A Bitcoin wallet at first glance may look complicated to a lot of people. In this article we dive into wallets and explain what a Bitcoin wallet is.
A Bitcoin wallet is similar to a regular old fashioned wallet in the certain regards. You can:
However, there are also some differences. The first difference between a regular wallet and a Bitcoin wallet is that the Bitcoins aren’t actually stored inside the wallet. Bitcoins always remain in the blockchain and can never be removed from it. The wallet however holds your private key. The key gives you access to your Bitcoins in the blockchain and the right to send them to other addresses. The key itself is accessed through twelve seemingly random words called a “seed”.
Losing the device that the wallet has been installed on is no problem as long as you keep the twelve-word seed phrase written down in a safe place somewhere. Just install the wallet software on your new device, enter the seed phrase and you will have restored access to your Bitcoin.
Pro Tip: Whichever wallet you decide to use, always back up your seed phrase immediately. Never store the seed phrase digitally or take a picture of it. The seed phrase is what hackers are specifically looking for.
Pro Tip: Make a puzzle out of your seed phrase that only you can solve. This is an extra layer of protection.
In short, Blockchain is the technology that records where every Bitcoin currently is. It is a growing distributed ledger (list of records), called blocks. These blocks are linked (chained) together and a new block containing transactions is added every 10 minutes. Hence the name Blockchain. In the case of Bitcoin, the ledger is shared and distributed between the miners so that no one can make fake changes in the blockchain.
Millions of miners worldwide are constantly confirming if the ledger is still correct and that makes the Bitcoin blockchain the least corruptible system on earth. To fake a transaction on the Bitcoin blockchain you would have to hack 51% off all miners worldwide, an almost impossible task as this would cost tens of billions of dollars and take many years to accomplish.
Best Bitcoin wallet
The best Bitcoin wallet does not exist. Every wallet has its benefits and drawbacks. What is the best wallet for you? That depends on what you value most from the wallet. Do you want ease of use? Or do you want to focus on maximum security?
An important distinction between Bitcoin wallets is where its private key is stored. The private key is a complex password you need to access your Bitcoins. So, whoever has this key has control over the Bitcoins. The private key is also used to generate a Bitcoin address.
With a Bitcoin address generated from your wallet you can receive Bitcoin on your wallet. Hierarchical Deterministic wallets generate an initial phrase also known as a seed. With the seed you can always reconstruct the privet key to access your Bitcoins. On most Bitcoin wallets, you can also see the current Bitcoin price and the value of your current holdings.
Further explanation about hardware wallets and the lighting network will follow in a later blog. And remember, back up you seed. Merry hodling and a happy new bull run!