Cryptocurrency wallets are digital and physical, offline and online methods that rely on public key cryptography to allow users to send and receive bitcoins securely across the network. To start working with bitcoins (Bitcoin), first of all you will need a bitcoin wallet. It allows you to make transactions, that is, buy and sell cryptocurrency. The main task of bitcoin wallet is to store the secret key that is needed to access the bitcoin address and, accordingly, your funds. From a technical point of view, bitcoins themselves are not stored anywhere, only secret digital keys are stored, which give access to public bitcoin addresses and the ability to “sign” transactions. It is for this information and need a bitcoin wallet. Wallets are different, depending on the device for which they are intended — you can even do not use the computer and write the keys on paper. And, of course, it is very important that the wallet has a backup copy and was protected from unauthorized access.
Bitcoin wallet is the equivalent of a physical wallet for transactions with Bitcoin. There are different wallets for different platforms.
How they work
Crypto wallets use public key cryptography to make transactions secure. Public key cryptography is a system in which a piece of data is encrypted with a public key, and can only be decrypted using the public key’s matching private key.
A Bitcoin wallet can be a software, hardware, online web service, or piece of paper, that works by generating the public-key-and-private-key pair necessary for users to engage in a transaction, i.e. to transfer value between Bitcoin wallets and include this information in the blockchain. The public key – also called an address – and the private key – also called the seed – are large integer numbers usually represented using a separate Wallet Import Format (WIF) consisting of letters and numbers. Each public key should only be used once. While the address is public, the private key should only ever be seen by the owner of the wallet and never shared with other people.
When a user wishes to send bitcoins, their private key is combined with the transaction request (which includes the receiver’s public address) to encrypt or digitally “sign” it. The digital signature produced is important because it provides the nodes in the network with the mathematical proof they use to verify the authenticity of the source and check that the sender actually has the right amount of bitcoins to spend. In the blockchain, all bitcoins are registered to an address, or public key.
The main functions
Bitcoinwallets provide the following functionality:
- storage of Bitcoin addresses and corresponding closed/open keys on users computer in wallet.dat file,
- conduction transactions of obtaining and transferring Bitcoins (BTC), also without connection to internet
- providing information about the balance in BTC at all available addresses, prior transactions, spare keys.
The original Bitcoin client stores private key information in a file named wallet.dat following the so called bitkeys format.
- keypairs for each of your addresses
- transactions done from/to your addresses
- user preferences
- default key
- reserve keys
- a version number
- Key pool
- Since 0.3.21: information about the current best chain, to be able to rescan automatically when restoring from a backup.
It is intended that a wallet file be used on only one installation of Bitcoin at a time. Attempting to clone a wallet file for use on multiple computers will result in weird behavior.
The format of this file is Berkeley DB. Tools that can manipulate wallet files include pywallet.
Wallets can be classified according to whether they are physical or digital, or according to whether they are online or offline. Hardware wallets and paper wallets are physical. Digital wallets can be mobile or desktop software, or web services. All these wallets are either by default, or could potentially at some point be, online. A hardware and paper wallets are meant to be used offline (cold storage). However, one could connect a hardware wallet to, or print a paper wallet from, a computer that was online. Doing this is counter-recommended since it would void the whole purpose of these wallets. A software wallet may be used online or offline. Web wallets are always online. For EZ Flash IV convenience system provides three types of Bitcoinwallets: desktop, online and mobile.
Desktop wallets are installed on your computer and provide complete control of the currency and budget safety.
Provide independent funds security management, download of network blocks and control of their authenticity.
- Bitcoin-Qt (Windows, Mac OS, Linux). High stability, reliability, privacy, resource capacity. Keys export / import is possible, wallet.dat file password encryption, signing messages.
- Armory (Linux, Windows). Functions over Bitcoin-Qt app, expanding its opportunities. Managing several Bitcoinwallet, storing them in offline, protecting from hacker attacks, creating messages and signing them with closed key.
No need to download blocks, easy to install on the tablet/cell phone, third-party resource leads checking operations.
- Multibit (Windows, Mac OS, Linux). App for beginners, Russian language included.
- Electrum (Windows, Mac OS, Android, Linux). Generation of 6 addresses that can be restored through Electrum.
Do not oblige to download all blocks of the Bitcoin network, managing one wallet with any device, regardless of location. Some wallets offer additional services. Wallet privacy is provided by third-party resource. “Online” option is preferred for the first acquaintance with Bitcoin system and short-term storage of small BTC amounts.
Funds are always on hand, which is convenient when paying for goods by scanning the addresses as QR-code, the NFC technology application).
- BitcoinWallet. Autonomy, calculator of currency conversion, address book, balance in BTC or another currency.
- MyceliumWallet. Comfortable backup, sending Bitcoin address by Skype or e-mail, PIN-code protection. Current rate is in Bitcoins and balance is in the necessary currency.
- CoinCorner also has a mobile wallet available for Android, iOS and Windows Phone, giving users the ability to send and receive bitcoins on the move.
There are also applications for mobile devices that provide access to online wallets, for example, Blockchain.
Denarium is Physical Bitcoin coin manufacturer. Denarium produces easy, handy and secure wallets in a coin form. The private key is stored under a security seal without password protection. Denarium also offers a trustless multisignature coins, which eliminates the need to trust the manufacturer.
Ledger Wallet manufactures various hardware wallets.
Blocktrail offers a BIP 0032 (type 2) Deterministic wallet and for added security also implements multi-signature wallet technology.
TREZOR is an isolated hardware environment for offline transaction signing and using a small display you can visually verify the transaction contents.
OpenCoiner is a fast and lightweight open source web based wallet
A user’s choice of wallet will depend on what the user wants to do with their bitcoin. For saving larger amounts, hardware wallets may be a better option, if the user can afford it. Software wallets on the other hand are free, and may be more convenient for frequent transactions and handling smaller quantities. Users may also use a combination of wallets. The website weusecoins.com recommends using a mobile wallet as a checking account and a hardware or secure offline wallet as a savings account.
To ensure safety of Bitcoinwallet it is necessary to do the following measures:
The Wallet encryption. You can encrypt with a strong password is difficult to hack, but it does not give absolute protection. If your computer is infected with a keystroke recording virus, your password may become known to an attacker.
Back up. It is Important to back up the entire wallet. The fact is that some addresses are used to store changes in transactions and may not be visible to the user. So you need to back up your entire wallet in several places.
Multipoles In recent years an increasing number of services that support transactions with multiple signatures. This approach allows several users to partially sign one address with a public key, and if someone wants to spend bitcoins, it is necessary that in addition to signing it, the transaction is signed by several more users. How many signatures is necessary, is established in advance, at creation of the address. This form of signature may be useful in the case of mutual agreement between, for example, business partners or family members. The second device belonging to the same user can also be the second participant.