Do you need a digital Bitcoin wallet for your mobile device or desktop computer? To understand what a Bitcoin Wallet is, you should first learn about the Bitcoin. It is defined as a digital currency that is transacted virtually rather than tangibly.
Bitcoin was founded in 2009 by Satoshi Nakamoto, a mysterious entity that abandoned their venture in 2010. Bitcoin was the first currency to use cryptography, and there is no match for it until now. Cryptography is all about encryption of data and communication when being conveyed online to ensure maximum security.
So, what is a Bitcoin Wallet?
Assuming you have understood what the term Bitcoin means, now we will describe a Bitcoin wallet. It is a piece of software (also client software) that is installed on a computer or mobile device. It does the following three main things.
- Generates a new address along with an instant private key and a public key.
- Lets you know the amount of coins held by your addresses
- Uses private keys to manage and authorize different types of Bitcoin transactions.
More tips about a Bitcoin wallet
A Bitcoin wallet can determine the amount of money you need to pay in form of transaction fees and whether or not you can submit a transaction without paying any fees. Additionally, a wallet determines whether you can access your coins from any place or just from your desktop computer.
How does a wallet work?
A Bitcoin wallet is just like your physical money wallet. The software stores your coins just like your wallet does. And when opened, it reveals the number of coins you have. You can decide to leave your coin alone or to take them out.
Where are your Bitcoins stored?
Most Bitcoiners think that their Bitcoins are safely stored in the wallet. This is not true, unfortunately. The coins are stored in what is normally called the block chain. This is a shared public ledger that serves the whole Bitcoin network. As all verified transactions are added to the block chain, Bitcoin wallets could compute their usable balances and certify new transactions to be spending coins that truly belong to the spender. A clever and highly advanced chronological order is used in the block chain to ensure accuracy. Besides, the whole network is encrypted and secured using cryptography.
Pay with your Bitcoins
As soon as you have created a Bitcoin address and have gotten some Bitcoins, you can use them for online transactions with companies that accept Bitcoin as a payment method. When you choose a company to deal with, it will send you the Bitcoin address to which you can send your payment. Then you will direct the payment to this address in a matter of seconds. Simply choose the amount and click send.
Verification of your transaction might take longer than ten minutes, unfortunately. All of your transactions will be seen publicly in the block chain register, and will stay there permanently. This is done to discourage fraud, and to prevent double spending by the party spending their Bitcoins.
If you own many addresses, the system enables you to take out coins from all of them to make one payment. A component that is known as coin control lets you choose the number of coins to take from every address you own. Be aware that some wallets do not use the coin control feature.
As you are belong to a shared record (block chain), you really must not logon to receive coins. The Bitcoins are not sent to you directly. What happens when a transaction is being processed is that the shared record is updated to display your coin ownership. Then the record continues to be updated with each deal that gets processed and this reveals the balance of coins contained in each address.
Verifying you are the coin Spender
There are other people in the network that might want to get your coins. All you have to do is to make them aware of your plan to spend your coins. The message will be transmitted to everyone on the network in no time at all. But spending is not a straight forward task.
You must prove that you are, indeed, the person who owns the address. If you can prove this fact, you will be known as the person who has the right to spend the coins. All you must do is sign the transaction with a private key (alternatively called the secret key). It is a very strong password that would be hard to recall and type. Note that each address possesses a private key that is automatically generated when the address is being made. It is kept inside the wallet.
What types of Bitcoin wallets are there?
Many types of coin wallet exist. Each of these wallets has its own pros and cons that you need to be aware of. These are:
Desktop computer wallets
These entail software that is downloaded from the internet and installed on a laptop or a desktop PC. The desktop software offers the user total control over their coins, ensuring that they do not entrust them to dishonest third parties.
Desktop wallets are seen as the most secure because they are less likely to be targeted by internet hackers who would mostly attack a group of Bitcoin addresses to be able to steal many coins at once. Having a desktop wallet does not guarantee complete security though. You have the responsibility to protect your Bitcoins from anything that could compromise the security of your PC.
If you are running a full node, it means that you have downloaded the entire block chain on your PC or laptop and are solely responsible for updating it so that you can reference it when transacting. A node is described as a spot on a network. For instance, the node will be the desktop computer for those choosing to use it. A full node isn’t always fun to run however.
When the block chain network becomes so huge, and doesn’t stop growing, you will find it so hard to coordinate with the rest of the network. Full node is best left to service providers, miners and developers. Not being able to run full nodes does not have serious consequences though. In any case you will run the desk wallet software on your PC without downloading the entire block chain record. So your private key will be kept on your computer, giving you total control.
Apps for mobile devices
It is possible to install a Bitcoin wallet app on your mobile device, such as mobile phone or tablet, and using the app for shopping. There are two types of mobile apps: locally run apps and web services. The former refers to an app that runs only if the whole software is downloaded. The latter refers to an app that lets you access a service on an encrypted website.
So the work of securing your own coins is assumed by the site owner. Running an app locally on a mobile gadget can be much more exciting and safer than running it on a desktop PC. One reason that makes mobile apps safer is that they are less prone to viruses. When you sign up for the first time to a service like this, the system will request you to pick a suitable password.
The password will then be run via a cryptographic program that generates public and private keys. As long as you will have a mobile device that has a browser you will be able to access your mobile wallet from any place. The private key has the same role: signing transactions in your browser without leaving your browser.
Web wallets are other options. These are third party sites that store your key and lets you log on to the account to access your coins. This lets you reach your coins from a mobile gadget or PC without having to bother about protecting your account. The downsides are that all coins are stored on a central server and that you are letting a company manage and secure your coins. If you are not cautious when choosing a third party company to secure your coins, you might lose them.
This is a method by which you store your Bitcoins offline. This is the most secure method of safeguarding your coins but also the least sensible when you want to send and receive Bitcoins. You can decrease identity theft risk, third party fees and have full control over your privacy when using a cold storage.
Your Bitcoins and safety – Which companies are good?
BitGo – The common option is to choose a company that offers a Multi-Signature wallet for additional security. BitGo(managed by Will O’Brien) is a good example of a company that uses mult-sig wallet to safeguard customers’’ Bitcoins. Each BitGo wallet has three keys and two of them are required to access your holdings. One key is given to the user, second one is held by BitGo and the third one is kept offline. This eliminates all points of attack that hackers may decide to use.
Blockchain.info – Managed by Nicolus Cary, Blockchain.info is a very safe and private Bitcoin wallet using two approaches to security. First approach entails giving the users every tool they need to prevent authorized access to their account like second passwords and two-factor authentication methods. Then the other approach is to offer users total access to their private keys, and so letting them have full control of their holdings. So the site does not know the private keys and does not see them. This helps the users use their Bitcoins even when the site has a technical problem that disrupts its service.
Armory Wallet – Maneuvered by Alan Reiner, Armory has developed the most idiot-proof yet very secure Bitcoin storage solutions. It targets mostly the advanced investors with large savings to keep safe. It is a manual system for running big amounts of Bitcoins and so quite complicated for novice Bitcoin buyers. It is basically a multi-signature company.