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Every few weeks we’re going to send you a cool new video, just like this one, explaining some basic concepts around Bitcoin. This way you can learn about Bitcoin yourself or forward these videos to friends or family members who have questions. What are private keys, public keys and a seed? What is the difference between hot and cold wallets? What are the different types of wallets?
Today’s video is all about Bitcoin wallets and how to choose the best one. We’re going to cover a lot of topics like mobile wallets, web wallets, desktop wallets, paper wallets, brain wallets, HD wallets, multisig wallets and of course hardware wallets. So even though we’ve got a lot to talk about, don’t worry, we’ll simplify it for you, and in the end we’ll also help you choose the best wallet for your needs. A Bitcoin wallet is a program to send and receive Bitcoins, store Bitcoins and monitor Bitcoin balances. Just like you need an email program like Outlook or Gmail to manage your emails, you need a Bitcoin wallet to manage your Bitcoins. Wallets monitor Bitcoin addresses on the blockchain and update their own balance with each transaction. Now here’s one of the most important things to remember about a wallet: What defines a wallet is where its private key is stored.
Well, a private key is just a very long string of numbers and letters that acts as the password to your Bitcoin wallet. It’s from this number that your wallet gets its power to send your Bitcoins to other people. You can also think of it like the secret coordinates for locating your Bitcoins. In other words, whoever knows your private key has control over your Bitcoins. It’s something you give out to people who want to send you Bitcoins. However, even though the Bitcoin address is generated through the private key, there’s no way figure out what the private key is just by examining a Bitcoin address. To sum it up, the wallet’s core function is the creation, storage and use of the private key.
In other words it automates Bitcoin’s complex cryptography for you. As Bitcoin wallets evolved HD wallets, or hierarchical deterministic wallets, were created. This seed is a string of common words which you can memorize instead of the long confusing private key. Later on, if your wallet gets destroyed or stolen, you can enter these words in order to reconstruct the private key. Additionally, an HD wallet can create many Bitcoin addresses from the same seed.
All of the transactions sent to addresses created by the same seed will be part of the same wallet. Because these private keys and seeds have complete power over your Bitcoins they must be kept secret and safe. If you fail to protect your wallet’s private key or seed, the bitcoins it controls could be irretrievably lost. A standard Bitcoin wallet will create a wallet. This file should be backup by copying it to a safe location like an encrypted drive on your computer, an external flash drive or even copying to a piece of paper and hiding it away. An HD wallet on the other hand will supply you with a seed phrase with up to 24 word that you should write down in a safe place. Other wallets, also known as SPV wallets or lite wallets, don’t hold a full copy of the Blockchain.
They rely on full nodes that they are connected to in order to validate transactions. SPV stands for Simple Payment Verification, these wallets are faster and consume less disk space. Since the blockchain today is becoming increasingly big in size many wallets offer an SPV solution for limited capacity devices such as mobile phones, tablets and desktops. A Hot wallet refers to any form of Bitcoin wallet that is connected in some way to the Internet. This can be a wallet that is connected to a web service, a wallet installed on a computer connected to the Internet or even a wallet installed on your mobile phone, assuming you have data transfer to and from your phone. Hot wallets, although the most popular, are also the least secure since they allow access to their inner workings through Internet connections. Types of hot Bitcoin wallets Markets, exchanges, betting sites and other Bitcoin services frequently require you to deposit funds into their online wallets in order to conduct your business.