What is a Bitcoin wallet and how does it work?

A Bitcoin wallet is a software or physical device used to store and manage Bitcoin. The wallets come in two main types: software wallets and hardware wallets. Both types of wallet work in similar ways, but there are important differences between them that can affect security, ease of use and price.

Software wallets

Software wallets are software programs that are installed on a computer or mobile device. They can be used to create, store and manage Bitcoin addresses and private keys. Software wallets come in different forms, including websites, applications and software.

Software wallets are easy to use and can be accessed from any device with an internet connection. They are also affordable compared to hardware wallets. However, there is some risk of security issues with software wallets, as they are connected to the internet and can therefore be hacked if not properly protected.

Hardware wallets

Hardware wallets are physical devices used to store and manage Bitcoin. They are often more secure than software wallets because they are not connected to the internet and therefore cannot be hacked. Hardware wallets come in various forms, including USB sticks and specialised devices that look like credit cards.

Hardware wallets can be more difficult to use for beginners and can only be used with the specific device.

Comparison of software and hardware wallets

Software walletsHardware wallets
Connecting to the internetRequired to be used
SecurityLower security than hardware wallets
Ease of useEasier to use than hardware wallets
FlexibilityCan be used from any device with an internet connection
PriceLower price than hardware wallets