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There are physical wallets that store physical, tangible currencies like the INR, USD, Euro, etc. Then there are other wallets that store digital information necessary for conducting monetary transactions. Bitcoin wallets belong in the second category.
Nowadays, even fiat currency transfers happen from mobile-based wallet apps like PhonePe, Google Pay, Paytm, etc.
But these wallets function by accessing your primary bank account or the money stored in the wallet. On the contrary, a BTC wallet is like your bank account.
Bitcoin wallets store digital information. Information regarding all BTC transactions and balances. Bitcoin wallets also contain the private and public keys necessary for conducting a BTC transaction. The other term for public keys is ‘wallet address’.
Wallet addresses are similar to your bank account details like account number, IFSC code, etc, that you share publicly for receiving payments.
Private keys are akin to your internet banking password or debit card pin.
This was an overview. Let’s look at them in detail.
How do Bitcoin Wallets Work?
Bitcoin wallets are applications that facilitate BTC transactions by interacting with the Bitcoin blockchain.
Due to the underlying decentralized architecture, all bitcoins exist on the blockchain. No one owns any BTC in their bitcoin wallets. As mentioned earlier, BTC wallets only store public and private keys/wallet address.
A wallet’s combination of public and private keys helps access bitcoins from the blockchain for financial settlements.
When you buy bitcoin, you pay for a section of ownership on the Bitcoin blockchain. The private key in bitcoin wallets keeps that ownership safe.
Multi-Sig Wallets
Sending bitcoin from a wallet results in the creation of a transaction that has to be signed.
Transactions from single key wallets need only one signature. However, this exposes the wallet to risks of hacking and theft. Apart from this, the loss of the private key could make the available funds in the wallet unusable forever.
Multi-sig wallets need ‘multiple signatures’ to sign off transactions, and hence, reduce phishing risks considerably.
Generally, multi-sig wallets have two or more users. Therefore, the number of signatures required to authenticate transactions is less than or equal to the number of users. To know more about multi-sig wallets check out the video below:
Types of Bitcoin Wallets
Bitcoin wallets can be divided into three basic categories – software, hardware, paper.
Software Wallets
- Desktop Wallets – Desktop bitcoin wallets are PC and laptop-based wallets. They are free to download and install and are one of the safest wallet options out there. But a desktop wallet generally stores private keys in the computer’s hard drive. If the hard drive gets damaged or lost, the stored bitcoin funds could be lost forever. Some of the popular desktop wallets are Bitcoin Core, Electrum, Exodus, etc.
- Mobile Wallets – Mobile or smartphone wallets are a bit more convenient to use than desktop bitcoin wallets. They store private keys in the phone’s hard drive and make it easier to conduct BTC transactions. It is also super simple to track your bitcoin investment portfolio on a mobile wallet. It is advisable to active 2-Factor Authentication (2FA) on mobile bitcoin wallets for additional security. Some of the well-known smartphone wallets are Trust Wallet, WazirX, Atomic Wallet, Edge, Freewallet, etc.
- Web Wallets – Website based BTC wallets exist on the internet and can be accessed anywhere, anytime, and on any device – laptops or smartphones. However, there are physical/cloud online servers that store private keys of web wallets. You should exercise care and caution in choosing and handling a web wallet for your bitcoin transactions. Nonetheless, some options have a comparatively low chance of failure – Xapo, Strongcoin, etc.
Hardware Wallets
To date hardware bitcoin wallets or cold storage wallets are trustworthy options for storing BTC private keys. There have been no verifiable incidents on funds being stolen from hardware wallets.
They look like USB sticks/pen drives and are immune to computer viruses (as claimed by few hard wallet manufacturers). These wallets provide recovery options to retrieve private keys in case they get lost.
Although they are not free unlike the web, desktop, or mobile wallets but an investment in hardware bitcoin wallets guarantees the safety of your BTC holdings. But for that, you need to buy a hardware wallet from only the most trusted manufacturers in the industry. Some of them are Trezor, Ledger, KeepKey.
Paper Wallets
Paper BTC wallets are QR codes of public and private keys printed on paper. They just provide offline storage support.
Both QR codes need to be scanned onto a software wallet to make a transfer. Paper wallets are difficult to be hacked but precautions need to be taken before creating one.
No one should be around when you are printing paper wallets. Use only offline printers for printing the wallets. It is advisable to use an operating system like Ubuntu, running from a flash drive or DVD.
The website generating the public and private BTC keys should run offline (before the keys are generated). Lastly, paper bitcoin wallets are susceptible to damage through spillage or wear and tear. You should protect the printed information with a good quality lamination or plastic coating.
Choosing the right wallet can go a long way in protecting your bitcoin holdings from bad actors and malicious players. After you buy bitcoin, make sure to walk that extra mile and secure your investment.
Also you can download the wallet and Start Trading Now!
Android – WazirX – Bitcoin Wallet
iOS – WazirX – Bitcoin Wallet
Frequently Asked Questions
How Many Bitcoins Will Ever Be Created?
The source code of Bitcoin stipulates that it must have a restricted and finite quantity. As a result, only 21 million Bitcoins will ever be generated. These Bitcoins are added to the Bitcoin supply at a predetermined rate of one block every ten minutes on average. The supply of Bitcoins will be depleted once miners have unlocked this number of Bitcoins. It's possible, however, that the protocol for Bitcoin will be altered to allow for a higher supply.
Is Bitcoin Legal In India?
In India, Bitcoin is not illegal. Because of cryptocurrency's rapid evolution, policymakers and regulators seemed to have recognized the chance to accept the new technology early. From the infamous 'RBI ban' in 2018 to reports of an impending bill banning cryptos in 2021 that has yet to develop, India has seen its fair share of ups and downs when it comes to Bitcoin regulation. Last year, the Supreme Court Of India approved the use of Bitcoin throughout the country. According to the Supreme Court, the existence of Bitcoin or any other cryptocurrency is unregulated but not unlawful.
How To Convert Bitcoin To Cash?
There are many ways of converting Bitcoin to cash, such as crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, Peer to Peer Transactions. You can use cryptocurrency exchanges such as WazirX for this. Unlike typical ATMs, which allow you to withdraw money from your bank account, a Bitcoin ATM is a physical location where you may buy and sell Bitcoins using fiat currency. Several websites provide the option of selling Bitcoin in return for a prepaid debit card that may be used just like a standard debit card. You can sell Bitcoin for cash through a peer-to-peer platform in a faster and more anonymous manner.
How Bitcoin Mining Works?
Bitcoin mining is a crucial element of the blockchain ledger's upkeep and development and the act of bringing new Bitcoins into circulation. It's done with the help of cutting-edge computers that solve exceedingly challenging computational arithmetic problems. Auditor miners are rewarded for their work. They're in charge of ensuring that Bitcoin transactions go through smoothly and legitimately. This standard was established by Satoshi Nakamoto, the founder of Bitcoin, to keep Bitcoin users ethical. By confirming transactions, miners assist in avoiding the "double-spending issue."
How Many Bitcoins Are There?
There are 18,730,931.25 Bitcoins in circulation as of June 2021. The total number of Bitcoins that would ever be there is just 21 million. On average, 144 blocks are mined every day, with 6.25 Bitcoins per block. The average number of new Bitcoins mined every day is 900, calculated by multiplying 144 by 6.25.
How Does Bitcoin Technology Work?
The blockchain is the foundation of Bitcoin. It is a decentralized, distributed ledger that tracks the provenance of digital assets. The data on a blockchain can't be changed by design, making it a real disruptor in industries like payments, cybersecurity, and healthcare.
Is Bitcoin Mining Free?
Bitcoin mining isn't free, but it can be tried on a budget. Bitcoin mining is an essential part of the blockchain ledger's upkeep and development and the act of issuing new Bitcoins. It is accomplished by the use of cutting-edge computers that tackle complicated computational arithmetic problems. The effort of auditor miners is rewarded. They're in charge of ensuring that Bitcoin transactions go off without a fuss and that they're legal.
Can Bitcoin Be Converted To Real Money?
Crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, and Peer Peer Transactions are all options for converting Bitcoin to cash. This can be accomplished by using Bitcoin exchanges such as WazirX. A Bitcoin ATM is a real place where you may purchase and sell Bitcoins with cash, unlike standard ATMs that allow you to withdraw money from your bank account. Many websites provide the option of purchasing Bitcoin in return for a prepaid debit card that works similarly to a standard debit card. Through a peer-to-peer marketplace, you may sell Bitcoin for cash faster and more privately.
How Much Is 1 Bitcoin Worth Today?
Check out the current price of Bitcoin on the WazirX exchange. Bitcoin's value is primarily determined by its supply and demand in the market. Other elements have an impact on its worth. Its intrinsic value can also be calculated by calculating the average marginal cost of producing a Bitcoin at any given time, based on the block reward, electricity price, mining hardware energy efficiency, and mining difficulty.
What Is Bitcoin Used For?
Bitcoin was created as a means of sending money over the internet. The digital currency was designed to be a non-centralized alternative payment system that could be used in the same way as traditional currencies. Bitcoin is being used by an increasing number of businesses and individuals. This includes establishments such as restaurants, apartments, and law firms.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
