Bitcoin wallets store the private keys that you need to access a bitcoin address and spend your funds.
They come in different forms, designed for different types of device.
You can even use paper storage to avoid having them on a computer at all.
Of course, it is very important to secure and back up your bitcoin wallet.
Bitcoins are a modern equivalent of cash and, every day, another merchant starts accepting them as payment.
We know how they are generated and how a bitcoin transaction works, but how are they stored?
We store fiat cash in a physical wallet, and bitcoin works in a similar way, except it’s normally digital.
Bitcoin paper, coin and USB walletsWell, to be absolutely accurate, you don’t technically store bitcoins anywhere. What you store are the secure digital keys used to access your public bitcoin addresses and sign transactions.
This information is stored in a bitcoin wallet.Bitcoin wallets come in a variety of forms.
There are five main types of wallet: desktop, mobile, web, paper and hardware.
Here’s how they work.
Desktop wallets if you have already installed the original bitcoin client (Bitcoin Core), then you are running a wallet, but may not even know it.
In addition to relaying transactions on the network, this software also enables you to create a bitcoin address for sending and receiving the virtual currency, and to store the private key for it.
There are other desktop wallets too, all with different features.
MultiBit runs on Windows, Mac OSX, and Linux.
Hive is an OS X-based wallet with some unique features, including an app store that connects directly to bitcoin services.
Some desktop wallets are tailored for enhanced security: Armory falls into this category.
Others focus on anonymity:
DarkWallet – uses a lightweight browser plug-in to provide services including coin ‘mixing’ in which users’ coins are exchanged for others’, to prevent people tracking them.
Mobile walletsDesktop-based wallets are all very well, but they aren’t very useful if you are out on the street, trying to pay for something in a physical store.
This is where a mobile wallet comes in handy.
Running as an app on your smartphone, the wallet can store the private keys for your bitcoin addresses, and enable you to pay for things directly with your phone.
In some cases, a bitcoin wallet will even take advantage of a smartphone’s near-field communication (NFC) feature, enabling you to tap the phone against a reader and pay with bitcoins without having to enter any information at all.
One common feature of mobile wallets is that they are not full bitcoin clients.
A full bitcoin client has to download the entire bitcoin blockchain, which is always growing and is multiple gigabytes in size.
That could get you into a heap of trouble with your mobile service provider, who will be only too happy to send you a hefty bill for downloading it over a cellular link.
Many phones wouldn’t be able to hold the blockchain in their memory, in any case.Instead, these mobile clients are often designed with simplified payment verification (SPV) in mind.
They download a very small subset of the blockchain, and rely on other, trusted nodes in the bitcoin network to ensure that they have the right information.
Examples of mobile wallets include the Android-based Bitcoin wallet, Mycelium, Xapo and Blockchain (which keeps your bitcoin keys encrypted on your phone, and backed up on a web-based server).
Apple is notoriously paranoid about bitcoin wallets. Coinbase had its mobile wallet app pulled from the app store altogether in November 2013, and this was followed in February 2014 by removal of Blockchain’s iOS app.
However, in July 2014, bitcoin wallet apps began to reappear on the iOS store, and now all of the major bitcoin wallet providers have released new editions of their previous apps.
The Aegis Bitcoin Wallet even supports android smartwatchesThere are also other types of wallets that can be used on a mobile, such as the browser-based wallet CoinPunk is developing. Another unusual wallet is the Aegis Bitcoin Wallet, which supports Android smartwatches.Online walletsWeb-based wallets store your private keys online, on a computer controlled by someone else and connected to the Internet.
Several such online services are available, and some of them link to mobile and desktop wallets, replicating your addresses between different devices that you own.
One advantage of web-based wallets is that you can access them from anywhere, regardless of which device you are using. However, they also have one major disadvantage: unless implemented correctly, they can put the organisation running the website in charge of your private keys – essentially taking your bitcoins out of your control. That’s a scary thought, especially if you begin to accrue lots of bitcoins.Coinbase, an integrated wallet/bitcoin exchange operates its online wallet worldwide.
Users in the US and Europe can buy bitcoin through its exchange services.