How do Bitcoin wallets work?

Bitcoin wallets are the first step towards owning Bitcoins, which is why it’s of the utmost importance for you to understand the principal they work on. You, as a buyer, need a digital place where you can access, store, send, receive or trade your cryptocurrencies, and that is the function of the cryptocurrency wallet. Bitcoin wallets are composed of two parts:

  • A public address – For example: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2
  • A private key – For example: E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262

You provide the public address to the seller so he can send you Bitcoins, which you can access in your crypto wallet after the transaction has taken place. It works as an e-mail address, except it’s advisable for you to generate a new address for every Bitcoin transaction. A note of importance is that most of the public addresses are case-sensitive, so if the address is not right, the transaction will be rejected by the Bitcoin system.

The private key, on the other hand, is unique and should be known by you alone. It’s imperative for you to remember the key, and don’t share it anywhere or with anyone, because that is how you gain access to the Bitcoin wallet and thus the Bitcoins. Losing a private key can result in technical complications or even financial loss.

You can buy Bitcoin wallets as software on the web or in app stores for your mobile device. If you prefer a hardware form cryptocurrency wallet, you can buy one from the local store.

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Types of crypto what-are-bitcoin-wallets

A lis of the types of crypto wallets include:

  • Electronic wallets are downloaded as software, or the data is hosted on a cloud:
    1. Software wallets are downloaded and installed directly on your computer, so there is no third party involved, and you will gain complete control over the private key. The downside is that they require regular updates, and if your computer is stolen/hacked, you might lose the Bitcoins.
    2. Online hosted wallets are beginner- and user-friendly, but there is a third party involved in the safekeeping of your Bitcoins and the usage of your private key.
    3. Mobile wallets are good for buying goods and services, and most of the software wallets have a mobile app attached to them. However, there are mobile wallets, which were explicitly designed for mobile use, such as Airbitz, Abra and Bread.
  • Paper wallets are simple because the public address and the private key are printed on a piece of paper. The good thing is that they are not connected to a network, but the bad thing is that you can easily lose a piece of paper.
  • Hardware wallets are perfect if you want to keep your Bitcoins separate from the network. They are USB-like devices that store your Bitcoins, and you only connect them if you want to conduct a transaction. ardware wallets are not hackable, but just like paper wallets, it’s easy to lose them.

The best Bitcoin wallets today

A list of the best Bitcoin wallets on the market today include:

  • Blockchain – It’s an online wallet, which is user-friendly, and it features a two-factor authentication. It has a build-in ShapeShift (instant digital asset exchange), which allows you an easy conversion of Bitcoin, Ethereum (Ether) and Bitcoin Cash.
  • Coinbase – This is also an online wallet that provides you easy trading on the Coinbase exchange.
  • Exodus – It’s a free software wallet that supports Bitcoin, Ethereum, Litecoin and other cryptocurrencies. It also has a built-in ShapeShift for easy trading, and it’s compatible with Windows, Mac and Linux.
  • Electrum – This is a private offline software wallet. It’s popular between traders because it’s compatible with hardware wallets (plugins), and you can export your key to another Bitcoin client.
  • Ledger Nano – It’s a hardware wallet that has gained momentum since its release. It supports Bitcoin, Litecoin, Ethereum and Ethereum-based Altcoins. It features a pin-code unlock system, two-factor authentication and tamper-proof internal hardware.
  • Trezor – This the first hardware wallet on the market. The name speaks for itself since it’s still one of the most secure wallets up to date.

Now you are familiar with the essentials of what Bitcoin wallets are, and how you can use them. Each of the types of wallets we numbered above has its own ups and downs, so it’s ultimately up to you to decide which option suits you best. We included the list of the most popular Bitcoin wallets today, for your convenience and consideration.

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