Bitcoins (BTC) Wallets: a beginner’s guide

The Bitcoin network arose from the need to have a person-to-person payment system without depending on intermediary entities. Its protocol clearly and precisely defines the way in which monetary transactions are processed, the norm for the issuance of new units and even the maximum number of coins that will be put into circulation.

For example, in Bitcoin, only 21 million units (bitcoins) will be issued progressively as a product of the rewards for mining activities within its network. All this in a public and transparent way.

Once the new units are put into circulation, they become part of its economy, and can be audited from its blockchain, a kind of public ledger based on an advanced cryptographic algorithm that, among other things, prevents double spending.

Likewise, they are digitally identified with an alphanumeric sequence that proves their ownership and subsequent tracking. And as with all currency, it can be used by anyone to make or receive payments, but being completely virtual, it is necessary to have a suitable wallet.

What is a Bitcoin wallet ?

A wallet is a software that allows access to the Bitcoin system to receive or send bitcoins. Inside, two cryptographically related keys are automatically generated: one public and one private. The public key is the one used to receive remittances and can be shared without any risk, while the private key is the one that allows access to the funds and is the one used to make shipments, and must be kept secret.

Types of Bitcoin wallets

There are several types of wallets for Bitcoins, which are mostly compatible with other popular cryptocurrencies such as Ethereum and Litecoin.

There are Bitcoin wallets in the form of applications for computers and mobile devices. Other kinds of wallets are those that work exclusively from currency exchange platforms through the Internet.

However, there is a class of wallets that work from electronic devices similar to a USB memory that protect the keys and therefore access to the funds in the Bitcoin network.

The use of each of them varies depending on the amount of assets that the user has in the Bitcoin network.

Online wallets

Among the online wallets are cryptocurrency exchange platforms such as BitPay, Coinbase or Binance. These online digital spaces allow you to send, receive and buy bitcoins with different real currencies. Likewise, they are in charge of guarding the funds and keys. However, the security of this digital information is exposed to attack by hackers or problems with the server.

Wallets in the form of apps

Other digital wallets are found in the form of desktop programs such as Exodus or Electrum, and applications for mobile devices (iOS and Android) such as Defiant, Trust Wallet or Breadwallet. They have the advantage that the secret keys are stored directly on the device on which they are executed, also offering a recovery mechanism based on a sequence of words known as a seed phrase, which is very easy to save on one or more sheets of physical paper.

Hardware based wallets

Finally, there are hardware-based wallets also called cold wallets due to their lack of Internet connection. They are characterized in that they can securely store a large number of Bitcoin addresses and their respective private keys.

In addition, they offer an additional security layer by configuring access passwords. However, they are exposed to device loss or theft, resulting in a loss of funds.

These purses are intended for medium investors since their cost ranges between 40 and 100 euros depending on the manufacturer. The most popular cold wallets are Ledger Nano S and Trezor.

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