{"id":525,"date":"2021-05-09T15:33:38","date_gmt":"2021-05-09T21:33:38","guid":{"rendered":"https:\/\/veritasblockchain.ca\/?p=525"},"modified":"2021-07-20T11:42:27","modified_gmt":"2021-07-20T17:42:27","slug":"how-does-a-bitcoin-wallet-work","status":"publish","type":"post","link":"https:\/\/veritasblockchain.ca\/guides\/how-does-a-bitcoin-wallet-work\/","title":{"rendered":"How Does a Bitcoin Wallet Work?"},"content":{"rendered":"\t\t
\n\t\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t

As you dive deeper into Bitcoin, you must understand how a digital wallet works. A digital wallet is an application on a mobile device or a piece of hardware that can hold your Bitcoin as well as other cryptocurrencies.\u00a0<\/p>

Holding cryptocurrencies in a digital wallet is different from holding your coins on an exchange<\/a>.\u00a0Exchanges keep your Bitcoin and other cryptocurrencies in their custody. They are prone to the risk of being hacked or shut down, preventing you from accessing your funds. With a digital wallet, you will always have custody of your own coins.<\/span><\/p>

Most digital wallets will hold multiple cryptocurrencies, but we will refer to Bitcoin for the remainder of this guide.<\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t

Types of Wallets<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t

There are two types of wallets to hold Bitcoin: a hot wallet and a cold wallet.<\/p>

A hot wallet is an application on a mobile device where you can hold and store your Bitcoin. It is connected to the internet and makes transferring funds fast and easy. A hot wallet is free and can be downloaded from the Play Store or App Store. We cover a few wallets that we have used below.<\/p>

A cold wallet is an offline USB-like device that is not connected to the internet. It is only connected when you transfer funds around. Cold wallets can be purchased from manufacturers like Trezor<\/a> and Ledger<\/a>.<\/p>

A cold wallet is generally safer than a hot wallet because it is disconnected from the internet. However, they do require a few more steps than a hot wallet to set up and transfer funds such as setting up a pin number.<\/p>

Holding Bitcoin in a wallet is always safer than holding it on an exchange because you always control your crypto. Although exchanges offer flexibility and speed to buy and sell cryptocurrency, digital wallets are best for long-term storage.<\/p>

When using hot or cold wallets, you must always remember your own private keys.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t<\/a>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t

What is a Private Key?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t

A private key is a unique “password” that gives you access to your Bitcoin. It consists of a unique 12 or 24-word passphrase as you will see below.<\/p>

When you own this unique private key, you actually own an “account” on the Bitcoin network. This private key is also linked to a public key, a unique “address” where people can send Bitcoin to. The public key is kind of like an email address. Those that know it can send you an email, or in Bitcoin’s case, those that know your public address can send you Bitcoin.\u00a0<\/p>

This public and private key pair works together to ensure you control and manage your own crypto.<\/p>

The public key address is made up of a random combination of letters and numbers that is unique for each wallet.\u00a0Below is an example of a public and private key pair. The private key gives you access to your Bitcoin, while the public key can be shared with others to receive Bitcoin.<\/span><\/p>

Example Public Key: 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa<\/em><\/p>

Example Private Key: dog collapse road cat fire again egg banana alligator apple lake close<\/em><\/p>

NEVER <\/strong>share your Private Key to anyone as they will have full access to your Bitcoin.\u00a0DO NOT\u00a0<\/strong>lose your Private Key as you will lose access to your Bitcoin.<\/span><\/p>

With a private key written down and stored in a secure location, you will always have access to your Bitcoin. You do not have to worry if you lose or move between devices because your private key can be entered into any device to regain access to your funds.\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t

How do I Setup my Bitcoin Wallet?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t

Hot Wallets<\/h3>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t

Hot wallets are simply applications from the\u00a0Play Store or App Store that can hold bitcoin and other cryptocurrencies on your phone.\u00a0<\/span>Always do your research when choosing which wallet to download because there have been cases of fake applications. We recommend reading the reviews and looking into the company and their social media presence before downloading any wallet.<\/span><\/p>

After installing a digital wallet onto your phone, you will be given the option to create a new wallet or to import an existing wallet. When you create a new wallet, you will receive a unique private key passphrase. Write the passphrase down and store it in a secure location. The application will never store this private key on their own servers. <\/span>Do not share this passphrase with anyone else.<\/p>

If you choose to import a wallet, simply enter a private key that you already own. This will provide you full access to your crypto again.<\/p>

Some hot wallets that we personally use are below. Each wallet is different and can hold multiple types of cryptocurrencies. Visit their websites below to see their unique features and which coins each can hold.<\/p>