The Bitcoin Wallet
Alright, we’ve gone over blocks, blockchains, and Bitcoins. Now, time to throw another important term at you. Nope, it’s not wallet, it’s private key. Next to the blockchain, this may be the most important part of Bitcoin.
In the Bitcoin world you’ll see a string of numbers like this: 1Drgo9TozuRYhJuMVmZmh7cuahSZZuuyE8. That is a Bitcoin address, more specifically one of my Bitcoin addresses. Now, why in the world would I put up my Bitcoin address for the entire world to see? Because, having that number, the public address, only allows you to send Bitcoin in. A private key is what allows someone to spend Bitcoin from a specific address. You can think of it as two credit card numbers for one account. One number, the public address, can be shared to the entire world because all anyone can do with that number is send Bitcoin to it. The other credit card number, the private key, is a designation I set up when I created the ‘account’ (encrypted with a passphrase) and someone must know this passphrase before any Bitcoin can be sent from the account.
The Bitcoin account, I’m going to stick with calling it an account to simplify things, exists on the blockchain and therefore is validated on millions of Bitcoin nodes throughout the world. Any transaction, in or out, is kept validated by miners, and invalid transactions are discarded and don’t make it on to the blockchain. This is a powerful advantage of the blockchain over traditional ledger systems and prevents various types of fraud that are well known in traditional currencies. You can’t reverse transactions on Bitcoin, once a transaction is sent the block will be quickly mined and added to the blockchain and that transaction will forever exist in the history of Bitcoin. This can be a double-edge sword and means one has to be extra cautious before sending funds to unknown accounts.
Your account can create an immense number of public addresses, but only has one private key. If that private key were to get out anyone with that key could send funds from the account. Therefore, the private key is encrypted and we strongly recommended that you create a good password with a mixture of capital letters, numbers, and special characters like $ or *, or better yet a series of words, when you create the private key.
I can feel your eyes glossing over, but don’t worry, we’re getting to the fun part! Or, more specifically, the part that makes everything you just read not nearly as complicated as it sounds; A Bitcoin wallet.
You can choose from many different Bitcoin wallet’s, with various kinds of functionality, but in their basest sense wallets simply store encrypted private keys and generate public addresses. Your account exists on the blockchain, a private key allows you to interact with the account on the blockchain by sending out the coins. A wallet simplifies this through client software that allows you to make transactions from your account.