A bitcoin wallet is a cryptocurrency wallet that can hold Bitcoins. A wallet is a piece of software that allows to send, receive and store BTC. There are several types of wallets ranging from online apps to so-called paper wallets – pieces of physical paper holding a handwritten or printed private key.
How Bitcoin wallets work
Each Bitcoin wallet has a private and a public key. Keys are generated as a part of an automated process that can be initiated by any user even without internet connection. The keys are then held in a file “wallet.dat”, hence the name – Bitcoin wallets. A public key acts as an address of a particular wallet to which Bitcoins are just like a debit card number is linked to an account, while a private key is needed to confirm the ownership of a wallet.
Keys can be stored in any format, from memory cards to paper and in online wallet services like Blockchain.info, Circle Snapcard or Coinbase. Online services are straightforward to use but decrease the degree of security since an online wallet is always connected to the internet and can be hacked, which may lead to keys falling in the wrong hands or being destroyed.
Types of Bitcoin wallets
Bitcoin wallets come in several forms:
- Software wallets
- Hardware wallets
- Paper wallets
Software wallets are special programs that can be downloaded or even used online. Wallets that are required to be downloaded are called Desktop wallets, and they can be either thick or thin. Thick wallets require to download all blocks in the Bitcoin blockchain, and they can reach several gigabytes in size. Some examples of thick wallets are:
While thick wallets are best at providing security when it comes to software storage, thin wallets do not require to download all blocks in the blockchain but instead relly in third-party services to authenticate transactions which makes them more lightweight but less secure. Thin wallets may prevent you from staying anonymous when transferring Bitcoins.
- Electrum is one example of a thin wallet.
Online Bitcoin wallets are essentially wallet apps, and they are the most popular storage option because they are the easiest to use. Their creation takes minutes if not seconds, all you need to do is sign up for an online service, and they can perform the same array of operations as their desktop counterparts. However, considering that online wallets are always connected to the web, they are the least secure. Some examples of popular online wallets are:
Hardware wallets are specially designed gadgets that allow storing encrypted keys in the safest offline environment. They are the most secure but can be expansive, and more bulky in use. Popular hardware wallets are:
Lastly, paper wallets are merely pieces of paper with written private keys. Private keys can be encrypted into mnemonic phrases that contain random words from a dictionary for extra protection.