What Is Bitcoin Wallet? Types, Working Model, And Important Factors

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Bitcoin Wallet

Bitcoin is growing in popularity by the day and it is natural that you too want to have a share of the pie. While it’s a great idea to own and trade bitcoin, there are certain essentials to keep in mind before doing so. One such factor is the bitcoin wallet. It is where you’d be storing your bitcoins. In this article, you’ll discover all about bitcoins and the things to remember before using one. 

What is a bitcoin wallet?

Just like a traditional wallet carries fiat cash, a bitcoin wallet carries your bitcoin private keys. It is protected by a password and only allows authorized access.

And unlike the bitcoin network as a whole, a bitcoin wallet is under the owner’s custody alone. You have to keep it safe using a strong password and make sure to keep it out of unsafe hands.

Understanding how bitcoin wallets work 

Bitcoin wallets employ a user’s key but not their bitcoin. It is just like a key that can open multiple locks—it holds many pairs of private and public keys which are used to let transactions go through. It allows users to prove that they own a transaction output on the blockchain. Also, all transactions are noted on bitcoin’s blockchain.

In case you lose your wallet, you can recover it using a seed phrase. It is a set of alphabets strung together and issued to you at the time of opening the wallet account.

It is very crucial that you keep your private key and seed phrase safe to prevent internal and external attacks which may compromise the bitcoin wallet.

Your key will help you receive bitcoin in your wallet. This includes both private and public keys. Private keys are not revealed to anyone and are used to send bitcoin. The public key is needed to receive bitcoin and can be revealed. Every private key has a corresponding public key.

Types of Bitcoin Wallet

There are different kinds of bitcoin wallets out there. You can choose them from the way you want to handle and protect your money.

Web wallets

Web wallets allow you to transact in bitcoin through the web browser. Usually, there’s a hosting provider that manages it and secures it private keys. Some web wallets also let you have full control of your private keys.

If you fear deleting software by accident, a web wallet gives you no reason to worry. It is taken care of by the hosting party. So you will not lose your bitcoin even if you delete the wallet from the computer.

However, the major drawback of these wallets is that they take away control to a great extent. Web wallets are managed by a service provider, so use them only if you trust them 100%. 

Desktop Wallets

You can also download and use wallets on your computer. These are called desktop wallets and they give you more control and responsibility over your wallet.

In these, your private keys are saved in a hard drive. This means you can access the funds only on the system with the wallet installed. In case the wallet becomes corrupted and has no backup file, the bitcoins in it could be lost forever.

So it is equally important to keep strong passwords and to ensure your wallet has backups. Plus, keep these wallets from reaching the hands of suspected people.

Mobile Wallets

Mobile wallets are bitcoin wallets made for mobile devices. In other words, they can scan QR codes, and are easily accessible on the go. Many prominent wallets include the Coinbase wallet for Android and iOS. These allow you to access the Coinbase account via your phone. You can receive, send, or trade bitcoin from your phone.

Hardware Wallet

Considered the safest wallet type available, hardware wallets are specialized devices made to store bitcoins. These are most difficult to access for any suspicious person. Firstly, because these are offline, and secondly, you also need to use the private key to make transactions.

What to Consider When Picking a Bitcoin Wallet?

Consider the following factors strictly before picking a bitcoin wallet for personal use-

Security features

Since all bitcoin transactions occur online, there’s always a possibility of a hack by cyber criminals. Make sure you use a safe bitcoin wallet. Look for the safety features they provide.

User authentication through two-factor authentication is a must. This means you need to provide an OTP in addition to the password. This ensures only you’re accessing your account. Besides, you should receive notifications when other applications use your wallet. This allows you to alert the support team about the anonymous activity.

Transparency and anonymity

You should choose a wallet based on whether it keeps the transaction anonymous or public. Besides, use a wallet that doesn’t leak your personal details. Use a wallet by a trusted company.

Support

Support is a crucial factor because, on many occasions, you need help with some unexpected activity or outage. You need someone who answers your queries promptly and takes action. 

Experience

Get a bitcoin wallet that makes your life easier—in other words, one with a simple user interface. You don’t want to spend hours figuring out the different features of the wallet. Instead, it should be straightforward.

Compatible with other cryptocurrencies

Today, bitcoin is growing and so are other cryptocurrencies. Soon other prominent coins may rise in popularity and utility. So make sure you have a bitcoin wallet that supports the storage of other coins so that you don’t have to rush to buy another wallet when you want to store more than your bitcoins. 

Plus, it allows you to trade cryptocurrencies and earn money. But sort your priorities and then make a decision on which wallet you wish to buy.

Device compatibility

A handy bitcoin wallet should be compatible with multiple devices such as Windows, iOs, Linux, and Android.

When you want to use multiple operating systems, you shouldn’t run into a roadblock. So check the compatibility of bitcoin wallets before installing.

Bottom line

That’s all about bitcoin wallets. You’ve seen the different types of wallets in use and the key points to remember while buying a wallet. Go ahead and pick the best one for you while keeping these points in mind.