A Bitcoin wallet can be described as a program or device that allows you to send and receive Bitcoins. For people who are new to crypto and Bitcoin, the term wallet may be confusing. While a physical wallet can be used to store currency, a Bitcoin wallet cannot store bitcoins. How does this work?

Most people have something similar in their wallets: a debit card. Although the debit card you have in your wallet does not contain money, it will grant you access money. This is how a Bitcoin wallet functions, but it is different in that a debit card can only be controlled by one entity (a bank), while Bitcoin cannot be controlled by any person or organization. This means that Bitcoin wallets are different from bank accounts.

How Bitcoin wallets work

As with the debit card analogy, a Trustee wallet can hold at least one "account," also known as a sub-wallet. This sub-wallet can be compared to a debit card. Debit cards, for example, have information associated with them. This includes an account number and password. Every Bitcoin account within a Bitcoin wallet has its own information. The public bitcoin address (or private key) and the private key are the key pieces of information. The public address can be compared to the debit card account number. In that it allows access to the public bitcoin address, the private key is similar to a debit card password. A private key is a secret number of 256 bits. Here's an example:

This secret number can be a little cumbersome, as you can see. The private key is one of the main functions of a Bitcoin wallet. Private keys are rarely handled by users. Bitcoin wallets allow you to record your private key in a more easily readable format. This is called a recovery phrase or secret passphrase or seed phrase. A recovery phrase is a list between 12-24 words that allows you to rebuild your Bitcoin wallet and gain access even if it is lost. This is an example recovery phrase that consists of 12 words.

Types of wallets

Hardware wallets offer the most security type of Bitcoin wallet. Private keys are kept on physical devices and cannot theoretically be accessed from the internet or a computer. A person can use the hardware wallet to perform a transaction. The hardware wallet can sign transactions without compromising your private key. Hardware wallets have a downside: they are expensive and not always readily available. Trezor and Ledger are two well-known hardware wallets.

Software wallets are available on all computing devices such as a desktop computer or smartphone. Computers can run multiple programs and applications making them vulnerable to malware, viruses, and phishing schemes. All software wallets are at risk. Hacking incidents are rare, and software wallets are safe for daily use.