In this article, our torchlight will shine on a foundational Bitcoin concept that often gets overlooked – the Bitcoin Wallet. It may seem like old news, but a solid grasp of this idea is essential, especially for beginners.

We will try to understand why Bitcoin wallets exist and why they’re an essential part of the Bitcoin technology. We will also understand the role Bitcoin wallets play in storing, sending, and receiving Bitcoins.

This isn't going to be just another boring technical-jargon-filled explanation — I'm going to break this down in simple language, using analogies you can relate to.

Focus → Self-Custodial Bitcoin wallet type

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Before we delve into what a Bitcoin wallet is, let us first understand why we need one. Bitcoin is a digital currency that runs on a public network called the Bitcoin Blockchain. Anyone can view this network — Think of the Bitcoin Blockchain like a giant public spreadsheet. Bitcoin has value because people worldwide recognize its value. So, the question is: if Bitcoin is a valuable digital currency and public to everyone, how do we then determine who owns which Bitcoin and who can spend which Bitcoin? This question is what introduces us to the concept of a Bitcoin wallet.

But wait a sec!

Is it really a "Wallet" as we know traditional wallets? Does it hold an actual Bitcoin like our real-world wallets hold Dollars, Pounds, or Euros, etc?

Contrary to popular belief, Bitcoin wallets do not HOLD actual Bitcoins.

I always think that it was due to a lack of a better term that led the Bitcoin founders and early users to refer to it as "wallet." Perhaps, it'd have been more suitable to call it "Vault" because, like real-world vaults, it holds so many keys that can each lock and unlock any treasures assigned to them.

Imagine your school cafeteria has a massive storage of provisions. Everyone can see the provisions, but anyone cannot necessarily take the provisions away from the cafeteria. You only have the right/ability to transfer ownership of your portion of provisions in the cafeteria to someone else using a pair of keys to which the right of ownership of your provisions is assigned. Then, there are lockers in the school's locker room that contain several pairs of keys, which are used to claim or give out any portion of a provision in the cafeteria.

It is essential to know that Bitcoin exists on the Blockchain, and not in any wallets. In the school analogy above, Bitcoin is the provision that is permanently located in the cafeteria (blockchain). Still, you can only lay claim to a portion of that provision and have the right to transfer its ownership with the keys in the lockers (Wallets).

Now, let us get into the lockers and see what these keys are. In the locker, there are so many keys, and all of them are in pairs - a Private key and a Public Key make one key pair.

When a friend wants to give you a portion of their provision (a Bitcoin payment), or your school wants to reward you with some provisions for winning the national mathematics competion (Bitcoin mining), you will get a Public key from one of the key pairs in you locker (wallet) and share it with your friend or the school director. They'll assign a portion of the provision to your public key (Remember, this provision always stays in the cafeteria). The only difference now is that whatever portion your friend gave you or the school director rewarded you with is now assigned to your public key, hence your Bitcoins.

You can always share your public key (in the form of a Bitcoin address - explained below) with anyone to receive Bitcoins (assign ownership of a portion of Bitcoin stored on the blockchain to you). You can see the amount of Bitcoin you own in your wallet— developers designed it to provide a good user experience.

Now, suppose you want to assign some of your provisions (bitcoin) to another friend. In that case, you will need to sign it with the other key pair so that everyone in the school will know that you have transferred ownership of some of your provisions to your friend. This is the function of the private key..

The private key is used to sign Bitcoin transactions before they can be recognised and approved by the Bitcoin network (a topic for another day). It is private because if anyone gets this key, they can use it to move/assign all your provisions (Bitcoins) to any public key they like in their locker (wallet), and hence you'll lose all your provisions (Bitcoins).

It is important to note that you can own as many lockers (wallets) as possible and hence as many key pairs as possible. Remember, each locker contains multiple key pairs, and you can even create more new key pairs in a locker if you desire

So again, for every key pair, there's a public key and a unique private key. If you have, say, 10 key pairs in your locker, the private key "1" can only lock and unlock provisions (bitcoins) assigned to the public key "1", and so on.

Think of Bitcoin addresses as a card generated from your public key, where someone can write the exact quantity of the provision assigned to that public key. You can write on that card as many times as you want. Still, you can choose to generate new cards (bitcoin addresses) from another public key in your locker, each time you wish to receive provisions.

So, your friend wants to assign a portion of their provision allowance in the cafeteria to you. You will:

In other words; when someone wants to send Bitcoins to you, you will generate a Bitcoin address from your public key and send the address to them. They will send Bitcoins to that address and sign it with their private key before the Bitcoin network recognizes it as valid, and records it on the blockchain.

You may choose to use one Bitcoin address to receive Bitcoins multiple times, or you can always generate new addresses from the numerous key pairs in your wallet.

We cannot conclude this article without discussing the popular 12/24 seed phrase. I'm pretty sure that you already have an idea about what it is, because virtually every Bitcoin wallet app out there uses it.

So, if we only needed your private key to sign your Bitcoin transactions, why do we need the popular 12-word seed phrase, especially when experts keep saying you should secure it as if your life depends on it? (Your Bitcoin financial life actually does depend on it 😜)

Now, back to our locker analogy. The 12/24 words seed phrase (technically known as mnemonic seed phrase) is the key to your locker.

Let us explain it. Your locker contains numerous pairs of private/public keys to which Bitcoin is assigned and can be spent (i.e., transfer of ownership). If you did not have a locker, you would have had to always face the herculean task of managing hundreds or even thousands of key pairs, making sure that you do not misplace the keys with each other, and making sure that each time you want to give someone a provision (Bitcoin), that you used the corresponding private key to sign. However, your locker was designed to automatically and accurately manage all these key pairs for you, generate addresses as needed, and perform many other tasks that we cannot cover in this article. Therefore, it is only reasonable that we have a way to protect and prevent unauthorized access to your locker (wallet). This is what the 12/24 words seed phrase does.

When you download a Bitcoin wallet application like Valet and set up your wallet, the wallet also automatically generates a 12-word key for you, which you can use to restore your wallet at any time.

Here's how to think about it – when you change dormitory or class, all you need to do in your new dormitory or class is to go to any locker, enter your locker key (12/24 seed phrase), and all your public/private key pairs will be imported into that locker, and you can see all the provisions assigned to your keys. So, if anyone knows your 12 phrase seeds, they can go to any of the lockers in the school and enter your key. They can quickly assign your provisions to anybody they want or to themselves. Since there are no names attached to these lockers or even the keys, it means that there is no way to trace who owns which locker, public key, or whatever.

Someone can only know that you own a particular public key if you tell them that you do. However, anyone in the school can always view the records of provisions that have been assigned and reassigned from one address to another in the Cafeteria (Bitcoin Blockchain). This is why it is advisable to generate a new address (card) each time you want to make a new Bitcoin transaction, as this helps keep your privacy intact.

It is essential to know that you can import a single pair of private/public keys to a Bitcoin wallet and spend the Bitcoin associated with that particular key pair. This means you can go to your locker, take out one pair of public/private keys, and import only that key pair into another locker (without needing your 12/24 seed phrase) and spend Bitcoins associated with just that particular key pair. This is possible with several Bitcoin wallets, like Valet. This highlights the significance of private/public key pairs, as well as the immense scope of Bitcoin technology.

The concept of a Bitcoin wallet is broad. In this article, I have attempted to explain the basic components and processes of a Bitcoin wallet using a closely relatable real-life scenario - The School locker. Since the launch of Bitcoin in 2009 by Satoshi Nakamoto, the Bitcoin technology has evolved significantly in all aspects, including the wallet aspect.

Valet is a robust Bitcoin wallet app that encompasses all the features of a modern Self-Custodial Bitcoin wallet, along with additional features that are not available on other wallets. Valet was designed to work in areas with limited internet access and is compatible with any Android device, including those running old Android versions as far back as Android version 8.

Click here to watch a video on how to install Valet and experience Bitcoin storage differently. If you love this article, please like, share, and subscribe to receive updates whenever a new article like this one is published.

Shutting Down....

Ugochukwu Chidire David (@orion_davids on X) Product Growth Lead Standard Sats