What You Need to Know About Bitcoin Wallets

When you read about using bitcoins, you will almost always see a discussion of a bitcoin wallet.

As the name suggests, a bitcoin wallet is a place where you store your bitcoins. While Bitcoin is a digital currency that has unique advantages such as complete transparency and no need for third parties, there are a lot of commonalities between bitcoin and regular currencies such as a possibility to exchange bitcoins into any other currency of your choice or being able to conduct transactions in bitcoins. You would typically store your regular money in a wallet and the place where you would store your bitcoins is a bitcoin wallet.

When you obtain a bitcoin wallet, you can use it to store your bitcoins and also to make payments and receive payments in bitcoins.

If you get involved with bitcoin, your bitcoin wallet is the single most important item that you need to protect and make sure that you don’t lose your passwords. Bitcoin is all about empowering people and putting them in charge of their money. It is a decentralized system that has no third party in charge of the currency. You can’t call a phone number or send an email to someone if you lose your password.

Once you install bitcoin wallet software on your computer, tablet or smartphone, you will get a bitcoin wallet address that looks like a long string of characters. On the bitcoin network, this address serves as your identification number and you will be known on the network by your wallet address. For this reason, it is a good idea not to share this address on any public forums or places where information may get compromised.

If someone knows your bitcoin wallet address, they can see a lot of all the transactions between your wallet and other wallets, which is why it is a good idea to not give out your name and your wallet number to the people that you don’t want to be able to see all your transactions.

In addition to the address of the wallet, the wallet also contains your public and private keys to all your bitcoin addresses.

Private Keys

Your private key is a string of numbers and letters that you will use to spend your bitcoins. Bitcoin software generates your key in such a way that a key is always related to the address of your bitcoin wallet. However, at the same time, the encryption is so strong that it is impossible for someone to re-engineer the connection if they have an address of your wallet.

If you lose your private key, you will not be able to spend any of your bitcoins.

Every wallet has at least one private key, but it can also have more than one key. All the keys are in a wallet file of bitcoin wallet software.

Public Keys

In addition to private keys and bitcoin addresses, there are also public keys. This causes confusion for some people become they assume that a public key is the same as a bitcoin address. While a public key of a bitcoin wallet is related to the address of the wallet, they are not the same. An address of your wallet is a hash version of your public key, meaning that bitcoin software has an algorithm that converts a large amount of data into a smaller amount, typically called a hash. The algorithm always converts a set of data into the same hash, but even a slight change in the data can lead to the creation of a completely different hash. Like all other computer data, a hash is a long string of symbols. To generate hash numbers, bitcoin software uses SHA-2, which is an algorithm created by the United States National Security Agency (NSA).

Bitcoin software uses your public key to make sure that you are the owner of an address that you use to receive funds. This is the difference between a private key and a public key. You need your private key to send funds and a public key to accept funds.

While your public keys are a mathematical derivation of your private keys, the encryption algorithm is so strong that it is impossible to crack.

Other Data

In addition to an address of your wallet and your private and public keys, your wallet also contains information about all the incoming and outgoing transactions for the wallet. This way a bitcoin wallet can give its owner a way to see and analyze their spending and receiving patterns and habits.

Finally, your bitcoin wallet will also store your user settings or preferences. Some wallets have just a few preference settings while others have a lot of them, which can make it confusing for a new user to use the software.

Bitcoin wallet software will store all the data about your wallet is a master file, including all the historical information about your transactions and your wallet. On a Windows PC, the name of the file will be wallet.dat. Make sure to make multiple backups of this file. It is a good idea to store the file on a USB key or memory card that you can keep away from your computer. In this case, if your system crashes you will still have access to your wallet.


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