Bitcoin Wallet

A Bitcoin wallet is a digital wallet that can hold Bitcoin as well as other cryptocurrencies such as Ethereum or Ripple.

“A Bitcoin wallet is a digital wallet that stores cryptographic materials and can access Bitcoin public addresses and enable transactions,” said Alexandre Kech, CEO of Onchain Custodian, a digital asset custody service. A Bitcoin wallet not only stores your digital coins, And they are also protected with a unique private key, ensuring that only you and anyone you provide your password can open your Bitcoin wallet. Think of it like a password for an online bank account.

Using a crypto wallet, you can store, send and receive different coins and tokens. Some only support basic transactions, while others include additional features such as built-in access to blockchain-based decentralized applications, commonly known as dapps. Among other things, these may allow you to lend out your cryptocurrencies to earn interest on your holdings.

How Does Bitcoin Wallet Work?

In order to send and receive Bitcoins, Bitcoin wallets use cryptographic key pairs. A key pair consists of a private key and its corresponding public key. Sending Bitcoin requires the use of a private key that must be kept secret. Receiving Bitcoin requires a public key that can be shared with anyone. The public key is created by deriving the private key from it.

A seed is generated when you create a Bitcoin wallet. A mnemonic phrase is used to display the seed in the form of consecutive words. This seed will be used to generate every Bitcoin key you need to transfer and receive Bitcoins. This design is called a layered deterministic framework, and it is the industry standard for Bitcoin key creation and management. Most wallets automatically generate a new public key when you want to receive Bitcoins.

The issue of public key or address reuse is no longer a problem. If you use the same public key every time you receive Bitcoin, anyone can easily track your entire payment history. Treating keys as single-use tokens significantly protects user privacy. Users can restore their wallet at any time as long as they know the recovery seed, which is usually a 12 or 24 word list initialized with their wallet.

So, how much does a Bitcoin wallet cost? Using a Bitcoin wallet is free if you simply store your Bitcoins in the wallet. However, if you try to complete a transaction, the exchange or owner of the device hosting your wallet will charge you different fees depending on what you are trying to perform. The price of a wallet ranges from zero to $200 or more. If you use a wallet as part of an exchange, you will most likely pay a flat fee of a few dollars or a percentage of the total transaction value.

Types of Bitcoin Wallets

There are many different Bitcoin wallets to choose from, each offering different features.

Web Wallet

Web wallets allow you to send, receive, and store Bitcoin through your web browser. They are typically hosted by a provider that manages the security of the private keys associated with your account, although some types of web wallets offer ways for you to remain in control of your private keys. Web wallets are generally more convenient than other types of wallets because you don't have to worry about accidentally deleting the wallet from your computer and losing your Bitcoins. Most criticism of web wallets is that they give up some control, since web wallets typically manage private keys on your behalf. This means wallet providers must take security very seriously. As with any other online account, it is important for customers to take some security precautions.

Desktop Wallet

You can also install the wallet software directly on your computer. This gives individuals complete control over their wallets. In desktop wallets, the private keys are stored on the hard drive, so the funds can only be accessed using the computer where the wallet is installed. If a wallet file becomes corrupted without a backup available, the Bitcoins stored in that wallet will be lost forever. For this reason, it is important to use strong passwords and make reliable backups of any desktop wallet. It is also important to keep your wallet and any backups securely out of the reach of malicious individuals.

Desktop wallets are divided into two broad categories, called "full node" or "light" clients. Full nodes host a complete copy of the blockchain, while light clients only provide Bitcoin storage capabilities while relying on external resources to read the blockchain.

Mobile Wallet

Mobile wallets are simply Bitcoin wallets designed for mobile devices. This means they can be easily scanned with QR codes, easily navigated using a touch screen, and are accessible on the go. Mobile wallets are almost always "light" clients in that they do not store a complete copy of the blockchain.

Hardware Wallet

A hardware wallet is a specialized device designed to store Bitcoins. The advantage is that hardware wallets are harder to compromise by malicious users than desktop or mobile wallets because they use the bare minimum software required to store Bitcoin securely.

Paper Wallet

A paper wallet is a way of embodying Bitcoin in a physical medium such as paper or metal. Just like printed money, if a paper wallet is lost or destroyed, the Bitcoins stored on it are gone forever.

Brain Wallet

Brain Wallet is a passphrase generated Bitcoin wallet. It is similar to a paper wallet in that if the passphrase is lost, the Bitcoins stored in that brain wallet are also lost. While it may be tempting to store your Bitcoins entirely in your memory, caution should be exercised due to the challenges of using a passphrase that is secure enough.

How to Choose Bitcoin Wallet

Picking the best crypto wallet for you can be a daunting process, so you should keep the following points in mind when evaluating your options.

You are not tied to any particular type forever; you can have multiple Bitcoin wallets. You combine the best features of each, such as keeping a small amount in your mobile wallet for transactions but keeping the majority of your assets in a more secure hardware wallet.

1. Think About How You Plan To Use Cryptocurrency

For people who frequently trade and spend coins, the best crypto wallet may be the more convenient mobile or web option that connects directly to an exchange, while people who hold large amounts of crypto as a long-term investment may be better off using a cold storage wallet. However, keep in mind that whenever you withdraw your cryptocurrency from the exchange and wallet where you purchased it, you may need to pay a withdrawal fee to transfer it to the wallet of your choice. 

2. Research Wallet Reviews

When you buy cryptocurrencies, you're generally not tied to any one wallet brand or type. Take the time to read reviews about user experience, extra features, and of course, security. Be aware of wallets that have been hacked before, and avoid using wallets that have faced serious vulnerabilities in the past.

3. Research Wallet Backup Options

Some wallets allow you to back up your data using other methods, either online or on a physical device. This way, if your computer or mobile device crashes, you can regain your tokens. If you plan to own a large amount of cryptocurrency, you can prioritize wallets that allow you to back up your data thoroughly.

4. Pay Attention To Key Management

Different wallets have different settings for who is responsible for maintaining private keys, which can have a big impact on Bitcoin holders. For some wallets, the wallet's service provider manages the wallet keys. This means that if a user loses their key, they can regain access by contacting them. However, other wallets are completely dependent on users. Even the manufacturer may not know the private key protecting the wallet. In these cases, users may not be able to regain access to wallets that have lost their keys.