Learn the essentials of bitcoin wallets and get a grasp on the basics in only a couple of minutes.
Are you confused about the concept of a bitcoin wallet? You’ll quickly find that the idea is quite approachable, albeit different from what you may expect when you hear the term wallet. So read on to learn the essentials of bitcoin wallets and grasp the basics quickly.
What is a Bitcoin Wallet?
A bitcoin wallet is not like the wallet you may have in your pocket, as bitcoin doesn't have a physical representation. Instead, to send bitcoin directly, you require access to the private key or seed phrase for the specific address from which you want to move bitcoin.
When referring to a wallet, people can sometimes refer to an address they control or a particular type of wallet software they may be using. While this can be a little confusing to a bitcoin newcomer, you can typically understand which is being focused on depending on the context of the conversation.
Software, web, or hardware wallets all essentially act as a way to store your private key and generally help you perform essential functions such as sending bitcoin, checking your bitcoin balance, and so forth. Therefore, it’s imperative you only ever use wallets that you trust entirely and, better yet, non-custodial exchange solutions that don't require you to pass control of your bitcoin to a third party, something that you will commonly see when depositing bitcoin into an exchange wallet on a centralized exchange or order-book style platform.
What is a Bitcoin Wallet Address?
If someone asks you for your bitcoin wallet address, they mean they would like a public key for an address you control or the deposit address of a wallet you are using in the case of a custodial bitcoin wallet. Most wallet software and web wallets make it relatively straightforward to get a receiving address to give to someone, given that this is an everyday use and part of the core functionality of a bitcoin wallet.
Some wallets that offer HD (Hierarchical Deterministic) wallets can even generate a range of addresses for you to use from just one set of seed words. While this sounds complex, using a wallet like this won't be much more difficult for even a casual bitcoin user.
While passing around your public key or address can't put your funds in direct danger, it's worth considering the public nature of the bitcoin blockchain. If you use a standard wallet with a single public address that you always use, making it public instantly exposes your current balance and previous transactions. This transparency is simply a part of how bitcoin works; if you want to minimize this to some degree, HD wallets may help. Opting to use a HD wallet can be a good option; while it won't make your bitcoin instantly private, it does make it harder to know precisely how much bitcoin you have for someone casually throwing your address into a block explorer.
The crucial thing to remember is never to give anyone access to your private key. Enabling anyone to access your private key gives them complete control over the funds in the address controlled by that key. Furthermore, if anyone ever asks you for this key, they are likely trying to scam you.
What is the Best Bitcoin Wallet?
There's a range of bitcoin wallets, which is best comes down to your needs and preferences. For example, if you are dealing with small amounts of funds on the go, maybe a mobile wallet will suffice. However, if you are dealing with anything you can't afford to lose or that would have a significant effect on you if lost, a hardware wallet or other type of non-custodial wallet would be far better.
Hardware wallets have become more prevalent and dropped in price over the years to become relatively affordable. While they may seem odd if you're new to bitcoin, a hardware wallet as a concept is relatively easy to understand. In essence, a hardware wallet stores your private key in a physical device, and its purpose is to sign transactions without exposing your private key to anything outside the device.
With some care and carefully following the manufacturer’s instructions, hardware wallets can be an exceptionally secure way to store your bitcoin. Depending on the wallet you have, they often a range of other cryptocurrencies as well.
How to use Bitcoin Wallets
As a broad overview, bitcoin wallets will typically provide the core functions you need to send and receive bitcoin. You can use a provided receiving address to accept bitcoin and perform transactions to send bitcoin to other people or businesses.
While the specifics will vary between different wallet providers, once you are familiar with one specific bitcoin wallet, you'll typically not find much friction if you use another wallet in the future.
How to Recover Bitcoin Wallet
You can recover a bitcoin wallet, provided you can access the private key or seed words. If you don't have either of these, you will be unable to access the funds held in the address and should consider them lost. While there are edge cases where you may have most of your seed words or an incorrect character in your private key, it can be extremely difficult to regain access even in these situations.
If you have the private key or seed words, many wallets will allow you to import these to regain access to your funds. When possible, it's usually best to use the same wallet you have previously to ensure that once generated addresses are easily found. While less common these days, some wallets may also provide you with a wallet file; in the case of Bitcoin Core, this will often be a file called "wallet.dat,” this can also be used to gain access to your wallet, but beware that in some cases the file may be encrypted with a password that you have set while saving the wallet.
How to Add Money to Bitcoin Wallet?
To top up your bitcoin wallet or receive bitcoin from a friend, you can simply send funds to the address provided by your wallet. However, if it's your first time using a new wallet, it is considered good practice only to send a small amount for your first transaction, just to ensure you have copied the address correctly and everything has gone to plan.
Again, it is vital never to share your private key with anybody. Only ever share your public key or wallet address. No one should ever need access to your private key for any reason.
How to Check the Balance of a Bitcoin Wallet
There are many fantastic block explorers such as Blockchair.com, Bitcoin.info, Blockstream.info, and many more. Using a bitcoin block explorer, you can quickly check the balance available in your bitcoin wallet and view transaction history and other information about the address. While wallets will typically show you the most crucial information, bitcoin explorers often do a better job of giving you all the information to find out about your transaction history as viewing addresses and transactions are their focus.
What Happens if you Lose a Bitcoin Wallet?
If you lose your wallet from hardware failure, corruption, or other issues, you can still recover access to your funds, provided you have your seed words or private key. However, if not, your funds will sit in the address for the foreseeable future as no one will be able to move them.
Beware of scammers on social media and forums that offer or recommend "recovery specialists”. These are almost always ways to get extra money from you for a service that will never be provided. Always back up your seed words or private key and store them safely, ideally offline.
Being your own bank is powerful; just be sure you take the small steps required to make the most of this opportunity and all the great things done with bitcoin.