Bitcoin Wallets

Bitcoin Wallet

We’re all used to a leather wallet or purse holding our cards, cash, dough, moolah, whatever your preferred term is for legal tender.

With the growing popularity and regulation of digital assets, it seems that the future of cryptocurrency – particularly bitcoin – as legal tender is inevitable. Cryptocurrency, too, is stored in a wallet, but fittingly, it’s a digital one.

Instead of storing physical currency, the digital wallet stores the cryptographic information used to access Bitcoin addresses and send transactions.

A Bitcoin wallet is a device or program that interacts with the Bitcoin blockchain. It doesn’t “store” your Bitcoins – it represents cryptographic control of a blockchain address. When you buy Bitcoins, you can leave “keys” to your Bitcoin in your account as a way of storage. While your key can be used as a wallet, it is the equivalent of allowing others access to your debit card or bank account. To control your keys, you need a Bitcoin wallet.

Each Bitcoin wallet contains a set of secret numbers, or private keys, corresponding to the user’s blockchain address book. This is similar to your bank account personal identification number, or PIN, although it’s a bit longer than a four-digit PIN. This key functions as the password to access your Bitcoin; it’s used to “sign” Bitcoin transactions, effectively giving the user control over the bitcoins in that address. By using the wallet, you can receive or send your Bitcoin while keeping your key information private.

You need a private key to send Bitcoin; but when you receive Bitcoin, it comes to you accompanied by something called a public key, which connects you from one Bitcoin user to another. Private and public keys are associated with a specific piece of Bitcoin; they allow the user to transact on the Bitcoin network, prove that they are the initiator or receiver of a transaction, and check their balances. A Bitcoin wallet stores your public keys with your private keys.

A Bitcoin wallet can be held on your smartphone, on your desktop, in the cloud, an online custodial service, or can even be a physical piece of hardware that you can carry with you. There are two basic wallets: “hot” wallets are digital wallets that connect to the internet, offering easy access, while “cold” wallets are physical devices that store crypto assets. “Hot” wallets suit small amounts that can be accessed easily for spending; they can effectively act like an online bank account. “Cold” wallets are typically used to store larger amounts, because they are isolated from other devices and the internet, and have a higher level of security. (Many of the “cold” physical wallets, however, have mobile connectivity, which enables them to act as a hot wallet for whenever the user needs instant access to cryptocurrency, passwords, and keys.)

The most popular and easy-to-set-up Bitcoin wallet is a “hosted” wallet, so named because a third party keeps your cryptocurrency for you, in a similar fashion to how a bank keeps your money in a savings account. That third party knows your private keys and doesn’t reveal them to you, but it will send, receive, and store bitcoins on your behalf. Using a hosted wallet means that you won’t ever have to worry about “losing” your keys, as you can with a “personal” Bitcoin wallet – to which only you know the private keys – but with a personal wallet, you have more control over your Bitcoins.

This article was previously published in Live Wire.

Dan Annan

Dan Annan

Dan is the chief executive officer of Cosmos Asset Management (CAM) and is responsible for leading the business operations and strategic direction. He has extensive experience in the local and global funds management industry, with over 15 years dedicated to Exchange Traded Funds (ETFs). Before CAM, Dan was head of BetaShares Institutional ETF Business for three years. Prior to BetaShares, Dan held various roles within the iShares ETF business for BlackRock in the US and Australia. His final US post focused on capital markets, where he worked with global banks to incorporate equity and fixed income ETFs into their business models to support trading and liquidity of the ETF ecosystem. Dan started his career with AllianceBernstein in 2002 with coverage of US and Canadian pensions, corporates, foundations and endowments. Dan holds a Bachelor of Economics from St. Lawrence University, New York.

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