Beginners Guide: How does a Bitcoin wallet work and how important it is

Cryptocurrencies are continually gaining traction and their acceptance among the general populace is consistently increasing. It’s, therefore, important to familiarize yourself with the different concepts on Bitcoins such as their storage and how they are transacted. Before even thinking of purchasing Bitcoins, it’s important to take some time and plan on where to store them. A Bitcoin wallet provides a place where you can store and access your Bitcoins. 


Unlike the physical wallet, the Bitcoin wallet does not store the actual Bitcoins. Instead, this wallet stores the blockchain addresses where your Bitcoin transactions are recorded. With such an address, you are in a position to access your Bitcoins on the blockchain network and initiate transactions. 


Motivation for Reader

The key to securing your Bitcoin assets is in understanding how the blockchain network works. One key element of the Bitcoin blockchain technology is the Bitcoin wallets. The wallets are essential since they provide the means through which the Bitcoin owners can access the blockchain, check their balances, and make transactions. 


While Bitcoins and the whole blockchain technology has been hailed by professionals and expert from different industries to have the potential to revolutionize a wide array of industries, the technology has associated risks. Understanding how a Bitcoin wallet works will help you minimize these risks and be assured of the safety of your Bitcoins. This beginners’ guide will give you sufficient information on how a Bitcoin wallet works and furnish you with useful information on Bitcoin wallet management. 


Beginners Guide: How Does a Bitcoin Wallet Work and How Important It Is?

The Basic Concepts on the Working of a Bitcoin Wallet

A Bitcoin wallet stores your private and public keys which are needed to access your Bitcoins. The private key is your personal secret and should not be shared. Anybody with this key can access your Bitcoins and transfer them. Thus keep it secure. Losing your private key will make your Bitcoins stored in the Bitcoin blockchain unrecoverable.


The public key can be shared. You can use your public key to check the value of Bitcoins stored in that blockchain address. For you to complete a transaction, you will need both your private and public keys. The two keys will work together to authenticate the transaction.


Types of Bitcoin Wallets

There are different types of Bitcoin wallets. These types are highlighted below.

1. Desktop Bitcoin Wallet

This type of wallet comes in the form of downloadable desktop software. Once you download and install the software, you will be able to store both your private and public keys. There are different types of desktop Bitcoin wallet software offered by different proprietors. Choose the one with the highest security and a simple interface.

Desktop Bitcoin wallets come with different drawbacks. One of these is that they are only accessible from the PC where the software is installed. They can also be quite risky if such a PC is infected with a virus or crashes. It is, therefore, advisable that you have a physical copy of your private keys to ensure that your Bitcoins don’t get lost in the Bitcoin blockchain network when the PC crashes.

2. Smartphone App Bitcoin Wallet

These Bitcoin wallets come in the form of smartphone apps. The attractive thing with these wallets is that they have different options such as the ability to scan addresses, multiple authentication systems, and ease of use. Like the desktop Bitcoin wallets, these wallets are vulnerable to hacking attempts and losing the smartphone without having another alternative place where you have stored your private keys will mean that you will lose your Bitcoins.

3. Paper Wallet

A paper wallet is a physical printout of your wallet public and private keys. Such cold storage is quite secure since it’s not connected to the internet where hackers can gain access to your private key addresses. But it has its downsides too. This paper wallet can get lost, the characters on the paper can get erased or faint, and such information can land on wrong hands. 

4. Online Bitcoin Wallet

There are online platforms which allow users to open up an online Bitcoin wallet. These online systems may be purely offering Bitcoin wallet services or they may combine such with other services such as Bitcoin trading system. When choosing an online Bitcoin wallet provider, go for those which have a good reputation, provide multiple authentication options, and have friendly terms. 

An online bitcoin wallet will afford you several benefits. First, you will be able to make quick transactions which adds to the convenience of use. Secondly, this wallet is not limited to a specific device. Thus you will be able to access your wallet from wherever you are using the device of your choice. 

On the downside, these online Bitcoin wallets are vulnerable to hacking attempts and the close down of the company providing such services will imply that your private key is lost. Thus always make sure that you have a copy of your private keys to avoid such losses.

5. Hardware Bitcoin Wallet

A hardware bitcoin wallet stores the private key on a hardware device such as a USB. Such offline storage ensures higher security than the online bitcoin wallet option. Most of these bitcoin wallets have an interface to enable users to connect to the internet once they are plugged into a PC.


Importance of a Bitcoin Wallet

A bitcoin wallet is important as it will help you to store your public and private keys. Most bitcoin wallets will also allow you to generate bitcoin addresses for sending and receiving cash from your contacts. A secure bitcoin wallet will help you accumulate your bitcoin assets and securely store them for future use or even for trading purposes. 


It’s advisable that you don’t store all your bitcoin assets in the same place. Distribute your bitcoins in different addresses to reduce the risk level and also increase the convenience of use. For instance, you may be having a few bitcoins stored online for online transactions and trading, others in a mobile app, while the chunk of your bitcoins is stored in secure cold storage such as a hardware wallet or even a paper wallet.


The Features

1. Anonymity

Bitcoin wallets have a high level of anonymity. Since the blockchain network stores bitcoin addresses only and does not capture personal information such as name and country, it’s difficult to trace these transactions to a specific wallet address. In case such an address tracking is done, the identity of the person who owns such an address may also be difficult to decipher. 

2. Security

Bitcoin wallets come with considerable security. The key determinant of the security level of a given wallet is how secured the private key is. Thus cold storage wallets such as hardware wallets and paper wallets are more secure than their counterparts. The desktop, online, and mobile wallet security is much depended on the provider of such wallet software and how an individual makes an effort to ensure that the private key is kept secure.

3. Multicurrency or Single Currency

Cryptocurrency wallets can be designed to support only one cryptocurrency. There are others which have a multicurrency feature allowing users to store more than one type of cryptocurrency address. 

4. Scale of Storage

Bitcoin wallets have no limitation to the value of bitcoins which can be stored in that address. The value of bitcoins stored does not add to the bulkiness of the wallet since its digital in nature. Thus users can store as much bitcoins as they wish without worrying over space. They can as well distribute the bitcoins in different wallets for purposes of lowering the risks.

5. Cost of Transaction

The cost of transferring bitcoins from one address to another is quite low. In some cases, you will need to pay a small fee to network miners for quicker transactions. You may as well complete a transaction without paying any amount but it may take a long time before such a transaction is added to the blockchain. However, these transaction costs are comparatively lower than those charged by traditional banks.



  • Can store unlimited number of bitcoins
  • Are anonymous and transactions are difficult to trace
  • Low cost of transaction
  • Difficult to counterfeit or receive counterfeit bitcoins



  • Losing the private keys may lead to loss of bitcoins
  • Some wallets such as the online and desktop wallets are vulnerable to hacking attempts.



A bitcoin wallet provides users with a place where they can store their public and private keys. Such storage is important as it enables users to access the bitcoin blockchain network and make transactions. Depending on the needs, one can choose different types of wallets or even maintain several wallets for convenience and security.

Information Sources

0 0

Like us

Copyright © 2017 - 2019. All rights reserved.