Welcome to the wonderful world of cryptocurrencies. We’re assuming that you’ve arrived here because you’re looking to buy the digital currency but first need to find a place to store it. Well you’ve come to the right place. In this piece we’ll be covering the different Bitcoin wallets and how they work, giving you a first hand account of the pros and cons of each.
What Is A Bitcoin Wallet?
As you know, Bitcoin is a digital currency created to free the world from the confines and strains of banks and government involvement. As the currency exists online it seems only natural that it would then need to be stored online. This is where Bitcoin wallets come in. These are digital “pockets” that are connected to the blockchain and not only store your digital currency but also facilitate the sending and receiving of it.
Similar to fiat wallets (the one in your pocket), these wallets store your cryptocurrency, however unlike the one in your pocket, Bitcoin wallets allow users to send and receive the cryptocurrency. There are various different types of Bitcoin wallets, which we’ll cover shortly. Each one is suited to a slightly different user, accommodating different preferences and requirements.
The Different Bitcoin Wallets And How They Work
Over the years many different variations of Bitcoin wallets have been created. The most important distinction between the two is the difference between hot wallets and cold wallets.
Hot wallets are Bitcoin wallets that are connected to the internet. These wallets provide users with quick and easy access to their Bitcoin portfolio, however these wallets are also more vulnerable to hackers as they are constantly connected.
Cold wallets on the other hand are kept offline, either on a device or with the information stored on a piece of paper. While these wallets require an internet connection to be accessed, they are considered to be more safe as they are predominantly offline. Cold wallets however run the risk of being lost.
As we dive deeper into the different Bitcoin wallets and how they work, let’s take a look at the various options spanning across both these categories.
These wallets are software programs that are downloaded directly onto your PC desktop. Easy to access, they are (mostly) connected to the internet and provide users with access in no time. Like all hot wallets, desktop wallets are susceptible to hackers through their internet connection but also if their computer is hacked. Ensure that you don’t store any sensitive data relating to your desktop wallet logins on the same PC as this could cause countless problems.
Web wallets is the umbrella term used to describe all exchange wallets or wallets that exist on a website only. Often when you buy Bitcoin from an exchange (make sure it’s a reputable one) the platform will offer you access to a wallet. This is useful and most of the time the platform has adequate security to manage this as well as insurance should anything go wrong.
You’ve probably caught on by now, but yes, mobile wallets are apps downloaded to your phone. With these wallets you can literally carry your Bitcoin portfolio in your pocket, with instant and easy access whenever, wherever. These apps are great for users needing access to their portfolio at a moment’s notice, whether you’re spending or trading Bitcoin.
For those that want to attach some physical aspect to the world of cryptocurrencies, hardware wallets are what you are after. Hardware wallets are small devices that hold your Bitcoin offline. These devices use either a USB connection or Bluetooth to connect with your phone or PC to access the internet and make transactions. These are considered to be safer options when it comes to storing your BTC, however if you lose the device you might lose the wallet (depending on the one you buy). These wallets are also the most expensive options.
Simple, cheap and uncomplicated, paper wallets are considered the safest of all the options. Paper wallets are printouts of your public and private keys, and provide a perfect long term solution to holding crypto and is better suited to users who are hodling. However, if your paper wallet gets destroyed (fire, water, etc) then you will lose your Bitcoin.
How Do Bitcoin Wallets Work?
Each wallet holds a public and private key. These keys allow users access to their funds, as well as a means to send and receive funds. The public key facilitates the receiving, with each wallet assigned a cryptographic address to which users can send funds. The private key however is how the user can access and send their funds and should be kept to themselves. There is a saying in the crypto community: not your keys, not your coins. This refers to the private key which in the hands of someone else allows them access to your entire Bitcoin portfolio.
Here it gets a little bit more complex, so bear with us. Bitcoin wallets don’t actually store cryptocurrency (like a computer might store files in folders), instead they point to your fund’s specific location on the blockchain. All transactions that have ever taken place, including when a new coin is mined, are stored on the blockchain in a transparent and immutable manner.
When sending funds, you can do so directly from your wallet by simply entering the amount you’d like to send and the recipient’s address. When receiving funds, you will get a notification and the funds will need (usually) 3 confirmations before you are able to spend them. These confirmations are represented by new blocks being added to the blockchain following that specific transaction. I.e. 3 confirmations mean that 3 new blocks need to be added to the blockchain before gaining access to the funds.
Navigate The Bitcoin World With Ease
We’re designed an entire Bitcoin 101 campaign to assist new users to comfortably and confidently navigate their way through the crypto space. It might sound bewildering at first, but with a few clear guides you’ll have mastered the art of buying and trading crypto in no time.