A software program where Bitcoins are stored – This is the simplest way to define a Bitcoin wallet. The necessary information to transact Bitcoins is stored in wallets. The transactions of Bitcoin is via blockchain technology. So, wallets are also a part of the blockchain transaction ledger. The information about your bitcoin holdings is stored in wallets in a digital form. Bitcoin uses cryptography. There will be private and public cryptographic keys. Private cryptographic keys are secret numbers assigned to you when you have a balanced amount in a Bitcoin wallet. It corresponds to the address of your wallet. The most simple definition of a wallet is that it is the collection of these cryptographic keys.
These wallets work in different ways. If you are a full client, then you can download a copy of the blockchain directly. Here, no third party is required. These clients can check the validity of transactions and if you see any activity that alters rules, you can avoid transacting on such chains. In the case of lightweight clients, they can take help from full clients to send and receive transactions without using a copy of the blockchain. While full clients can ensure the validity of mined blocks, lightweight clients can only follow the longest blockchain by trusting miners. They cannot check the validity of blocks. The main advantage of a lightweight client is that though they do not want to download a full copy of the blockchain, they can use smartphones for transactions. But in the case of full clients, not all computing devices can download the entire blockchain.
Then there are online wallets, which are third party internet services. Its functions are similar, but they are easier to use. Normally the credentials for fund accessing are stored in the user’s hardware. Here, they are stored in an online wallet provider. So, the user must trust the online wallet provider fully. In 2011, fraud occurred with Mine.Gox.If we use such malicious providers, it can lead to bitcoin theft. From websites such as crypto trader, we get more information about digital wallets.
So, in short, sending and receiving Bitcoins are facilitated by Bitcoin wallets. It gives control of the Bitcoin balance to the user. There are four types of Bitcoin wallets – Desktop, mobile, web, hardware.
Desktop wallets need a desktop computer. These wallets are installed on a computer, and its main function is to give an address for sending and receiving Bitcoins. Thus the user gets complete control over the wallet. As previously mentioned, the user can store a private key. Armory, Hives OS X, Electrum, and Bitcoin core are some examples of Bitcoin wallets. Electrum is a lightweight client, and Bitcoin Core is a full client.
Its function is similar to a desktop wallet. Here the payment methods are of various ways: ▪ Scanning of a QR code, NFC (Near Field Communication)
Examples of Mobile wallets are Hive Android and Mycelium Bitcoin wallet. Bitcoin wallets work in both Android and iOS systems. As there are many security threats regarding these wallets, do more research while choosing a wallet.
These wallets are easier to use because they can access Bitcoins from any mobile device or browser. Here private keys are stored online. Blockchain and Coinbase are examples of such wallets.
These wallets store Bitcoins on hardware that is plugged onto a computer utilizing a USB port. As they store Bitcoins on a physical piece of equipment, it is the most secure Bitcoin wallet. They prevent virus attacks to an extent. It costs around $200.All other Bitcoin wallets are free.
Bitcoin wallets are the main targets for hackers. So, you should keep these wallets safe. There is an offline wallet called Cold storage, where we can store Bitcoins. Its function is that the digital wallet will be stored on a platform while there is no internet connection. Thus we can protect wallets from hackers. Another way to safeguard the wallet is by encrypting the wallet with a strong password. Back up your devices frequently so as the problems with your device could not remove your holdings. A malware can scan the hard drive and find private keys; a Trojan can find links to your wallet and encrypt all the information. So, beware of these attacks. Safeguarding wallets is the user’s duty.
We have discussed Bitcoin wallets here. We have to go through various types of wallets and their uses. Before we enter into bitcoin transactions as a beginner, we should know about every aspect relating to Bitcoin. Having awareness about Bitcoin wallets is important. We can choose wallets according to our comfort. But beware of security issues related to Bitcoin wallets and choose a wallet carefully.