Bitcoin wallets are similar to their fiat counterparts — but there are specifics to using BTC wallets that make them totally different.
The architecture of a Bitcoin wallet is therefore fundamentally different to a bank account, and you will need to wrap your head around a few key concepts to understand what Bitcoin wallets are and how to use them.
Strictly speaking, a wallet does not “store” users’ cryptocurrency, but is in fact a device, program or service that generates and stores a master file containing the digital “credentials” that users need in order to access, send and receive cryptocurrency via blockchain transactions.
These credentials are used to digitally sign and authenticate valid Bitcoin transactions on the public blockchain.
The most sensitive of these credentials, the private cryptographic key, must be kept, as the name suggests, absolutely private — much like a PIN or security code for a bank account.
It consists of a unique, alphanumeric string of characters and is necessary for a user to access, spend or transfer their cryptocurrency.
The public key is mathematically derived from the private key and enables a user to receive cryptocurrency from others. Like the private key, it also consists of a very long (256 bits) alphanumeric string of characters.
Note that Bitcoin wallets can be used to generate an unlimited number of public addresses, all of which are linked back to the same user wallet.
It is critically important for users not to forget or misplace the record of their private key. As Bitcoin is a disintermediated, peer-to-peer system, users do not have recourse to a third-party to help them to recover their lost public key, meaning they risk losing access to their funds forever.
between these different wallets, their pros and cons and how to use them.
Bitcoin is just one type of cryptocurrency in a world of thousands of cryptocurrencies, with new types being developed every day. Aside from Bitcoin-specific wallets, there are a number of crypto wallet apps available to secure and hold your crypto assets. Some wallets may only support a single kind of currency, while other wallets are compatible with a number of cryptocurrencies and altcoins. These are known as multi-cryptocurrency wallets.
Each crypto wallet has a unique wallet address. Depending on which cryptocurrency you are receiving, your wallet address may or may not change. For example, with Bitcoin, your wallet address changes after every transaction, but with Ethereum your address stays the same.
If you are looking to expand your portfolio and purchase a variation of currencies, it is often recommended to split up your holdings among several crypto wallets to better secure your assets. While there is nothing wrong with holding all of your assets in a single wallet, some may say that a single wallet with a large amount of coins can draw unwanted attention and be attractive to hackers or other cyber criminals. Moreover, with multiple wallets, you are less likely to lose access to your funds. For example, imagine keeping all of your crypto in one place and then forgetting your private key. You could lose access to everything. With multiple wallets, you can mitigate some of these risks.