A Bitcoin wallet is a program that stores Bitcoins, it is like a keychain. Bitcoin wallets also facilitate sending and receiving Bitcoins and give ownership of the Bitcoin balance to the user and also monitors the Bitcoin balances. Each private key on your keychain is a unit of bitcoin.
The smallest fraction of a Bitcoin you can store in a wallet is 0.000000001 or 1/100,000,000 of a Bitcoin. The smallest unit of Bitcoin is known as a Satoshi.
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There is what is called a private key, it is a secret number more like a password for every Bitcoin address that is saved in the Bitcoin wallet of the person who owns the balance. It is from this secret
number that your wallet gets it the power to send bitcoin to other. Whoever knows your secret number has control over your Bitcoins. A bitcoin wallet is a digital file that contains a unique key-address. These private-keys are strings of long randomly generated characters that represent money held inside the wallet. It is a form of unique identifier, which allows us to use our money by recording transaction in the blockchain or the shared ledger.
The private key is also used to generate your Bitcoin address, bitcoin address is what you give out to people who want to send you Bitcoins. So even though the Bitcoin address is generated through the private key, there’s no way someone can figure out what the private key is just by looking at your Bitcoin address. All wallets have a unique deposit address. You can choose to generate multiple deposit addresses in a single wallet.
The deposit address is used to transfer from an exchange to your hardware wallet. Bitcoin automates Bitcoin’s complex cryptography for you.
TYPES OF BITCOIN WALLET
There are four main types of wallets which are desktop, mobile, web, and hardware.
All wallets are classified as either hot or cold. One that is connected to the internet or is online is said to be. There are types of hot storage which are
- Desktop wallets: desktop wallet is a type of hot storage that is installed on a desktop computer, it provides the user with a complete control over their wallet. Some desktop wallets, like Bitcoin Core, are known as “full-node” They download the entire blockchain and interact fully with the bitcoin network. They require a significant amount of hard drive space. Desktop wallets are typically connected to the internet, making it very easy to send and receive bitcoin. This type of wallets can be used for our daily transactions. Desktop wallets enable the user to create a Bitcoin address for sending and receiving the Bitcoins. You can also store a private key. Some known desktop wallets are Bitcoin Core, Electrum, Hive OS X, MultiBit, Armory, etc. Any malfunction can allow hackers access to your wallet.
- Mobile wallets: mobile wallet is a type of wallet that can overcome the handicap of desktop wallets, it is popular because it allows users to their day-to-day transactions as the latter are fixed in one place. run the app on your smartphones or tablets, the wallet can carry out the same functions as a desktop wallet. It can also help you pay directly from your mobile from anywhere you are. With mobile wallet, you can make payments in physical stores by using “touch-to-pay” via NFC scanning a QR code. Bitcoin Wallet, Hive Android and Mycelium Bitcoin Wallet are few of the mobile wallets.
- Web wallets: web wallets allows you store your Bitcoin and transact online, with this wallet you can use Bitcoins wherever you are, on any browser or mobile. web wallet stores your private keys online, and it should be done carefully. Web wallets are arguably convenient than mobile wallets. Some popular web wallet providers are Coinbase and Blockchain. All of these devices can hold private keys electronically and facilitate payments but are still in the developing stages. Since the exchange controls the wallets, any security breach at the exchange can result into loss of bitcoins from users associated with that exchange.
Cold storage is an offline wallet for storing bitcoins. With cold storage, the digital wallet is stored on a platform that is not connected to the internet, thereby, protecting the wallet from unauthorized users, cyber hacks, virus and others that a system connected to the internet is subjected to. It does not require internet. The need for a safe and secure medium of storage for your bitcoins and altcoins are very important because once your cryptocurrency account or wallet has been compromised and your bitcoins was stolen, you won’t be able to recover your COINS.
Types of cold storage
- Paper wallet: it is the most basic formula of cold storage. It is simply a document that has the public and private keys written on it. The document is printed from the bitcoin paper wallet tool online with an offline printer. It has a QR code embedded on it so that it be easy to scan and signed to make a transaction. A paper wallet is immune to cyber attacks, easy to store, and much cheaper than hardware wallets. But can be easily lost or damaged by fire or water. The disadvantage of this medium is that if the paper is lost or destroyed, the user will never be able to access his address where his funds are.
hardware wallet is another form of cold storage, it uses an offline device or smartcard to generate private keys offline. These wallets are usually in the form of a small USB dongle, are not connected to the internet unless, in use and have multiple layers of security that nicely balance usability with safety An example of a hardware wallet is the ledger USB, it uses a smart card to secure private keys. The device functions like a USB, and a computer and chrome-based app. It should also be stored in a safe place as any damage or loss could terminate access to the user’s bitcoins. Other two popular hardware wallets are TREZOR and KeepKey.
Cryptocurrency users should ensure that the wallet of their choice is compatible with the coins they transact or trade-in because not all wallets support all cryptocurrencies.
HOW TO KEEP YOUR BITCOIN WALLET SAFE
Bitcoin holds the information necessary to spend the Bitcoin
There are many types of wallets, and they all have pros and cons. It is important to make proper research and think carefully before purchasing large amounts of bitcoin to make sure you are taking the proper security precautions and to prevent you from losing your bitcoins. There are varieties of risks that can threaten your bitcoin wallet.
Physical Failure or Loss
Wallets stored on desktops, phones, or remove-able disks are prone to a variety of risks. The hardware can fail or be damaged, and your computer or phones holding the wallet can be lost or stolen. Even paper wallets can be lost, stolen, or damaged in a fire or other disaster.
Wallets stored on any system connected to the internet can be stolen by hackers. Malware can reveal to hackers your private keys, and with that, they can have control over your Bitcoins. Keyloggers can also record your passwords and keys as you type them. Also, exchanges are especially risky because, in some cases, the wallet is entirely controlled by the exchange. If a security breach happens to the server, many accounts can be compromised at once.
- Select the Right Wallet
to enjoy your Bitcoin there are some basic security steps need to be taken to protect your investment. First of all, try to use the right wallet for your investment.
Mobile wallets and online wallets are very convenient for daily purchases and at the same time risky. In order to avoid any problems use such wallets to store only small amounts or to exchange currencies. Never store large amounts of bitcoin on mobile or online wallets.
- Desktop computer wallets are a slightly more secure option, only you are confident of your computer’s security I.e your anti-virus protection system is always up to date. You can store larger amounts here online.
- Hardware wallets can be expensive but it is one of the best wallets for safety and convenience. Some hardware wallets like Trezor don’t expose your private key even to the computer it is attached to. You can use it on an infected computer on an infected network and still make bitcoin transactions safely!
- Paper wallets can be a good option long-term storage. Paper wallets consist of a piece of paper with addresses and public keys written on them. They are cheaper than hardware wallets, but access to the bitcoins is extremely inconvenient. It is necessary to transfer such wallets to a digital wallet before it is possible to spend the bitcoins.
General Security tips
No matter the type of wallet you are using or you want to use, following certain general security tips will help keep your bitcoins safe.
- Don’t give out your private key.
Anyone with your private key has control over your bitcoins so don’t ever give it to anyone you don’t trust completely. Store your wallets in a safe place where they are unlikely to be lost, damaged, or stolen.
Always try to back up, you should always have three copies of your wallet on two local devices and one off-site to avoid lost or being stolen or even hacked. For example, keep your wallet on your computer, an encrypted copy on a USB drive in your safe, and another encrypted copy on your cloud storage provider
- Use an HD wallet.
“HD” means Hierarchical Deterministic. This string of words serves as your backup from which you can completely restore your wallet. Isn’t that nice? this way works even if more addresses and transactions are added to the wallet after you create the backup. Store an encrypted copy of this and you have a permanent backup that you don’t need to update later.
- Use multi-signature wallets.
Some wallets include a multi-signature option, this allows the user requires multiple signatures before allowing a transaction. For instance, business partners could set up a wallet such that before authorizing a transaction they have to provide their private key to authorize a payment.
- Store large quantities offline.
If you have a significant amount of bitcoins that you don’t use regularly, keep them in an offline wallet such as Paper wallets and hardware wallets kept in a safe place cannot be attacked by online hackers.
Keeping your Bitcoin wallet safe is very important. Never forget with bitcoin, you are responsible for the security of your money! So you have to take all proper precautions and steps to ensure that your wallet is secure and ensure no mistakes are made because a simple mistake can cost you your Bitcoins.