I'm trying to get involved in bitcoins, but first it seems I need further clarification on the concepts involved in bitcoins.

First let me clarify what I know (at least what I believe to be correct): miners race to solve mathematical problems, and whoever (or whatever pool) manages to solve the most complex block at a given time is awarded the bitcoins to their wallet address.

Now, what I want to know is, what exactly makes a wallet wallet? Other than providing an address, what does it do? A pair of cryptographic keys make up a wallet, which I understand, is used to transact the bitcoins associated with an address; but is that all? Other than safeguarding the private key, is there anything else to mind about a wallet, i.e. does it record anything else?

I did not find anything explanatory aside from the key-pair mention on the Wikipedia article, and I do not have enough technical expertise to go through the bitcoin protocol to understand the concepts. Please help me with understanding wallets.

  • Mining: neither racing for a given time nor for the most complex. Racing to solve a problem of given difficulty until one randomly stumbles upon the answer after on average 10 minutes (currently 8 if you're nitpicking).
    – Jannes
    Commented Feb 6, 2014 at 23:27

3 Answers 3


A wallet is merely a collection of pairs of private/public keys. Every normal Bitcoin address is just a hash of a public key. The corresponding private key is needed to sign transactions that spend coins from the address.

So wallet security really is all about protecting your private keys - making sure you have access to them, and nobody else does. There are several ways to do this. A basic client software manages a wallet file for you and uses the keys within to sign transactions.

There are more advanced address that correspond to multisig or other scripts.

Re mining - almost true, instead of the miner finding the most complex block winning, every miner finding a sufficiently difficult block is rewarded. What is considered "sufficiently difficult" changes periodically.

  • How is a bitcoin assigned to an address? Simply by being recorded on the blockchain? And then how is the keys used to transfer those bitcoins?
    – Oxwivi
    Commented Feb 7, 2014 at 20:58
  • @Oxwivi: The blockchain is built out of transactions. Every transaction moves bitcoins from some addresses to other addresses. For a transaction to be valid, its hash must be digitally signed with the key corresponding to the input addresses. Commented Feb 9, 2014 at 12:16

You are correct on the Mining.

A wallet provides a secure place to store your bitcoins but it can also be more. You can encrypt messages with your bitcoin address and send it to someone. This will show the reciever that you are the holder of that bitcoin address.

However, The main purpose is to send and receive bitcoins.


Wallets don't exist, simply put, for each address you have a public and private key, a wallet is just a local ledger of all of these. Some people use multiple different wallets for different places they've received bitcoins (And/or different aliases, such as Work, Online, Investment, etc...), but, to anyone's eye's past yours (And your bitcoin client), the wallet doesn't exist.

Addresses are really the only thing that exist, and, a wallet is just a local collection of said addresses, as, not to confuse them with other addresses for different uses.

EDIT:- Just a note, if you own the public/private keys to multiple addresses, you can combine then on a transaction, it's not like a bank where if you need to pay half on one 'account' (address), and, half on another, you have to send two payments, you can just create a transaction referencing both, then, sign it with both private keys. In fact, the addresses don't even have to be on the same wallet, if me and my friend want to go 50/50 on a subscription fee for watchvideoswithbitcoins.tld, then, I can create a transaction referencing his TXIN (transaction input, where he got money) and the same for mine, sign it with my address, then, give him the transaction (Which at this point is still invalid, as, only one of the two inputs agree to pay) and let him sign his part of the transaction, then broadcast it. Currently, however, lots of people assume "Oh, if you signed both you must both be the same owner", which, is what "coinjoin" is based on:- https://bitcointalk.org/index.php?topic=279249.0

  • Sorry you lost me with the multiple addresses. I don't really get your point there. What exactly happen when you, say for example, send two bitcoins addressed to two wallet/hashes/whateveryouwanttocallit? A bitcoin goes to either of them?
    – Oxwivi
    Commented Feb 7, 2014 at 21:00

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