Wallets and Keys
A Bitcoin wallet is software or hardware that stores your private and derives public keys from it, constructs and signs transactions, and manages your unspent transaction outputs (UTXOs).
Wallets come in various forms, including mobile apps, desktop software, or dedicated hardware devices.
A common misconception is that Bitcoin is stored in a wallet; it isn’t. Bitcoin does not exist as a physical or digital object. As we learned previously, it exists as entries on a decentralised public ledger, where ownership of units (satoshis) is updated by recording transactions on the blockchain.
To claim ownership of your Bitcoin, you must prove control of the private keys associated with the specific UTXOs. A wallet manages those UTXOs, displays a balance for convenience, and enables spending by signing transactions with the corresponding private keys.
Two keys for two different purposes.
The Private Key
The private key is 64 hexadecimal characters long, which would be very hard to write and keep safe. To fix this and make it more user-friendly, they can be translated into a 12, 18, or 24-word seed phrase. If you lose access to your wallet, you can typically restore it with that seed phrase.
The private key or seed phrase gives absolute control over the Bitcoins held by it.
This is very important to understand, as many Bitcoins have been lost by Bitcoiners who have been complacent about the safety of their private key. (Estimated between 2.3 to 4 million Bitcoins lost - or $250 to $400 billion)
The Public Key
The public key is derived from the private key by multiplying it by a fixed generator point (G) on the elliptic curve SECP256K1.
This equation makes it impossible to recover the private key from a public key, which allows you to share it to get paid without revealing your private key, which would give full access to your Bitcoins. Your public key, however, will reveal your whole transaction history.
For privacy, your public key can derive unlimited Bitcoin addresses.
Giving someone your private key is giving them absolute control over your Bitcoin.
Common types of wallet
Hardware wallets
A hardware wallet (or cold wallet) is a physical device designed to securely store your Bitcoin private keys offline, protecting them from online threats like hacking or malware. It connects to a computer or smartphone to sign transactions without ever revealing your key, which are then broadcast to the blockchain, ensuring funds remain safe even on compromised computers.
Trezor is a great start in your cold wallet journey, Cold Card is a top tier hardware wallet once you build up some experience. I recommend hardware wallets if you're looking to save in Bitcoin.
Mobile Wallet
Bitcoin mobile wallets are apps for smartphones (iOS/Android) that store private keys, enabling users to send, receive, and manage Bitcoin on the go. They offer convenience with features like QR code scanning for transactions and integration with exchanges or hardware wallets. Wallet of Satoshi is a great mobile wallet that also allows you to use the lightning network. As hot wallets, they’re susceptible to device theft or malware but provide strong security with PINs, biometrics, and seed phrase backups. Ideal for daily use, they’re less secure than hardware wallets for large holdings. Using hot wallets for large amount of Bitcoin is not recommended.
Desktop Wallet
Bitcoin desktop wallets are software applications installed on computers that store private keys, allowing users to send, receive, and monitor transactions. They offer greater control and security than web wallets by keeping keys offline when not in use, though they remain "hot" wallets vulnerable to malware if your computer is compromised. Popular options like Sparrow and Nunchuk support features such as multi-signature setups, custom fees, and hardware integration for enhanced protection, making them ideal for frequent users while requiring backups and antivirus for safety. Desktop wallets are a great way to start your self-custody journey, as they are free, but remember that the safest way is in a cold wallet.