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The complete beginner’s guide to Bitcoin wallets What will you learn in this guide? Everything you need to know, including what a Bitcoin wallet is, how to get it, and what to watch out for. Not in the mood to read? A Bitcoin wallet is a program for sending and receiving bitcoins. A Bitcoin wallet does that by interacting with Bitcoin’s ledger, known as the blockchain. Generally speaking, Bitcoin wallets are a bit similar to how email works.
Like emails, receiving Bitcoins requires a unique personal address. This unique address is called your Bitcoin address, and—just like your email address—you can share it with anyone who wants to send you bitcoins. The final ingredient that’s missing is your password. With email, you choose your own password, while with Bitcoin, the wallet chooses it randomly for you. This password is called your private key and—similar to your email password—it should never be shared with anyone. A private key is just a very long string of numbers and letters that acts as the password to your bitcoins. It’s from this secret combination that your wallet derives the capability to tell the Bitcoin network you want to send your Bitcoins to another destination.
The most important thing to remember is this: Whoever knows your private key has control over your bitcoins. The private key is also used to generate your Bitcoin address. You download a wallet program to your mobile phone or laptop. A Bitcoin address is created by running some sort of mathematical algorithm on your private key. Even though the Bitcoin address is generated from the private key, there’s no way to figure out what the private key is just by examining a Bitcoin address. A wallet’s core function is the creation, storage, and use of the private key.
In other words, it automates Bitcoin’s complex cryptography and blockchain interactions for you. You could argue that the program itself isn’t that important—the only thing that matters is the private key. For example, if you have a Bitcoin wallet on your phone and that phone gets stolen, but you’ve written down your private key on a piece of paper before that happened, you could just download a new Bitcoin wallet to a different phone, import the private key to that new wallet, and regain control of your bitcoins again. HD wallets generate a phrase known as a seed or mnemonic phrase.
This seed is a set of common words that you can memorize instead of the long and confusing private key. As you can imagine, it’s much easier to create a backup of 12 simple words than a long, confusing string of numbers and letters. Additionally, an HD wallet can create many Bitcoin addresses from the same seed, so you don’t have just one Bitcoin address. All the transactions sent to addresses created by the same seed will be part of the same wallet. How to choose the best Bitcoin wallet Different people use different Bitcoin wallets for different purposes. For example, if I need to store a large amount of Bitcoin safely, I will use a different wallet than if I just want to have some small Bitcoin change to pay for a cup of coffee.