A few more Bitcoin wallet terms

Wallets with multisignature

The term multisignature describes a wallet that allows Bitcoin transactions only with the approval of enough private keys, from a set of predefined keys. Here’s an example: Alice, Bob, and Charlie all want to start a business together and invest some of their Bitcoins, but they don’t all want one person to have access to their private keys. As a result, they each get a key, and the multisig wallet requires two keys out of three. As a result, no one will be able to run away with the money alone, but they will not need to pay expenses with all three of them.

There is no rule that says multisig has to be two out of three—it can be almost any combination. As an example, a couple opens a joint account and decides that neither person can spend the money unless both agree; or a company’s board of directors allows payments only by a majority vote. When two parties decide to conduct a transaction requiring two out of three keys, multisig may be used. Trusted third parties will arbitrate if a buyer and seller are unable to reach an agreement.

The SPV wallet

Every Bitcoin transaction in a wallet is validated by a copy of the blockchain. A full node wallet is the type of wallet that validates transactions. SPV wallets don’t hold a full copy of the blockchain, unlike full nodes (also called thin wallets or lite wallets). Transactions are validated by full nodes with which SPV wallets are connected. In comparison with their counterparts, SPV wallets are faster and consume less disk space. Several wallets offer a SPV solution for limited-capacity devices such as mobile phones, tablets, and desktops, since the blockchain today is becoming increasingly large.

The brain wallet

A brain wallet consists of a predetermined text or set of words used to create a private key. By using some basic algorithms, you can generate a private key using a passphrase rather than a randomly generated seed. The disadvantage of brain wallets is that they are more likely to be hacked. The reason for this is that people are usually predictable when it comes to their passwords and supposedly random text, so hackers can figure them out. Tests have been conducted using simple passwords for brain wallets and deposits with money to prove this point. What are the results?

Money has been stolen quickly. Furthermore, a Bitcoin user lost four Bitcoins after using a brain wallet password generated from an obscure Afrikaans poem. Even when you think you’ve discovered a passphrase that’s difficult to crack, you are still at risk.

You may find that some wallets meet more than one requirement. It’s possible to have a mobile SPV wallet with a multisignature feature, for example.

But other than all these, the term open-source Bitcoin wallet is still used continuously among all Bitcoin users, who look for safe and user-friendly ways to store and transmit Bitcoins over the internet.