How bitcoin wallet works
Obviously, most bitcoin wallets today do a lot more than that. They also relate your public and private keys to the bitcoins that match those keys, and display the list of related transactions and the current balance in a clean user interface ie.
It contains permission to spend your bitcoin. And if you lose access to that permission to spend, then you effectively also lose your bitcoins, because you no longer have access to them. That is why it is so important to keep the keys secure. Some wallets, especially the older ones, are full node wallets.
This means that you download the entire blockchain, and act as a relayer or transmitter of transactions, even those that you had nothing to do with. You receive transactions from nodes and pass them on to other nodes, and thus contribute to the updating of the bitcoin network.
While no actual work on your part is involved the transmitting is done automatically , it is onerous — the blockchain occupies approximately 40GB of memory. SPV wallets do not download the entire blockchain, they only download block headers. There are concerns that this weakens the security of the network as a whole, since they cannot tell the difference between a block with valid transactions and one with invalid ones.
But they rely on nodes to check the transactions for validity, and assume that after a certain number of blocks have been added on top, a transaction can be counted on to be correct. Wallet technology is evolving rapidly in terms of efficiency and functionality, so this overview does not hope to cover all wallet types, but the basic principle is the same for most: Actually, most wallets contain several addresses, and hold the public and private key pairings that make each of them work.
Obviously, most bitcoin wallets today do a lot more than that. They also relate your public and private keys to the bitcoins that match those keys, and display the list of related transactions and the current balance in a clean user interface ie. It contains permission to spend your bitcoin. And if you lose access to that permission to spend, then you effectively also lose your bitcoins, because you no longer have access to them. That is why it is so important to keep the keys secure.
Some wallets, especially the older ones, are full node wallets. This means that you download the entire blockchain, and act as a relayer or transmitter of transactions, even those that you had nothing to do with.
You receive transactions from nodes and pass them on to other nodes, and thus contribute to the updating of the bitcoin network. While no actual work on your part is involved the transmitting is done automatically , it is onerous — the blockchain occupies approximately 40GB of memory.
SPV wallets do not download the entire blockchain, they only download block headers. There are concerns that this weakens the security of the network as a whole, since they cannot tell the difference between a block with valid transactions and one with invalid ones. But they rely on nodes to check the transactions for validity, and assume that after a certain number of blocks have been added on top, a transaction can be counted on to be correct.