Bitcoin Wallets: THEIR PURPOSE

On a practical level, a Bitcoin Wallet is a device or program that transmits and receives Bitcoins. The phrase wallet can be confusing for people unfamiliar with Bitcoin and cryptocurrency. The literal meaning of a wallet is to store tangible currency, whereas the meaning of a Bitcoin Wallet is to store digital currencies. What is the procedure for this?

Individuals already carry debit cards in their wallets, for example. You have access to money with your debit card in your wallet, even though it isn’t money itself.

The process is similar to that of a digital wallet. However, Bitcoin is not controlled by anyone like a bank. This is unlike a debit card, which is administered by a centralized institution. The differences between crypto wallets and bank accounts are therefore reflected in the way crypto wallets operate.

A Bitcoin Wallet can have several “accounts,” which can be referred to as sub-wallets. As far as functionality is concerned, you can compare this sub-wallet to a debit card. Cards have information such as customer IDs and passwords attached to them, like debit cards. An individual Bitcoin “account” within a wallet is associated with information.

Among the most relevant pieces of information for our purposes are the official Bitcoin address and the private key. An account number on a debit card is similar to a public address. By contrast, the private key gives access to the Bitcoin attached to the public Bitcoin address, similar to how a debit card works. Secret numbers of 256 bits are private keys.

An extremely crucial aspect of a wallet is the management of its private keys. Private keys are rarely handled directly by users. This private key can be written down in wallets using a recovery phrase, secret passphrase, or seed phrase. When your crypto wallet is lost or destroyed, you can access your assets by using a set of words, usually between 12 and 24 words long.

Similarly to a private key, the recovery phrase must never be given out to anyone or stored in clear text online.

There is still room for improvement in the recovery phrase compared to the private key. People usually prefer to write down their recovery phrase on paper rather than save it in clear text (non-encrypted form) on their computers. Since paper cannot be stored safely, this causes issues. You may also have a different recovery phrase for a multi-coin wallet if it supports multiple blockchains. A paper journal becomes tedious after a while when you have to keep track of so many recovery words.