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Definition: Bitcoin wallet


The 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, and it can be a paper wallet (see below). Many wallets that support Bitcoin are also used for Ethereum, Litecoin and other digital currencies.

The wallet holds the user's bitcoin 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).

Hierarchical Deterministic (HD) Wallet
The type of wallet in common use is the hierarchical deterministic (HD) wallet, which derives the private keys from a randomly generated "seed" created at startup. Only the seed is required to restore all the private keys if the wallet is destroyed. Rather than a complicated password, the seed is 12 to 24 everyday words that are easy to write down and save (see below). The deterministic wallet (BIP-32 standard) generates the private keys from the seed in a tree structure, and the different branches (private keys) can be used to organize payments for different purposes such as departments in a company or type of purchases. In addition, a new public key can be created for each transaction that is safely published anywhere.

Nondeterministic Wallet
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 type is cumbersome because multiple private 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" HD Wallet
The Nano S hardware wallet supports Bitcoin, Ethereum and other virtual currencies and cannot be hacked when it is offline. The wallet stores the private key and works in conjunction with a compatible software wallet. At initial startup, 24 everyday words are generated as the seed (examples at top), which must be written down in a safe place to recover the private key if the device is ever stolen or destroyed. See cold wallet.






A Paper Wallet
This paper wallet was generated from a Bitcoin ATM, and its QR codes can be scanned to import the coins into a digital wallet app or make another ATM transaction. The Bitcoin private key is used to send coins and the public key is used to receive them. See Bitcoin ATM.