In the previous article we explored the idea of Bitcoin as virtual money—a digital monetary asset that functions much like a gold in today’s economy. With daily trading volumes often exceeding $50 billion, Bitcoin has clearly captured the market’s attention. Like any tradable commodity, it has buyers, sellers, and a fluctuating price—indicating that people assign real value to it.
But if Bitcoin is money, a natural question arises: Where can you spend it?
Surprisingly, a growing number of companies now accept Bitcoin as payment. From tech giants like Microsoft’s Xbox store to select Starbucks locations, digital currencies are slowly making their way into the mainstream economy.
Once you possess a monetary asset—whether traditional cash or cryptocurrency—you need a way to store and access it. Our fiat cash typically resides in physical wallets or bank accounts. Likewise, Bitcoin is stored in digital wallets. These can be accessed online, allowing users to check balances and send and receive bitcoin nearby and across distances.
Cash transactions often happen in person—known as peer-to-peer transactions. You hand over a note, and value is exchanged on the spot. However, this model has geographic limitations. For instance, if you’re in Mumbai and need to send physical cash to someone in New Delhi, doing so by mail would be impractical and insecure. You will need to depend on a middleman like a bank. This middlemen brings in limitations like you cannot send money on weekends or after hours.
This is where Bitcoin offers a revolutionary solution. With its peer-to-peer digital architecture, Bitcoin allows direct value transfer across cities—or even countries—without the need for banks, intermediaries, or physical presence. It’s money reimagined for a borderless, digital world.
Since Bitcoin is entirely virtual and digital, it is stored using a digital wallet—much like you might store money in a physical wallet or a bank account. These digital wallets can exist on your smartphone, computer, or even on cloud-based platforms. In simple terms, a Bitcoin wallet acts as a container for your “cryptocurrency”.
However, unlike a traditional wallet that only holds cash, a Bitcoin wallet does more than just store—it allows you to send and receive Bitcoin. In that sense, it functions similarly to a bank account or a digital payment app. While we say a wallet “stores” Bitcoin, it’s worth noting that this is a simplified way of understanding the wallet—a nuance we’ll delve into in a future article.
Let me explain how to install “exodus” a popular wallet on your desktop or smartphone
Go to exodus.com or the Appstore or playstore and download the application and install the application.
Click download and install the application(doing a windows example here). Once it is installed double click on the application to open it. At this juncture you have a crypto wallet on your laptop.
On an android phone you need to search for Exodus Bitcoin Wallet on your playstore. Install it or update the app. Then open it and click on create a new wallet.
The Bitcoin wallet is only an interface to the Bitcoin. It does not store bitcoins. An analogy for the above interface statement is an email client, like Gmail, is an interface to your emails stored on Google’s server. Your emails do not reside in the browser. It resides in Google’s servers somewhere in a data center. The client interface lets you read the messages. The email client fetches the bits and bytes stored in the datacenter and renders them in a readable format on the browser.
It is crucial to grasp that your wallet functions solely as an interface to your bitcoins; it doesn’t store them in your local machine.
Then the question is, what is stored in that wallet?
A crypto wallet stores the public and private keys. Before we go into Addresses and Signatures it will be helpful if you can read about Hash Functions and Encryptions. I have explained this in a very easily readable and simplistic manner.
Addresses and Public Key
A sender can send money from their bank account to the receiver’s bank account. Similarly, the owner of Bitcoin can send them from their wallet to the receiver’s wallet.
When a person sends money via his bank account, he uses a physical cheque or digital money transfer.
On the check, the sender puts the receiver’s name or account number, the amount of cash to be sent, and then they put their signature. The sender then deposits this in a bank.
The bank verifies multiple things before the transfer can take place. It verifies first if the sender has money in his account. Then, it verifies whether the receiver account exists. Next, the bank verifies the signature on the cheque with the owner’s signature in its records and if it matches, the transfer of money takes place.
There is a similar process when a sender uses their digital bank account. The sender logs in to the bank’s web account with a user ID and password equivalent to their signature. The sender specifies the name or account number of the receiver to whom they want to send the money as the first step.
The sender then clicks the send button and the bank might do a secondary verification like a text of a six-digit code to the sender’s email or phone. Once the secondary code is also verified, the bank moves the money to the receiver’s account, provided there is money in the sender’s account and the receiver’s account exists.
Similarly, when a sender wants to send bitcoin to someone, he needs to get the bank account number equivalent of the receiver, called the receiver’s (receiver wallet’s) public address. The amount of cryptocurrency to be sent must be specified. Then, the sender puts his signature on it to verify the transfer of ownership of his bitcoin to the receiver. The wallet, which has the private key, puts the signature on behalf of the sender.
A Bitcoin public address will look like
1J7mdg5rbQyUHENYdx39WVWK7fsLpEoXZy.
Addresses are hexadecimal numbers. Hexadecimal numbers use digits “0” to “9” and letters from the alphabet “A” to “F”. Binary numbers use 1’s and 0’s. In our day-to-day life, we use a decimal number system, which is digits “0” to “9”.
The Bitcoin public address is the RIPMED160 Hash of the SHA-256 hash of the public key. Hashes are a fingerprint of something. It is a one-way mathematical function that generates this hash.
The public key is generated from the wallet’s private key using elliptic curve multiplication. This is a one-way irreversible hash function. When you create a wallet, the software creates a public-private key pair inside the wallet.
Signatures and Private Key
Signatures are generated from the private key, which becomes part of the software or wallet. The signature shows you are the owner of the crypto without revealing the private key. A signature is required to transfer bitcoins from one wallet to another.
A private key is a number between 1 and 2256.
Wallets have public keys and a private key associated with them. That happens when wallets are created. Wallets are nothing but containers of keys.
It is secure or has even better security than a bank account. Just because a sender knows a receiver’s public address does not mean he can steal bitcoins from the receiver’s wallet, as that process needs the private key.
At a bank, some people can access your passwords or signature. In the Bitcoin wallet, only the creator or owner can access the private key. As shown in an earlier chapter on public keys and addresses, knowledge of the public key can no way let the sender, in any feasible manner, hack the coins in the wallet or recreate a private key.
The critical thing to remember is that wallets do not store bitcoins or crypto, but they store the keys that can assign ownership to the bitcoins that live on the bitcoin network. The ownership of bitcoins is established through private keys, addresses, and signatures. Bitcoins exist on the bitcoin network. The keys are stored as a file on your local machine. A wallet is created independently or without any access to the internet.
Risks
You can access your bank account with a username and password. You access your bitcoins through the private keys in your bitcoin wallet. Suppose you forget your bank account username or password; you can call the bank’s customer service, and based on the answers to verification questions, the bank will send you your username or password by email.
With the Bitcoin wallet, no third party can give you this information if your private key is lost or reset the keys if they are compromised. Hence, you must be extra careful with the security of your private keys if you plan to have self-custody.
A crypto wallet is a self-custodial wallet. The owner themselves has custody of their bitcoins as they own the wallet’s keys. When you buy equity or shares on NYSE, the asset is stored at DTCC, the custodian. You are transferring the risk of protecting the asset to the custodian.
Centralized exchanges, like Coinbase or Binance, allow people to buy and store bitcoin there. The exchange functions like a custodial wallet. The exchange folks have the private keys and they become the customer’s asset custodian. There is a risk that the custodian can steal them or can get hacked. You are putting your trust in a middleman custodian to protect your assets. There is the risk of trusting third parties.
In 2022, trusted third-party exchange FTX allegedly either stole or scammed billions worth of assets of customer cryptocurrencies and lending platform Voyager lost customer funds due to poor risk management practices of customer assets.
There is a significant difference between crypto and stocks. By law, stocks can only be held with a custodian. You can never take control of the stock certificate. You trust the regulated custodian and assume they will always do the right thing. With crypto, you can choose to self-custody or hold it with a custodian.
Different Types of Wallets
There are different types of wallets and classification of wallets.
Hot Wallets: A hot wallet is a cryptocurrency wallet connected to the internet. This makes it easy to access your funds quickly but makes it more vulnerable to hacks and cyber-attacks.
Cold Wallets: On the other hand, a cold wallet is a cryptocurrency wallet that is not connected to the internet. This makes it much more secure, as it is not accessible to hackers but can also make it more difficult to access your funds quickly.
Cold wallets are often used to store large amounts of cryptocurrency for long-term storage, while hot wallets are used for making transactions and accessing funds on a more frequent basis.
Another classification is paper wallets, mobile wallets and online wallets.
Online wallets: Online wallets or web wallets allow users to access their wallets from any browser, which means they are stored on a third-party computer. This is a significant flaw, meaning someone else can control your keys.
When you click create a wallet in the application, internally it generates pairs of private keys and a public key in your machine.
In a deterministic wallet with your backup secret recovery phrase, you can recreate the wallet on any other machine also. This is very useful such that even if your laptop or wallet burns you can create your wallet
Creating your first Bitcoin wallet isn’t just a technical exercise—it’s your first step into a decentralized financial future. By now, you understand that a wallet doesn’t store the bitcoins themselves but rather the keys that give you control over your digital assets. It’s like holding the keys to your own vault—only this vault exists on a borderless, permissionless network that operates 24/7.
Whether you choose a hot wallet for convenience or a cold wallet for long-term security, the core idea remains the same: ownership in the Bitcoin world comes from control over your private keys. And with that control comes both power and responsibility.
So go ahead—download a wallet, create your key pair, and take ownership of your financial sovereignty. In doing so, you’re not just buying and storing a few digital coins, you’re participating in a new way of thinking about value, trust, and the very concept of money.
In our next article, we’ll walk you through what happens under the hood when you send a Bitcoin—how transactions work, how the network verifies them, and what it means to transfer value in a truly decentralized system.
News Summary in the Crypto Space this week worldwide
SEC announced that proof of work cryptocurrencies are not securities.
President Trump made history yesterday, becoming the first sitting U.S. President to address a major cryptocurrency conference.
SEC drops case against Ripple.
Microstrategy plans to raise 5 billion dollars in preferred stock offering.
Polymarket 90% accurate in predicting global events.
US ETF Cash and Carry trade collapses for investors.
Nithin Eapen is a technologist and entrepreneur with a deep passion for finance, cryptocurrencies, prediction markets and technology. You can write to him at neapen@gmail.com
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