The Private Wallet: Your Ultimate Safe
Bitcoins are not just digital dust, but valuable money. Thus, you should take care of them and definitely have the power over your own Bitcoin. Sounds obvious, but how often do people just leave their Bitcoin behind on random websites or exchanges – and in worst case scenario, it’s probably due to the lack of knowledge. Sucks, right? Now, I will talk about why your Bitcoin are truly yours only if you have them in a private wallet.
What is a Wallet?
A wallet is the metaphor for a digital document certifying your ownership of your Bitcoin. It comprises of:
- a private key
- a public key
The public key is simply the address of someone (example: 1N6r97NNvH9FygenLQ53M97G5ie61WesSX), and is as its name mentions, public. The private key is the secret of the owner of the address. It is comparable to a password. Lets take the postbox for a real life analogy. Everyone can see the postbox and send something to it, but only the owner has the key to open it up. So, only the key holder can take out the letters and use them. Going back to the wallet, the private key allows the owner to send the Bitcoin out again. The biggest difference between a postbox and a wallet is that the postbox is a physical object and the wallet is only a file on a computer.
Have a look at my video for the explanation of the term wallet:
What is a Private Wallet?
So, as mentioned previously, the wallet is nothing else than a file on your computer. However, you can only call it private if you are the true owner of that file.
As soon as you register with an exchange in order to purchase Bitcoin, a wallet will be created for you in the background. By law, at least in Germany, you are the true owner of that wallet, despite not actually having it on your computer. But the problem arises when the exchange is gone or your wallet gets lost there somehow. How do you now prove that you own that list wallet?
The only possibility to prove your ownership is to own the private key. When you own the private key, math allows you to prove ownership of the linked address. Since everyone is able to see how many Bitcoin are on any address in this world, you can prove your ownership of the Bitcoin on your address.
You are only the true owner, if you own the private key to the wallet.
Of course, the private key also allows you to sign transactions in order to send Bitcoin. Every transaction is uniquely signed with the private key. Otherwise, fraud signatures are detected immediately and the transaction will not be processed in the network. This is the reason, why no one else can send away your Bitcoin when you are the only holder of the private key.
However, in reverse conclusion, this implies that you should never ever let anyone access your private key or give it to someone else! Then, the other party can use your Bitcoin and send them away. And they are gone forever. This is why it is extremely high risk to leave your Bitcoin on an exchange or some other third party website!
Back to the question about what a private wallet is: Your wallet is private and truly yours, so you must be the only holder of the private key.
How to Create a Private Wallet?
The obvious question after reading so far is, how to create the private wallet and secure your Bitcoin to it. Luckily for you, I have covered this extensively with a step-by-step tutorial in the Starter Kit article about a private wallet. That should help you out.
So, hands on and send your Bitcoin to your private wallet. Otherwise, they could be gone tomorrow! If any questions arise, just contact me or let me know in the comments below.