How Bitcoin Wallets Work

March 11th, 2018

Bitcoin wallets are very similar to regular, everyday wallets. Used to carry cash, cards, and personal information, wallets, like Bitcoin wallets, are used to store money and important information. However, there are some things that a regular wallet can’t do. For example, if you want to know the balance to your account you have to check your bank account, with a Bitcoin wallet you can check your account quickly, without having to count each individual dollar or calling your bank. Bitcoin wallets are digital wallets, that have a plethora of advantages and sophisticated features.

Digital Wallet

Having a digital wallet gives you the chance to hold the permission to hundreds of bitcoins or digital currencies without having to worry about taking up space. Digital wallets come equipped with a handy balance check which keeps of track of all important transaction details like when, where, and how much was money spent. Every single detail about digital currency transactions are available in your digital wallet. As the popularity of Bitcoin increases, the demand for digital wallets has increased. If you are planning on using Bitcoin for investment, it is important to be familiar with the how digital wallets work.

There are many different types of digital wallets or Bitcoin wallets available today. Each of these wallets has different characteristics, but each of them functions in almost the exact same manner. These digital wallets store the Bitcoin user’s private and public keys. Bitcoins or the pieces of code by which they are represented are not stored in digital wallets, they are stored on the Blockchain, which is stored on computers around the world.

How Does The Bitcoin Wallet Work?

The Bitcoin wallet contains the Bitcoin address ( like a random public key or long string of characters and numbers). This is public information and is visible to everyone. The Bitcoin wallet also contains the private key, which works alongside the public/address key. These two key combinations, are what make using digital currencies possible. Most digital wallets will contain several addresses, the private key will work with all of them. Wallets not only allow you to send and receive bitcoins, they also show display a list of related transactions and your current balance in a user friendly format.

The most important thing to understand about your digital wallet is that it does not contain your bitcoins, it simply contains the permissions you need in order to spend your Bitcoin. If a Bitcoin user loses access to that permission, he or she also loses their bitcoins. This is why it is so vital to keep your private and public keys secure.

Many modern day wallets are “thin wallets” or SPV wallets. Smartphones and desktop wallets are SPV wallets and don’t’ require you to download the entire blockchain, like the old digital wallets required you to do-SPV wallets just download the block headers.  There are some concerns that this weakens security of the network as a whole, as it can’t tell the difference between a valid and an invalid transaction on the blockchain.

Each day digital wallet technologies are evolving to keep up with the times, but the basic principle is more or less the same. Digital wallets hold your keys, not your “cash”.




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