimal security. Depending on the size of the app, you can install between 3 to 6 applications. It is priced at $59 and supports about 1184 coins, including the major coins like Bitcoin, Ethereum, XRP, Bitcoin Cash, EOS, and Stellar. Check out our full review here.

Exodus

Exodus Wallet

This is a popular beginner-friendly desktop wallet. It supports Windows, MAC OS, and Linux platforms. The design is simple and easy to understand. This wallet earns plus points for users who prefer dim-lit interfaces. It also supports multiple cryptocurrencies, including Binance Coin, Neo, Zcash, and Decred, to name a few.

Trezor One

Another hardware wallet that has a nice design and is very user-friendly. It is considered the first hardware wallet in the world, which was released in 2014. It is very light at 12g with a 60x30x6mm dimension. This hardware works as a two-factor authentication device and a password manager. Check out our review of the Trezor Model T also.

Electrum

Electrum is a software wallet. It is available for Windows, Mac OS X, Linux, and Android. One major pro of Electrum is that it can work with some physical wallets like KeepKey, Trezor, and Ledger Nano. The app also has a recovery process that can create cold storage with printed keys. This wallet has been around since 2011 and has undergone a lot of modifications, including the addition of Android in 2016.

Mycelium Bitcoin Wallet

This is an iOS and Android Bitcoin wallet app. It’s easy to install, thus promising an easy, everyday-use type of wallet. Despite only supporting one type of cryptocurrency, Bitcoin, Mycelium has many features that users look for. One of these features is privacy, and Mycelium does not get any important information from the user, thus making the user anonymous.

Conclusion

You can have more or more wallets depending on your needs. It all boils down to what a user is looking for: Are you looking for security? Are you looking for convenience? How much Bitcoin are you trying to secure? How much risk are you willing to take? The type of bitcoin wallet chosen and used differs from one user to another, depending on requirements.

References

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Amna Eltawil

Amna Eltawil

Amna Eltawil is an Egyptian journalist. Through her years of journalism, she has worked for top publications and organizations like John Maxwell organization, the International Herald Tribune, and Al Wafd.

She also worked for the largest media network in the middle east: MBC on a full-time basis.

When she is not working, Amna can probably be found in bed with a book cuddling with her beloved Siberian Husky.

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