What is a bitcoin wallet, how it works, and what are the types of it?
The world of cryptocurrencies is quite big, and before an investor gets into the cryptocurrencies, it is essential to know all the prerequisites. The person must learn how to store and manage the cryptocurrencies and understand the facts about virtual currencies. Bitcoin is a virtual currency that is currently trending in the world of cryptocurrencies. It acts as a medium of exchange between person-to-person and because it is a decentralized currency, no financial institutions or central government govern this currency.
The technology on which the bitcoin works is blockchain technology, this technology helps prevent any fraud or malicious attacks. Blockchain technology protects the bitcoins in the bitcoin wallet. An investor doesn’t matter whether he/she is a beginner or an expert and must defend his wallet from fraud. Many people all around the world are making money from the bitcoin market by using the knowtechie.com
What is a bitcoin wallet?
A bitcoin wallet is a virtual wallet or a cryptocurrency wallet or a tool used to store the bitcoins physically. The bitcoin wallet has two primary keys: a private key and a public key, and these are used to receive and send the bitcoins. Bitcoin is a digital virtual currency, which means users can’t quickly get their tokens and hoard them into their pockets. Cryptocurrency users need to have their wallets to store their cryptocurrencies.
Working of a bitcoin wallet:
Both Bitcoins and bitcoin wallets are virtual, and unlike physical wallets, they don’t store any assets into them. The bitcoin wallet generates important information that helps send and receive the bitcoins or other cryptocurrencies through blockchain transactions. Both the private and public keys are required to perform the transactions, and these keys make the bitcoin wallet.
A private key is an unsystematic sequence of letters and numbers that is used to administer bitcoins. Mathematically, a private key is related to both the public key and the bitcoin wallet’s address. It is crucial to store the private key in a secure device or play because no way is invented to recover the lost private key once it is lost. A public key is a string of numbers and letters, and it is derived from a private key. The public key is used to receive bitcoins. Equally sender and receiver can identify this key.
Now let us know how the actual transaction is performed. As already said, bitcoin is not physically present, and all the records of bitcoin transactions are stored in a distributed ledger of the blockchain. The bitcoin wallet interacts with the distributed ledger of blockchain, which further manages the bitcoins. The user needs to enter the private key; this depicts you are the bitcoin wallet owner. This way, you can transfer the bitcoins to another person, but it is important to know the receiver’s public key.
Types of bitcoin wallet
Numerous types of bitcoin wallets are present for storing the bitcoins. The user can choose the wallet according to his needs. Let us move further and know about the top categories of bitcoin wallets.
- Hardware bitcoin wallet
A hardware bitcoin wallet is an actual device that stores both the keys. The user can set the PIN that allows the access of bitcoins and bitcoin wallets, and this is the best way to secure your cryptocurrencies. No doubt, there are risks associated with the device of being destroyed, and therefore the user must use and secure it appropriately.
- Paper bitcoin wallet
A Paper bitcoin wallet is also known as a cold wallet. This is an offline method to store the bitcoins. The paper wallet is a printed paper that consists of QR codes and keys used to send and receive the bitcoins. It is counted as one of the most secure ways to store the bitcoins because it is impossible to hack the printed keys.
- Online bitcoin wallet
An online bitcoin wallet is also referred to as a hot wallet. This is the most convenient way to store the cryptocurrencies. It is also counted as the riskiest method because it can only be accessed when connected to the internet. The online sites can be hacked or attacked, or any malicious attack can steal the wallet’s keys.