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Bitcoin walletThe electronic interface to a user's Bitcoins. The Bitcoin wallet is software in the user's computer or mobile device or an account with an online service. It can also be a hardware device that interacts with software in the computer. Many wallets that support Bitcoin are also used for Ethereum, Litecoin and other digital currencies.
The wallet holds the balance but does not actually contain the coins. It stores the user's Bitcoin address and private key to access the Bitcoin blockchain. When people make payments, the wallets use the key to digitally sign the transactions proving ownership of their coins in the network, known as "unspent transaction outputs" (UXTOs). A wallet can also be part of a Bitcoin node (see Bitcoin mining and Bitcoin transaction).
HD (Hierarchical Deterministic) Wallet
The type of wallet in common use is an HD Wallet, which derives the private key from a randomly generated "seed" created at startup. Only the seed is required to restore the private keys if the wallet is destroyed. Rather than a complicated password, the seed is a series of from 12 to 24 alphabetic words that are easy to transcribe and copy. The HD Wallet (BIP-32 standard) generates all keys from the seed in a tree structure, and the different branches (keys) can be used to organize payments for different purposes such as departments in a company. In addition, a new public key can be created for each transaction that is safely published anywhere.
In contrast, a nondeterministic wallet generates a private key for each transaction using a random number. Known as "just a bunch of keys" (JBOK), this earlier wallet was cumbersome because multiple keys must be backed up in order to keep track of all the user's coins in the network. See Bitcoin and Bitcoin mining.
|Ledger Nano S "Cold" Wallet|
|A hardware HD wallet stores the user's private key and works in conjunction with a compatible software wallet. As a device stored offline when not plugged into the computer, a hardware wallet is prevented from being hacked remotely. This HD Wallet supports Bitcoin, Ethereum and other virtual currencies. See cold wallet.|
|The HD Wallet Seed|
|At initial startup, the Nano S wallet generates 24 everyday words as the seed. These words must be recorded in a safe place if another wallet is used in the future to access coins.|