What Are Bitcoin Wallets?
A “Bitcoin wallet” is basically the equivalent of a bank account. It allows you to receive bitcoins, store them, then send them to others. The private keys that are necessary for accessing a Bitcoin address are stored on a “bitcoin wallet.” In general, wallets grant you access to your public Bitcoin address and allow you to sign off on transactions, but they differ based on how you choose to access them.
Bitcoin Wallets do not actually “store” or “hold” bitcoins. Rather, they store your private keys needed to handle the bitcoins you own which are stored on the blockchain ledger. Bitcoin uses public-key cryptography, in which two cryptography keys, one public and one private, are generated. A wallet is a collection of these keys. A public key is similar to your email address while the private key can be understood and should be treated like a password to that email address. Never share your private key with anyone.
TYPES OF WALLETS
There are different types of wallets available but let’s discuss about the few of them.
Soft Wallet: A software wallet is one that you install on your own computer device using a software. It allows users to create an address for sending and receiving bitcoins and provide a place to store the private key for doing so. You are in complete control over the security of your coins, but such wallets can sometimes be tricky to install and maintain.
A web wallet or hosted wallet: is one that is hosted by a third party. These are often much easier to use, but you have to trust the provider (host) to maintain high levels of security to protect your coins.
A Mobile wallet: This can be accessed through apps, it allows users to transact on the go. While “full Bitcoin” clients download the entire Bitcoin blockchain, mobile wallets are designed to utilize only a small fraction of the blockchain and rely on other nodes within that network to access the remaining necessary information.
A Physical wallet: This is to store the credentials offline. A simple “paper wallet” could be the keys printed on a piece of paper that you hold in your pocket or more securely stored in a safe.
A hardware wallet: This is a product that holds your private keys securely on an electronic device that can be accessed without an internet connection. There are various hardware wallets to choose from including Trezor, Keepkey, and Ledger. The device acts as a secure location for your private keys much like a paper wallet but is a far easier method than paper for sending and receiving bitcoins. If the hardware wallet is lost or stolen it can be restored using a 12-24 word phrase called a “seed.”
Bitcoin paper wallet: This services provide users with a Bitcoin address and two QR codes, one that links to that address and another that provides the private key necessary for transferring bitcoins stored on it. The cool thing is that this eliminates the digital storage of the key and, therefore, the potential of a cyber attack.
Security and Anonymity
If you choose to use services that store your private keys for you, such as an online wallet, be aware that you are completely at their mercy regarding the security of your keys. Most wallets, however, allow you to be in charge of your own private keys. This means that no one in the entire world can access your “account” (i.e. your bitcoin addresses) without your permission. It also means that no one can help you if you forget your password or otherwise lose access to your private keys. If you decide you want to own a lot of bitcoin it would be a good idea to divide them among several wallets. Don’t put all your eggs in one basket!
Wallets also have a wide variety of anonymity levels, from software wallets which only store your keys, to more open wallets which displays sender/receiver name. Keep in mind that even with software and physical wallets, data will be sent to nodes maintaining the blockchain and the server may be able to view your IP address and connect this to the address data requested. To improve privacy, most bitcoin wallets will automatically create a new bitcoin address each time you want to send or receive a transaction, which makes it more difficult to identify the sender/receiver.
On Conclusion, the choice of bitcoin wallet will come down to an individual user’s preferences. Whatever they decide, it will be a crucial aspect of their experience with the digital currency.
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