What Is a Bitcoin Wallet?

A Bitcoin wallet is a software program in which Bitcoins are stored. Technically, Bitcoins are not stored anywhere. For every individual who has a balance in a Bitcoin wallet, there is a private key (secret number) corresponding to the Bitcoin address of that wallet. Bitcoin wallets facilitate the sending and receiving of Bitcoins and give ownership of the Bitcoin balance to the user. The Bitcoin wallet comes in many forms. The four main types are desktop, mobile, web, and hardware.

Understanding Bitcoin Wallets

A Bitcoin wallet is also referred to as a digital Wallet. To trade in Bitcoins, a trader must establish a digital wallet. A Bitcoin wallet is analogous to a physical wallet. However, instead of storing physical currency, the wallet stores relevant information such as the secure private key used to access Bitcoin addresses and carry out transactions. Types of Bitcoin wallets are desktop, mobile, web, and hardware.

Desktop Wallets

Desktop wallets are installed on a desktop computer and provide the user with complete control over the wallet. Desktop wallets function as an address for the user to send and receive Bitcoins. They also allow the user to store a private key. A few known desktop wallets are Bitcoin Core, MultiBit, Armory, Hive OS X, and Electrum.

Mobile Wallets

Mobile wallets perform the same functions as a desktop wallet. Mobile wallets facilitate payments in physical stores via "touch-to-pay" and near field communication (NFC) scanning of a QR code. Bitcoin Wallet, Hive Android, and Mycelium Bitcoin Wallet are examples of mobile wallets. Bitcoin wallets tend to be either iOS or Android system compatible. There is significant malware posing as Bitcoin wallets, so it is advisable to research options before deciding which one to use.

Web Wallets

Web wallets facilitate access to Bitcoins from anywhere, on any browser or mobile device. The selection of your web wallet must be done carefully since it stores your private keys online. Coinbase and Blockchain are popular web wallet providers.

Hardware Wallets

Hardware wallets are by far the most secure type of Bitcoin wallet as they store Bitcoins on a physical piece of equipment that is usually plugged into a computer via a USB port. They are practically immune to virus attacks, and few instances of Bitcoin theft have been reported. These devices are the only Bitcoin wallets that are not free, and they often cost between $100 to $200. 

Special Considerations for Wallet Security

Keeping your Bitcoin wallet safe is essential as Bitcoin wallets are high-value targets for hackers. Some safeguards include encrypting the wallet with a strong password and choosing a cold storage option; that is, storing Bitcoins offline. It is also advisable to frequently back up your desktop and mobile wallets as problems with the wallet software on your computer or mobile device could erase your holdings.