The Bitcoin FAQ: What is a wallet?

In this series of articles, I attempt to answer a question related to Bitcoin with an analogy that fits the best.

Question: What is a Bitcoin wallet?

The first thing to understand is that the common digital wallet (a.k.a. Hierarchical Deterministic Wallet) nowadays is already an evolution of the concept. In the sense, that they supersede the original definition of a digital wallet with extra capabilities. But these super wallets are still called wallets.

So what is a bitcoin wallet? To answer I am going to use an analogy that I like.

Your wallet consists of two things:

📃 an index document that lists all your (bank) safes number,
🔑 and a keychain with all the keys to open your (bank) safes.

Now imagine Bitcoin being a bank vault with an infinite amount of safe.

Three things to note on these safes:

They all have a unique number written on their door.
As we've seen last time, things are public on Bitcoin, so they are completely transparent. One could glance at it, and see how much Bitcoin is sitting in it. But anyhow, one cannot open it without its key.
Unlike a bank safe, these safes have an opening to freely slid deposits in them.

Now let's do the mind experiment of sending some money to a friend!

First, you would essentially go into the Bitcoin vault with your document and your keychain.

Then:

find one of your safes, where you have money in, thanks to your index,
open it with your keychain,
take out everything from it,
find a quiet place to make the count,
split the money into two parts, with the part for your friend:
- you would search for his safe first, with the number he gave you,
- slid his part into his safe,
then the rest of your money, you slid it into one of your other empty safe (called change address IRL).

Why using an empty safe for the change? If you were to put back the money in the original safe it means, someone who was glancing at your safe will notice it. As everything is public, it will be transparent that you still own the rest of that money. In the case, you send it to a fresh safe, nobody will be able to conclude if this is your safe or someone's else.

Some links to go further on the subject:

https://www.investopedia.com/terms/h/hd-wallet-hierarchical-deterministic-wallet.asp
https://bitcoinbriefly.com/ultimate-guide-to-bitcoin-wallets-seeds-private-keys-public-keys-and-addresses/
https://medium.com/@harshagoli/hd-wallets-explained-from-high-level-to-nuts-and-bolts-9a41545f5b0
https://en.bitcoinwiki.org/wiki/Deterministic_wallet

Photo by Jan Antonin Kolar on Unsplash

The Bitcoin FAQ: What is a wallet?

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