What Is A Bitcoin Wallet?
A Bitcoin wallet is an app or software that enables you to send, receive, and store bitcoin. Although the term “wallet” is commonly used, bitcoin wallets don’t actually store moneyWhat Is Money? Money is a tool that enables humans to perform 3 basic functions: store value, exchange value, and account for value. In order for money to perform its... in the same sense as a physical wallet. All bitcoins are recorded or “stored” online on the blockchainWhat Is The Blockchain? The blockchain is the public record of bitcoin transactions, which are organized into blocks that are all chronologically linked to one another. Because every block is... and a wallet is how you move bitcoin from one address to another.
A more accurate name for a wallet might be a “keychain” since a wallet only stores the private keysWhat Are Bitcoin Keys? Bitcoin keys are randomly generated strings of numbers and letters that are used to send bitcoin and/or verify ownership of a bitcoin address with a digital... required to send bitcoin.
Different Types Of Bitcoin Wallets
There are 6 main types of wallets and each one has features that the others don’t.
– Mobile Wallets: These are best suited for smaller amounts
– Desktop Wallets: Highest level of functionality with the most features
– Hardware Wallets: highest level of security
– Lightning Wallets: able to transact on the lightning networkWhat Is The Lightning Network? The lightning network is a layer 2 payment protocol that enables near-instant, low-fee, private payments on the Bitcoin network. It is intended to enable scalable,... for low-cost near-instantaneous payments.
– Web Wallets: lest amount of security but high level of convenience
– Paper wallets: A common way to write down your seed phraseWhat Is A Seed Phrase? A Bitcoin seed phrase -- also called a recovery phrase, wallet backup seed, or mnemonic phrase -- is a list of 12-24 common English words... to recover your bitcoin wallet if it is ever lost.
Let’s go into some detail on each one.
Mobile Wallets
A Mobile WalletWhat Is A Mobile Wallet? A mobile wallet is a bitcoin wallet that runs on a mobile device such as an iPhone, Android, or tablet. Mobile wallets are free app... is a bitcoin wallet that runs on a mobile device such as an iPhone, Android, or tablet device.
Since mobile wallets run on your smartphone/tablet and have the ability to connect directly to WiFi and cellular towers, they are the most convenient type of wallet for making over-the-counter purchases.
Since mobile wallets are able to connect directly to the internet and cellular networks, it’s not advised to hodl large amounts of bitcoin in a mobile wallet because they are somewhat vulnerable to online attacks and malware.
After you have downloaded a mobile wallet and have begun to familiarize yourself with how wallets work, the next step is likely to be a desktop walletWhat Is A Desktop Wallet? A Bitcoin Desktop Wallet is a bitcoin wallet that runs on a desktop/laptop computer and provides the highest level of functionality for building and broadcasting....
Desktop Wallets
A Desktop Wallet is a bitcoin wallet that runs on a full desktop or laptop operating system like Mac, Windows, or Linux. Desktop wallets usually come with more advanced features that offer their users increased functionality that are not available on other types of wallets.
Desktop wallets are able to create transactions with the most control such as setting custom fees, manually selecting which UTXOs to send, export public keys, and more.
Desktop wallets offer the most robust functionality of all of the bitcoin wallets but they don’t provide the same level of convenience as a mobile wallet or lightning walletWhat Is A Lightning Wallet? A Lightning wallet is a specific type of bitcoin wallet that uses the lightning network to facilitate near-instantaneous peer-to-peer payments at a lower cost than....
Hardware Wallets
A Hardware WalletWhat Is A Hardware Wallet? A Bitcoin hardware wallet is a dedicated device for generating and storing private keys as well as signing bitcoin transactions in a secure offline environment.... is a physical device that has been designed specifically for storing your bitcoin private keys in a secure offline device.
Think of hardware wallets like a digital safe or vault for your bitcoins that are incapable of building transactions on their own. Typically a desktop or mobile wallet is needed to create a transaction and the hardware device is used to sign the transaction.
True hardware wallets do not have any sort of WiFi, Bluetooth, or cellular connectivity. In order for a hardware wallet to send bitcoin, it either needs to physically connect to an internet-connected device with a cable or use a special type of transaction called a partially signed bitcoin transactionWhat Is A Bitcoin Transaction? A Bitcoin transaction is the transfer of bitcoin from one address to another address or when new bitcoin is created. Transactions can also be the... and then transfer the details of that transaction to an internet-connected device so it can be sent across the bitcoin network.
Lightning Wallets
A Lightning Wallet is a special kind of wallet that is capable of transacting on a second layer of the bitcoin network known as the Lightning Network (LNWhat Is The Lightning Network? The lightning network is a layer 2 payment protocol that enables near-instant, low-fee, private payments on the Bitcoin network. It is intended to enable scalable,...). Lightning wallets allow for small, cheap, and instant payments which are better suited for making over-the-counter purchases like a cup of coffee.
Lightning wallets can run on either a desktop or mobile device but not all lightning wallets are the same. Since the lightning network is a second layer, it may require special hardware like running a bitcoin nodeWhat Is A Bitcoin Node? A bitcoin node is any computer that runs the bitcoin software, enforces the bitcoin consensus rules, and validates bitcoin transactions and blocks. Bitcoin nodes are....
Web Wallets
A Web WalletWhat Is A Web Wallet A web wallet is an online wallet that stores your bitcoin on the cloud or under the custody of a trusted third party. They are... is any bitcoin wallet where your private coins are stored entirely online.
Web wallets can be your own wallet where you store your own private keys online (like some lightning wallets) or they can be on a third-party server under someone else’s custody like at a bitcoin exchangeUnderstanding Bitcoin Exchanges Bitcoin has proven itself to be one of the fastest horses in the financial arena. To keep up with the rising demand, countless Bitcoin exchanges have popped.... Wallets at exchanges are often referred to as custodial wallets because someone else has custody of your bitcoinWhat Is Bitcoin Custody? Bitcoin custody refers to control over the private keys associated with a particular bitcoin address or wallet. There are three main types of Bitcoin custody: self-custody,....
Note: Web wallets are not a suggested method of storing bitcoin since they often put someone else in control of your private keys like a third-party custodian.
Paper Wallets
A Paper WalletWhat Is A Paper Wallet? A paper wallet is a single private key and the corresponding bitcoin address written or printed on a piece of paper. From 2011 to 2016,... is a bitcoin private keyWhat Are Bitcoin Keys? Bitcoin keys are randomly generated strings of numbers and letters that are used to send bitcoin and/or verify ownership of a bitcoin address with a digital... and a corresponding address written or printed on a piece of paper.
Paper wallets began as a way of storing private keys completely offline to protect them from being compromised but they have become much less popular in recent years as better alternatives have been adopted. Today, the most common form of paper wallet is 12-24 word seed phrase written on a piece of paper.