Bitcoin Basics #003 – Bitcoin Wallets

By Albert Szmigielski

Today we will explain Bitcoin Wallets

A Bitcoin Wallet is a piece of software that allows you to do the following:

  1. Keep track of the bitcoins you own
  2. Send and receive bitcoins
  3. Connect to and query the Bitcoin network for a variety of information

Technically the term wallet is a little bit misleading, the Bitcoin wallet does not hold your bitcoins. All the bitcoins ever created are stored on the blockchain. The wallet stores your private keys, which in turn allow you access to the bitcoins you own on the blockchain.

There are a few types of wallets:

  1. Full wallet
  2. Light wallet (sometimes called a light  or thin client)
  3. Mobile wallets
  4. Web wallets
  5. Paper wallets
  6. Hardware wallets

A full wallet (aka full client or full node) is one that stores the entire copy of the blockchain locally. Currently the blockchain is about 80GB+, so only hardware with sufficient storage space runs this type of wallet. This type of wallet communicates with the Bitcoin network directly and has all the information it needs to initiate transactions. It stores the user’s private keys locally but never sends them over the network.
A light wallet (light client, thin client, or SPV client) is a wallet that does not store the entire blockchain locally. They have been created mostly in mind for devices that do not have enough storage capacity, such as mobile devices. Light wallets rely on full Bitcoin nodes to relay transaction relevant to the light wallet. That is why they are sometimes called clients, they need a server to supply them with the required information.

Screenshot_2016-01-28-14-36-43

Mobile wallets can be either full or light wallets. However, most implementations for mobile devices are light wallets. Most people don’t want to devote 80GB+ to the blockchain on their device. The most popular mobile wallets include AirBitz, Bither, and Green Address. Most mobile wallets are thin clients, they do not store the a copy of the blockchain locally.

Web wallets are wallets as a service. They are wallets hosted by other companies. They are convenient as they allow you to log in from any platform via a web interface. However most of these services hold your private keys for you, so if they were to go bankrupt, your bitcoins will go with them. The most popular web wallets include Coinbase, blockchain.info, and Green Address.
A paper wallet is a wallet that is not connected to the internet, and as the name suggests it is printed on paper. You can create such wallet and then send bitcoins to the newly created address. This is a good way to store your bitcoins as long as you keep the corresponding private key safe. There are also ways to add a password to a paper wallet so that even theft of the private key (but not the password) will not result in the loss of your bitcoins (BIP 38).

Hardware wallets are considered more secure than any software based wallet, and more convenient than paper wallets. They are mostly offline and therefore difficult to hack. They store private keys in protected areas, never allowing for the key to be transferred in plain text. They are also not affected by viruses that steal private keys. Another benefit is that they are interactive as opposed to a paper wallet that needs to be imported into an interactive wallet in order to spend the funds associated with it. The most popular hardware wallets include Trezor, Ledger Nano, and Keep Key.

The first ever created and considered by many as the “official” wallet is the Bitcoin Core wallet. It is a full wallet that for the longest time was considered the authoritative Bitcoin wallet. Lately with the blocksize debate other wallets have been implemented are perhaps at least one of them is getting a large level of support from miners. We are referring here to the Bitcoin Classic.

Screenshot - 16-01-28 bitcoin_wallet_0_balanceImage: Bitcoin Core wallet.

 

If you are new to Bitcoin, we would recommend trying a web client at first. Please remember do not store too much in a web wallet. You do not control the private keys associated with your funds and in case of the provider’s demise your funds will be lost. Once you are comfortable enough with Bitcoin perhaps you would want to try a mobile wallet. If you are planning to be a Bitcoin or Blockchain programmer, you may want to download a full client and a copy of the Bitcoin Blockchain (your wallet will download it for you). Above all please educate yourself about wallet security. A good resource is a book by A. Antonopoulos titled “Mastering Bitcoin”. It can be viewed on and downloaded from GitHub.

Abbreviations

AKA also known as
BIP Bitcoin Improvement Proposal
SPV Simple Verification Protocol

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