Exchanges allowing for immediate conversion, cash deposits using specially designed ATM machines, accepted payments through a business, and simple person-to-person trades can all be used to procure Bitcoin.
But you can’t get any Bitcoin unless you have the necessary tools for safe and secure storage. Just like you wouldn’t buy gold bars from the local precious metals dealer without a sturdy safe at home, purchasing Bitcoin for any extended use purpose requires somewhere to store the funds.
That’s where Bitcoin wallets, which serve as a tangible link to your intangible assets, come into play. Bitcoin wallets come in several forms, but the function remains uniform across the board: facilitating the receipt, storage, and transmission of Bitcoin from user to user.
If you’ve recently discovered Bitcoin, but still need to learn the basics before diving into the deep end, the idea of a virtual wallet can seem unfamiliar at first. With that in mind, this page provides a walkthrough on Bitcoin wallets for beginners who are just getting into the cryptocurrency craze.
HOW DO BITCOIN WALLETS WORK?
The purpose of a Bitcoin wallet is the same as any other billfold, protecting your currency from prying eyes, while simultaneously providing ease of access for immediate and regular transactions. The only difference is Bitcoin wallets, like the cryptocurrency they carry, are essentially intangible.
If the idea of an invisible wallet seems strange to you, it shouldn’t – at least not in the modern age of online commerce. Whenever you use PayPal or Skrill to purchase goods, pay for services rendered, or transfer funds to a friend over the internet, you’re using the previous generation of virtual wallet which was designed to move standard currency online.
With those platforms, the process involves transferring funds from a bank account or similar funding source to the virtual wallet, where they can then be spent or sent securely at your leisure.
Bitcoin wallets work exactly the same way, while simply updating the concept for the specific demands of cryptocurrency.
Upon receiving any amount of Bitcoin, users are actually given a completely unique combination of encoded data known as blocks, the sum of which forms the Bitcoin blockchain. The blockchain serves as a ledger of all recorded Bitcoin transactions, so in effect, when you receive Bitcoin, you’re really getting a string of letters and numbers which signify the current value of a given block in the blockchain.
Bitcoin wallets are nothing more than software programs designed to read and reflect the voluminous string of blockchain data which assigns value to every single Bitcoin ever mined.
HOW DO I GET A BITCOIN WALLET?
The two primary forms of Bitcoin wallets used by casual users are software-based and web-based models.
Just like some online games can be played directly through a web browser, while others require downloadable software clients, Bitcoin wallets can be accessed in the same manner.
With a software-based Bitcoin wallet, you’ll download and install the program to your computer or mobile device, accessing and using it like any other program. Using software-based wallet programs is preferable for security and privacy purposes, as no third-party entities are involved in facilitating transactions.
Web-based Bitcoin wallets, on the other hand, require nothing more than a visit to a third-party provider with no software downloads needed. The issue here tends to be security, as cryptocurrency enthusiasts are already searching for an alternative to the trusted third party “middleman” model, but many users prefer the speed and efficiency of in-browser platforms.
The list below highlights a few of the more well-established Bitcoin wallet providers which are currently driving cryptocurrency innovation, along with information on their respective software and/or web requirements:
|WALLET||SOFTWARE OR WEB|
|Armory||Software & Web|
|Copay||Software & Web|
|Hive||Software & Web|
Many of these services even provide convenient “paper” wallets, which are thin cards featuring a pair of QR code images representing your public key and private key data. Paper wallets provide a tangible link to your Bitcoin reserves, which many new users find to be a comforting link to old habits, and they actually streamline hand-to-hand transactions at shops and restaurants.
Bitcoin wallets can also be made tangible through the use of USB sticks and other hardware components linked to the software client files.
HOW DO BITCOIN WALLETS PROTECT MY MONEY?
Establishing a Bitcoin wallet immediately creates a unique address known as a Bitcoin Uniform Resource Identifier (URI). The URL, or Uniform Resource Locater, you used to navigate to this page is simply a subset of the URI construct, so the concept should be somewhat familiar.
The creation of this address, which is represented as a unique chain of 26-35 alphanumeric characters, gives your Bitcoin wallet the ability to serve as a destination point for transactions. Thus, having an address – actually multiple addresses, as their uniqueness makes them designed for one-time use – gives you a place for people to send Bitcoin.
In order to send those funds your way, the sending party will need to know one piece of a two-part puzzle, known as the public key. Another long string of alphanumeric code, public keys are akin to email addresses. Once you’ve provided an individual or business with your public key, through a scanned QR code on a paper wallet or any other means of transmitting the encoded data, they’ll be able to send Bitcoin to one of your addresses.
At that point, the only way to gain access to those Bitcoin is by “signing” the transaction, or providing a longer string of alphanumeric code known as the private key. On a mathematical level, every private key is derived from the contents of a corresponding public key and can be used to confirm that a given transaction was generated by the correct account.
As the name implies, your public key is designed to be shared with those you conduct business with, as it provides the proverbial landing zone for sent money to arrive.
Conversely, your private key should be considered a state secret and concealed appropriately, because gaining access to a private key grants full control over the corresponding Bitcoin reserves.
An oft-quoted, yet possibly apocryphal, claim about public-key encryption asserts that attempts to calculate a private key code using public key data would require 43,928,409,382,490,832,904,839,028,490,328 years on the world’s most powerful supercomputer.
This process of reverse-engineering to encode sensitive data is referred to as public-key cryptography, and it serves as the heart of Bitcoin’s security apparatus.