A bitcoin wallet is a software program that allow Bitcoin users to send, receive and store Bitcoins. Basically, a “bitcoin wallet” is synonymous to a bank account. Each wallet has a wallet address, much the same as your traditional bank account number. The wallet address is what you share with people who want to deposit Bitcoin into your wallet. Just like your physical wallet in your purse; your Bitcoin wallet stores the keys that link to your coins. Every Bitcoin wallet has two keys associated with it- the public key and the private key.
Public key is a string of characters that can be used to receive Bitcoin into your wallet. It can be shared publicly with anyone who wants to deposit bitcoin to your wallet. It is also known as the wallet address. Anyone with your public key can view your balances on the blockchain.
Private key is a passphrase/password usually generated automatically during the process of creating a Bitcoin wallet. It gives Bitcoin users the right to spend their funds. This key should never be shared with anyone or stored in an insecured place, once you lose your private key, you have lost all your Bitcoins and there is no way you can access it again without the private key.
Types of Bitcoin wallet
There are three main types of wallets.
Web wallet: This type of wallet allows Bitcoin users to create and manage their wallet on a web server. Web wallet gives users access to their Bitcoin irrespective of your physical location without having to install any software on your device. Some web wallet service providers such as blockchain.info give users access to the wallet’s private key, thereby allowing users full control of their funds. This help provide added layer of security since there is no single point of attack. Meanwhile, some other web wallet service providers such as the case with centralised exchanges, do not give users access to their private key. To be in full control of your coins, you need access to both your public and private keys. Web wallets are less secure than software and hardware wallets.
Software wallet: This is the type of wallet in which users install wallet software on their device before creating a wallet address. Software wallet gives users complete control over the security of their coins since all information about your wallet is hosted on your local device instead of a server. Software wallet are considered more secured than a web wallet. The only disadvantage of a software wallet is that you will always require your device to be able to access your coin.
Hardware wallet: This type of wallet allows users to create wallet on a special hardware device. The hardware device allows users to store their coins offline. Storing your coins offline helps to keep your coins out of the reach of hackers completely. Hardware wallet are considered the safest way to store Bitcoin especially for long term. The two most popular hardware wallets are the Ledger Nano S and TREZOR.
Israel Martins is a cryptocurrency researcher and trader since 2016, passionate about blockchain and other emerging technologies.