Working of Bitcoin Wallets

Last updated on June 23rd, 2022 at 04:29 am

Bitcoin is an emerging Cryptocurrency, where the transaction happens in a distributed manner with blockchain technology. The Bitcoins are a digital currency that is composed of 0’s and 1’s. So, how to store that digital currency? By using a digital wallet, Bitcoins can be stored. Bitcoin wallets allow a bitcoin user, to send and receive bitcoins for the exchange of goods/services. Lets us discuss how the bitcoin wallet enables to gamenguide.com in the following sections of the article.

Working of Bitcoins

Like a traditional wallet, a bitcoin wallet is not a physical entity. They are software, which allows the user to perform a bitcoin transaction. The bitcoin of a user will be available in a blockchain, and you cannot hold bitcoins. You will be able to send and receive bitcoins only with the help of a bitcoin wallet. A bitcoin wallet is composed of the private key(s) and one public key. You will be able to receive bitcoins if the sender knows your public key. Similarly, you will be able to send bitcoins, with your private key. A bitcoin wallet address can have multiple receiver addresses, which are generated by the wallet’s public key.

For safety reasons, the user will be able to give a new address, to where your bitcoins will be transferred. But still, the bitcoins get stored in the same wallet.  Do you want to know how a bitcoin address will look like? A bitcoin address will look like ‘1hgptjHL9KnXlB74c9IVko7gfkNDa62Zb’. A bitcoin wallet address will always start from 1 or 3.

Wallet Backup

Human errors are possible, like losing or forgetting private keys. In such cases, a bitcoin user can make use of backup keys that are generated from the private key. The backup keys will be in a seed phrase or mnemonic phrase. A seed phrase will have 24 randomly generated words, from private keys. Sometimes, a backup key might consist of 12-word pneumonic phrases. The back keys have to be written in paper and stored in a highly secured environment.

Wallet recovery can also be performed by logging in to GitHub.io and entering the seed phrase/backup key. After this, the recovery tool has to be run, for wallet recovery. The recovery can also be performed utilizing Bitcoin Wallet client, where you need to enter the seed phrase, to recover the lost wallet.

Different types of wallet

There are different types of bitcoin wallets available. A bitcoin user must choose a wallet based on the number of bitcoins he will store, spending frequency, and the level of security. The different types of digital wallets are 1) soft storage wallets and hot storage wallets.

1. Cold storage wallets

The cold storage wallets can be in the form of paper or USB or hardware. These wallets do not need an internet connection and work offline. The cold storage is also called offline wallets, as they are created offline and need an internet connection, only when they need to transact. Hence they are very secured than online wallets. The following are the types of cold storage wallets:

• Paper wallets

A Paper wallet is a combination of private keys and public keys, which can be printed on any material as you wish. Bitcoin users can copy and paste the key combinations in a document and print it, or they can use a paper wallet generator to print the paper wallet. Always make sure to delete the digital copies of this wallet and keep your paper wallet, in a highly secured area, where only you can access.

• Hardware wallets

In this type of wallet, the private keys will be stored in hardware. When you need to make a transaction, this hardware device has to be connected to the bitcoin website. Even when connected to the Internet, these wallets will not reveal the private keys.

2. Hot Storage Wallets

Most people prefer hot wallets, as they are always available online and can also perform quick transactions. But they are not secure, as hackers might hack the private keys, as they are connected to the Internet. The hot storage wallets can be useful for storing small amounts of bitcoins. The following are hot storage wallets:

• Web wallets, where bitcoin transaction is enabled through a web browser with login details
• Desktop wallets, where wallets can be downloaded to the desktop for making transactions.
• Mobile wallets, where private keys will be stored on your smartphones, for easy transactions.

Thus this article has discussed the working of bitcoin wallets and how they are necessary for making a bitcoin transaction.