We all know that wallets are for storing your money. However, we can see why there would be confusion about what a bitcoin wallet is. Bitcoins are a digital currency, and so why would you need a wallet for it? As it turns out, you need a wallet for it because it is a digital currency! A bitcoin wallet is an object or software that you use to securely store your bitcoins. How do they work, and what makes them necessary? Let’s look into that.
The need of Bitcoin Wallets
We all know that computer viruses and hackers can wreak havoc on our system. Now, generally they just release viruses that harm computers. However, thanks to the meteoric rise in the price of bitcoin, hackers are very interested in getting them. If they are just stored on your hard drive then it is possible for someone to hack your computer and steal your bitcoin. It may sound absurd but it has already happened. Many people have lost lots of money because their bitcoins were stolen.
Normal home computers just do not have the type of security that is needed for something as expensive as bitcoins. Generally the highest security we have in our computers is the antivirus. Antivirus applications do a good job but they are not enough, especially if you are being targeted. They are able to save you from viruses that are spreading on the internet but they cannot save you from a targeted attack from a hacker. If anyone tries to steal your bitcoins, they probably already know you own bitcoins, and their attack is targeted.
How Bitcoin Wallets work
Bitcoin wallets work by storing your bitcoin behind encryption. Only you, the person with the encryption key, will be able to access them. Someone can hack your computer and steal the bitcoins but they won’t be able to do anything with them – because they don’t have the encryption key. There are two main types of bitcoin wallets.
A software wallet is simply software that encrypts your bitcoins and locks them so no one else can access them. They are much more secure than just storing the bitcoin on your computer however they aren’t perfect. It is possible for someone to figure out a way to break one of these wallets and still steal your money but it is very, very unlikely.
A hardware wallet is a piece of hardware that has specifically been designed for the purposes of storing bitcoin. It has many security features built into it. Many of these store the bitcoins in a place that is completely inaccessible to hackers and viruses. Having a hardware wallet is the safest way to store your bitcoins.
If you have bitcoins lying around on your computer then you should definitely invest in a bitcoin wallet. If the value of your bitcoins is low then you will be okay with a software wallet. If you have a serious amount of bitcoins then you should buy a hardware wallet.