Whenever you learn to use a new technology; whether it's a cellphone, a TV, a website or some software, then there's usually a lot of new stuff to learn about. Manufacturers and service providers usually provide you with a manual to help, but you probably don't read it..
We think the best way to learn anything is to just use it. You can figure out what unfamiliar words and concepts mean as you go. This glossary of terms will always be here to help you with that.
- Batch Transactions
- Buy Bitcoin
- Coin Control
- Deterministic Wallet
- Fee Control
- Fee Estimation
- FIO Support
- Form Factor
- Hardware Features
- Lightning Features
- Partially Signed Bitcoin Transaction
- Privacy Features
- Replace By Fee
- Reproducible Build
- Security Features
- Segwit Native Address
- Support & Policies
- Transaction Labelling
- Wallet Types
A Batch Transaction feature allows multiple payments to be made to many individuals at the same time as part of a single Bitcoin transaction.
Because every Bitcoin transaction incurs a fee paid to Bitcoin miners as a reward for validating transactions and for including those transactions in a block, it makes sense to batch payments together to keep these fees to a minimum.
Given a company with hundreds of employees - some of whom will have requested to be paid their salary in bitcoin - batching all payments into a single transaction drastically reduces the fees that the company needs to pay in order to broadcast and send all those payments across the Bitcoin network.
Most people enter into bitcoin ownership in one of a small handful of ways: In-person cash transactions, by earning or by buying from an exchange. Increasingly though, modern wallets allow users to skip the separate exchange experience and buy bitcoin directly from within the app itself. The wallet will still need to use the services of a bitcoin exchange, but does so behind the scenes, attempting to make the on-boarding process as seamless as possible.
There are several payment methods available such as Apple Pay and Google Pay as well as bank transfers. In the case of the latter, each country operates differently in this regard so you'll need to check with the wallet vendor if your desired country permits a particular payment method.
Users do also still need to be mindful of the fact that the purchase is still going through an exchange and as such to be able to continue to legally operate as an exchange, a KYC / AML procedure will still need to take place.
Top up your Bitcoin balance using a balance held within your Google Pay wallet.
Top up your Bitcoin balance using a balance held within your Apple Pay wallet.
Top up your Bitcoin balance using a bank transfer, e.g. via Internet Banking. Note the availability of linking a bank account in this way will be limited by country/jurisdiction. Each region has a different payments clearing and settlements network e.g. ACH (USA), SEPA (Europe), SWIFT and others.
Do your own research first to ensure you're happy with the way in which this feature works and that it suits what you're trying to achieve.
Top up your Bitcoin balance using a credit card. Do your own research first to ensure you're happy with the way in which this feature works and that it suits what you're trying to achieve.
This can be an expensive way in which to on-board yourself into Bitcoin, but for some it may be the only way. Do your own research first to ensure you're happy with the way in which this feature works and that it suits what you're trying to achieve.
Depending on the country or region of use, you may be able to use your bank's debit-card from within the app to purchase Bitcoin.
FastBitcoins is a non-custodial Bitcoin exchange and wallets with a fastbitcoins option, allows its users to buy bitcoin in-app, using the fastbitcoins exchange.
Bitcoin wallets are really good at managing Bitcoin addresses. These addresses are unique to your wallet and your wallet can generate millions of them. Usual practice when being paid in bitcoin is for your wallet to pick an address that hasn't been used yet. This is because address re-use is a privacy problem: It can potentially reveal your identify if more than one person knows you and has paid you before to the same address - they know at least something of your personal Bitcoin wealth.
Address re-use is also a problem for the same reasons when making payments to others. Picking a wallet with a Coin Control feature however, allows you to control from which balances of the individual addresses managed by your wallet, should form part of an upcoming Bitcoin transaction, thus preventing address re-use.
As above, you've re-used addresses in the past and and have been paying smaller amounts out of the balance managed by that single address. You realise that this is a mistake, people that you've paid more than once from that same address know you must have a considerable amount to keep being able to pay from it. You switch to a wallet with a Coin Control feature and from that point onward you're careful to pay funds into discrete addresses prior to making payments from them, in order to avoid re-using the same payment address.
Bitcoin wallets don't really manage Bitcoin, they manage transaction outputs: If Rita's wallet holds 0.5BTC in an address and pays Bob 0.4BTC for something out of that address, then Rita will automatically receive 0.1BTC back in change to a newly constructed "Change Address". The 0.1BTC sitting in Rita's wallet is waiting to be spent and is known as an "Unspent Transaction Output" (UTXO for short). Using a wallet with Coin Control, wallet users control which addresses should be used in a given transaction which works well with the related Transaction Labelling feature. Having labelled some UTXOs as "Last month's salary", "Groceries" and "Car Repayment Fund" you can make a payment to the car loan supplier in part from "Salary" and in part from "Last month's Salary". It gives you fine-grained control over your payments.
Wallets support a range of currencies in their user interfaces, usually for displaying an amount of bitcoin funds in your local fiat currency,
A currency refers simply to any supported Fiat Currency like the New Zealand dollar, the European Euro or Argentinian Paeso, as well as any cryptocurrency supported by the wallet such as bitcoin, litecoin or ether.
There is also a third class of currency called a Stablecoin. A stablecoin can possess many features of a cryptocurrency like Bitcoin, but the key differentiator is that its value is "pegged" to the current value of one or more fiat currencies - usually the US Dollar. While the number of available services and outlets that accept stablecoins is very few, they are mostly suited for trading and as investment instruments.
A Wallet with support for Euro, Paesos or Dollars and Bitcoin, Bitcoin Cash and Litecoin should enable the display of crypto-to-fiat conversions for each of those currencies.
WalletMatrix believes that both fiat currencies and cryptocurrencies should not be made arbitrarily distinct from one another. They are all currencies and function as "money" per the definition of money in terms of its three core features, and one is not going to die-off or replace the other any time soon. As such, both types of currency are considered together in the WalletMatrix system.
A custodial wallet requires you to relinquish some control of your funds to a centralised service provider.
Almost every Bitcoin wallet requires the use of an automatically generated "Private Key". This key is central to everything your wallet does for you. As such and for security reasons it is considered to be very poor security practice to share your private keys in any way with anyone (or anything). Were this to ever occur, it's entirely possible for you to permanently lose access to any and all funds that are secured with those keys, because the individual or service now in possession of them, can simply rebuild a new wallet and move "your" funds, to a completely different wallet over which you have no control.
A custodial wallet service may not need you to give them the keys if you purchased bitcoin, while you were using it as an exchange. In this case, those bitcoin will be initially paid to an address controlled by the exchange and not you. It's always a good idea therefore to remove funds from these wallets as soon as is practicable, into a wallet whose keys you control - WalletMatrix is designed to help you find one that suits.
You wouldn't give the keys to your car or your home to a stranger, nor would you hand out 100 dollar notes to just anyone on the street. The same rule applies to your wallet's private keys.*
* This is only relevant to wallets that automatically generate and securely store a private key for you. Note that there are some wallets that generate a private key in a different manner, assembling it in parts and storing each separately, rendering private key security able to be handled differently, these are known as "keyless" wallets.
A wallet can be a physical thing like a USB Hardware wallet, a semi-physical thing like a mobile wallet in the form of a software app installed on a smartphone, or it can be a little more ephemeral than that.
Consider your use of a web-based exchange for converting New Zealand Dollars into Bitcoin for example. For the duration that you keep your converted dollars in the form of Bitcoin on the exchange, those Bitcoin are associated with a form of software wallet that the exchange owns, runs and ultimately controls.
While it is in an exchange's best interests to serve their customers well, it is still possible for an exchange to move funds out of that wallet on a whim and into any other wallet of their choosing.
This sort of wallet is known as a form of Custodial wallet. However there are "shades" of custodianship. If any feature of a wallet app requires the use of some centralised entity to provide it, then that wallet is said to be custodial in nature.
You might elect to use a custodial wallet, when purchasing Bitcoin from an exchange for example. But it's a good idea to forward your funds to a wallet that you control, a service like WalletMatrix can help you find one.
The Hierarchical Deterministic wallet feature ("HD" for short) is now standard in most Bitcoin wallets. Also known as "HD Wallets" or "BIP32 Wallets", this feature provides users with the ability to "rebuild" a wallet and recover their funds in the event that a smartphone or hardware wallet is lost, destroyed or stolen.
There is also a privacy bonus to be had where for each payment you create, the wallet generates a brand new address to which payments to the wallet, can be made. This makes it much harder for those engaging in chain-analysis, to determine if the same person sent two or more transactions from the same "physical" wallet.
When these HD wallets are first opened, users are usually prompted to save a 12 or 24 word "seed" or "seed phrase" as an offline backup. These words need only be re-typed into a brand new wallet, even on a brand new smartphone, in order to make otherwise "lost" funds available to be spent once again.
Hierarchical Deterministic wallets can also have an additional "word" or "passphrase" added to the base set of 12 or 24 word seed phrase. Wallets will prompt for this word separately thus providing users with a form of 2 Factor authentication.
The intended use of an HD Wallet is as a means for backing-up the entire wallet. Should you lose access to your phone either by loss, damage or theft, and assuming the wallet's instructions were followed when setting it up originally, users can "re-create" a new wallet with all their funds intact on a completely new device, and have immediate access to their funds.
The ability to send funds from an address only once is a useful privacy future. Because the Bitcoin network comprises a public ledger of all transactions that have ever occurred, it is possible with the right technical knowledge to perform a process known as Chain Analysis on the data and to derive patterns of behaviour with reference to individual wallet addresses, even though no identifying names or email addresses are included in it.
Being able to generate new addresses for each transaction therefore, makes this process much harder to perform.
Fee Control in Bitcoin wallets allows wallet users to have some control over how their transactions are processed by miners.
You have a payment that needs to be made immediately. In order to achieve this, it needs to be ideally included in the next block of Bitcoin transactions, leading to it being "confirmed" as quickly as possible. By using your wallet's fee control feature to set a high fee, you're incentivising those who process Bitcoin transactions, known as "Miners", to prioritise your transactions over others. This doesn't absolutely guarantee that yours will be included in the next block, because you cannot know the fees being paid by others at around the same time, however, you do increase the chances of it working in your favour.
Fee Estimation enables users to change the miner's fee* they'd like to pay. to have their transaction included in a block The higher the fee, the higher the incentive is for miners to place your transaction into their next block, potentially speeding up the time it takes for payees to receive their funds from you.
Some wallets will try to estimate an appropriate fee automatically, others will just have a set fee as a default. Either way, the wallet should still allow you to override that value.
You need to get a transaction to someone quickly. With a fee set at its lowest, you may be waiting upwards of an hour before your transaction is included in a block. In addition, you need to wait for the appropriate number of confirmations* before your transaction is spendable by the payee. Setting your fee to its highest however, automatically signals to miners that your transaction has a higher priority than others with a lower fee.
Short for Foundation for Interwallet Operability. The FIO are an independent organisation pushing for interoperability standards between wallet vendors by means of their adopting the FIO Protocol. The main tenet is that users should never need to see or have to type any Bitcoin wallet address. Instead, users will have a unique identifier or handle similar in function to an email address or Twitter handle. Wallets marked with FIO support, offer some level of interoperability with other wallets that themselves use the FIO Protocol.
Wallets with FIO Protocol support may comprise one or more of the following individual features:
- Human readable payment addresses
- Notifications when payments are received
- Encrypted (secure) meta-data sent between wallets
With regard to 3, your wallet may be able to send and receive "structured data" (Data in a form that is machine-readable). This means that in the near future, your wallet becomes more than just a sender or receiver of funds, it can also help you manage your spending, by breaking down and analysing shopping lists or even electronic receipts sent to it from other FIO-aware point of sale (POS) systems.
Wallets can be used on different types of device.
- A Mobile form-factor usually denotes a Smartphone or tablet app that is downloaded from an app store like Apple's iTunes.
- A Desktop form-factor usually means software that can only be installed on a desktop operating system like Microsoft Windows, Ubuntu Linux or Apple's OSX.
- A Hardware form-factor indicates a special kind of highly secure wallet, usually in the form of a separate USB device.
- Some wallets are also available to be installed onto Smart Watches. They can be found by searching under the Wearable form-factor option.
With the ubiquity of Smartphones these days in almost all economies of the world, a software Mobile wallet installed as an app on your phone or tablet is probably going to suit you best for day-to-day use.
If you're in front of a laptop of desktop computer for lengthy periods and/or you usually do some or all of your shopping online, a Desktop wallet may suit.
For more advanced users, users with significant Bitcoin holdings or users for whom security is utterly paramount, the use of a hardware device about the size of a standard USB thumb-drive as a Hardware wallet, is usually the way to go.
In addition to measuring footsteps and heart-rate, you can also make purchases with Bitcoin and Lightning using your Wearables such as your Apple Watch.
Bitcoin wallets have traditionally taken the form of apps (software) downloaded onto a smartphone, smartwatch, laptop or a PC. But once you start holding larger amounts, there becomes a need for increasing levels of security measures to be taken. After all, you wouldn't carry thousands of dollars in coins and bills in your pocket each day because of the risk of loss or theft. This is the equivalent of holding even a fraction of a bitcoin in a smartphone app and carrying that around with you every day.
In the traditional money system you'd consider entrusting some kind of institution with larger sums such as a bank holding it in an account on your behalf or perhaps as cash, silver or gold in one of its vaults. But because cryptocurrencies like Bitcoin are not centralised, therefore this sort of security is actually up to you to manage and it can be quite a responsibility!
Hardware wallets are designed to provide a level of "cold storage" for holding larger sums. They usually take the form of a USB device and typically plug into a PC (some newer models connect wirelessly over Bluetooth). Many come with their own software that can be installed separately onto a desktop PC or smartphone. A hardware device may have several specific features which may appeal to you depending on the amounts you intend to manage and your current security (and privacy) threat levels.
Note: When installing apps onto your PC for managing your hardware device, take care to only to install them from official sources. The sorts of precautions you should be taking when using internet banking or using any online services securely should be at least good enough to use when checking and downloading the appropriate software.
Not strictly a Bitcoin-specific feature, U2F (short for Universal 2 Factor) is a protocol supported by some Bitcoin wallets that allows them to double as HSM's (Hardware Security Modules). These devices - popularised by the YubiKey - function as a second authentication factor with compatible services, instead of using insecure SMS, Email or a TOTP (Time-based One TIme Password) application like Google Authenticator.
Until relatively recently, hardware wallets were entirely operated by physical buttons pressed in specific combinations. Some modern hardware devices now comprise a touch-screen that operates very similarly to the those found on smartphones. This obviously makes it easier to interact with the device's features, and even offer an interface in a language other than US English.
More often that not, a desktop-app is required to be installed on a laptop or PC for managing the hardware device, and reviewing the "accounts" held on it. At least one device we are aware of does not require a computer connection, and as such it is recommended only for more advanced users.
On WalletMatrix, "Desktop App" simply refers to the ability of a device to provide desktop/PC app connectivity, to be downloaded either via the vendor's own website or via selected third parties.
This feature of hardware wallets refers to the fact that your seed words (used to generate "private keys" from which Bitcoin addresses are generated) are stored in an entirely separate and specialised microchip on the device itself. The chip is purposely designed to securely store secrets such as this. Some users prefer to back-up their seed-phrases on an entirely different "air-gapped" device, or even on paper stored in geographically disparate locations.
The decision for you to use such a feature is therefore contingent on some background knowledge, and as such should be considered to be a feature for advanced users only.
Some hardware wallets allow some aspect of your wallet's data to be backed-up onto a separate device, usually a Micro SD card on which partially signed Bitcoin transactions can be stored for signing completion to occur completely offline for ultimate peace of mind and security.
This feature is of course not very convenient for immediate payments, but as has been noted elsewhere, Hardware devices are intended to be used in "savings" scenarios, not for day to day spending.
Some hardware wallets can be connected to a laptop or desktop computer, or even a smartphone for managing funds and transactions within a familiar environment. The advantage of this setup is that you can see the funds currently managed by your hardware wallet without actually having to connect to it. However you will need to connect to it in order to create and send transactions (via USB or bluetooth) because the private key used to digitally "sign" transactions never leaves the hardware device.
Some hardware wallets come with a built-in camera for very easy QR code scanning during wallet to wallet transfers. If you'll be regularly transferring funds from a web, custodial or smartphone wallet to your hardware device, choosing one with a camera may prove useful.
BLE (Bluetooth Low Energy)
Hardware wallets with BLE connectivity enable users to quickly and easily connect a compatible computer or smartphone wallet app to the hardware device itself. Hardware wallets are designed to do one thing well, and that's securely hold your private keys. This is extremely important to understand, and is the sole reason hardware wallets exist as distinct devices. They provide an additional layer of security when managing periodic bitcoin transactions. While they aren't designed for day-to-date transacting, being able to combine a smartphone or desktop wallet app with a hardware device via USB or BLE, does provide for faster setup and transaction times than those without. (See "Air Gapped" below).
"Air gapping" is a way to keep two devices or systems physically separate on a computer network. If no connection exists between each then there's only a very limited range of security problems that may be able to be exploited by those that know what they're doing and all of which involve physical access to the device itself.
In the context of bitcoin hardware wallets, air gapping involves the wallet having limited, restricted or zero connectivity for Bluetooth, Wifi or USB. In such devices, a bitcoin transaction is generated by a software wallet on a smartphone or laptop computer which is then distributed to the hardware wallet whose private key is used to sign the transaction. The distribution method between software and hardware wallets may differ depending on the hardware device itself. Some air-gapped devices do use USB but the connection itself is only able to be used when a PIN is entered into the device, thus providing an additional layer of security. Others comprise a camera so that no physical or network connection is made between device and app and all that's required for transaction signing is the scanning of a QR code using the hardware wallet's own camera.
The language as a feature is represented simply as the range of country-specific natural languages that a particular wallet is able to display within its user interface.
The ability to show your wallet balances among other of its features, in a language of your choice within the wallet itself.
The software license used by a wallet's source code is mostly of interest to software developers. A software license stipulates the terms under which the code that wallet software is written in, may be used. WalletMatrix prefers wallets released under an Open Source software license, but this is a guideline rather than a rule.
Some licenses are less permissive than others, and may even restrict developers from using a software library or codebase for a commercial product or service altogether.
The Lightning Network (Wikipedia) is the first "Layer 2" scaling solution for Bitcoin. Layer 2 is a general label given to additional networks that are layered on top of the Bitcoin base chain. Participants in Layer 2 networks can transact faster than with the base-chain, as they needn't wait for transaction finality to occur (usually 6 confirmations). Lightning makes use of long-running payment channels which when opened and closed, need to anchor those transactions to the Bitcoin base chain.
Once open, a payment channel allows the immediate transfer of bitcoin, making Lightning Payments far more like "digital cash" than the slower on-chain counterpart.
There are several independent features that a Lightning-enabled wallet can have that may sway you toward picking a particular one to use.
Lightning wallet users should not need to concern themselves with the internals of the network itself. When you fire-up your web-browser, the first thing you think about is unlikely to be around how your request for a website is transmitted across the internet. And yet, the ability to open a payment channel with a peer on the network has until very recently been something that users have had to manage themselves.
Wallets that sport an "Auto Liquidity" feature, will automatically take-care of supplying your channel(s) with incoming liquidity sufficient to balance out your channel and allow you to use it.
This is considered an "advanced" user option. Basically, it allows you to put your wallet into "routing mode" and, depending on how the wallet has been designed, can allow you to earn micro bitcoin payments just for routing other people's payment traffic through your wallet-as-node.
Warning: You need to do your own research on this in order to determine bandwidth costs and also the legality of acting as a go-between in the financial transactions of others. Amazingly, the latter may be construed as the wallet owner (you) acting as a money transmitter and as crazy as it sounds, may also require you to apply for a money-transmitter's license. Check in your local jurisdiction as to what the rules are, because as you might imagine, this technology is advancing so rapidly as to render traditional rules and regulations almost irrelevant.
This is considered an "advanced" user option. Wallet developers need somewhere safe to test out new features without fear of losing any real-world bitcoin funds. A Testnet does just this. It acts like the real thing, but no actual Mainnet Bitcoin are ever spent.
Short for Point of Sale, some Lightning wallets allow you to setup a smartphone as a POS device in a bricks-and-mortar store, much like cloud-based POS systems like POS-Boss and Vend already do with iPads and smartphones for non-bitcoin payment transactions.
Owning and running your own full Lightning node provides the same level of "self-sovereignty" over your payments as does running a standard full Bitcoin node. (Although you actually end up running both anyway). A Lightning Bitcoin wallet connected to a Lightning Node that you own and run (or owned and run by someone that you know and trust) means you don't need to trust anyone else on the internet. There isn't anything intrinsically wrong with trusting nodes run by others on the internet, but there is always small risk of inaccurate or outdated information being passed along to your Lightning Wallet, malicious or otherwise.
A compatible smartphone wallet will provide you with a screen for configuring the details of your local Lightning Node, which allows the two to communicate with one another.
Lnurl is a protocol for communication between Lightning wallets and third-party Lightning services. It simplifies a range of common payment scenarios not previously possible within the legacy monetary system or indeed the current Bitcoin payments ecosystem. Wallet owners can generate and display customised QR codes that when scanned by payees, gives them the ability to perform some or all of these activities:
Note: A Wallet with Lnurl support may not support all of the features described by the Lnurl specification itself.
- Simplified incoming liquidity
- Direct withdrawals
- Application authorisation
- One-off payments
The Lightning Network is designed for peer to peer payments over virtual "channels" that are opened between a payer and payee. Channels need be "balanced" before they can be used: The same amounts need to be loaded onto both sides of the channel. But this is not something users should need to think about. Lnurl capable wallets can scan a QR code from a 3rd party "liquidity provider" which immediately balances the channel. It's worth noting that some Lightning wallets automatically provide liquidity in the background themselves by using "Liquidity as a service" or "Turbo Channels". You can search for these wallets using the "Auto Liquidity" feature from the "Lightning Features" menu within The Matrix.
Let's say you hold some funds in a 3rd party Lightning app or service (aka a "Lapp") and would like to withdraw them to your wallet. Simply scan a QR code displayed for you in your account, and the transfer is near instant with no need to copy and paste addresses between apps. Withdrawal actions that are normally only associated with a standard bank account are also possible using a similar procedure: Standing-orders, subscriptions or frequent direct-debits.
By scanning a QR code, users of a Lightning app or service (aka a "Lapp") can login or register with it, without revealing any personally identifying information.
- Lnurl for Lightning Wallets
- Liquidity Providers (Lightning Pool, Turbo Channels)
- Lnurl specification
- Becoming Self-sovereign with a Lightning Node
- Lightning as a Servce with Voltage
- Lightning as a package with Umbrel
- Lnurl Channel specification
- Authentication with Lnurl specification
- Withdrawing funds with Lnurl specification
- Paying for services with Lnurl specification
A Multiple Signature feature ("Multisig" for short) allows more than one person to digitally "sign off" on a transaction before any funds can be spent. This might be useful in an escrow situation for example, and is usually one aspect of a larger solution provided by Bitcoin security companies that help their clients better secure their funds from personal mistakes or software/hardware failure.
You work for a company of accountants. The company has clients that prefer being paid for their services in Bitcoin. In order to reduce the potential for fraud or to mitigate circumstances where one accountant is away sick and a payment needs to go through, it is company policy for two of the team to sign-off on all outgoing payments. Using a Bitcoin wallet that supports multisig for all the company's outgoing payments, this can be easily achieved.
Another example is in the execution of a person's will; where there exists a stipulation that at least 3 of the 4 beneficiaries sign a transaction, before Bitcoin funds are able to be paid out.
Partially Signed Bitcoin Transaction
A Partially Signed Bitcoin Transaction (PSBT for short) is a feature offered by some Bitcoin wallets which gives them the ability to communicate directly with a Hardware Wallet using a standardised format.
A smartphone app will partially sign (digitally) a Bitcoin transaction without yet broadcasting it to the Bitcoin Network. This partially signed transaction is formatted in such a way that compatible hardware wallets can understand it, so that the transaction and be co-signed using an offline wallet.
Advanced users will already know about Multisig (Multiple Signature) payments, where more than a single entity (person or computer) digitally signs a transaction before broadcasting it to the Bitcoin network. Should users require multi-sig functionality, then the transaction to be signed can also make use of PSBT in a smartphone app for example and export it to compatible offline apps and devices to allow them to co-sign before transmitting to the network, for additional security.
PSBT ultimately provides for a standard format of partially signed transaction for use in a multi-signature scenario, allowing these transactions to be passed around more easily. Because it's a standard, new wallets can be designed and built to do the same thing and be instantly compatible with others that also support the standard.
Wallets run on phones, watches, desktop or laptop computers or as independent hardware devices. Depending on the platform, a different level of user experience and feature set may be available to you.
A Platform is sometimes bit of a nebulous term which refers to some combination of form factor and operating system. On WalletMatrix it's a term used to describe the operating system only.
Every computer, tablet, smart watch and smartphone has an operating system built into it. Depending on your purchasing patterns and the amount of time you usually spend in front of each of these devices, your choice of wallet software will be dependent on the operating system that these devices have installed on them.
Minimise other's ability to analyse and track your transactions.
Many people don't think enough about their privacy, especially online and mistakenly think about it in terms of having nothing to hide. However, it is better framed as having nothing that you need to share.
It seems every week there are new revelations of data breaches and unauthorised surveillance from social media, e-commerce and traditional banking. Choosing to use Bitcoin for a share of your day-to-day transactions is one way in which to signal your intent to use an alternative to centralised systems, but there is always more that you can do to further anonymise your transactions.
Custom (Own) Node
Every wallet needs to be able to connect to the Bitcoin network for sending and receiving transactions. When such a connection is made, it is made to a "node" usually owned and run by someone else that you've probably never met. It's this node that other nodes, including other mobile wallets, will connect to at some point.
Mobile wallets are usually also nodes themselves, but "lighter" versions known as "SPV" or "Neutrino" which don't need to perform every available validation check on incoming and outgoing transactions that full nodes do.
A mobile wallet will usually connect to the first full node it can find on the Bitcoin Network, but for those wallets that support Custom Nodes (Also known as a Local Node) the wallet allows users to connect to one that they run (or one that is run by someone that they trust such as a family member or close friend for example).
Unlike the traditional banking network which is centralised, the Bitcoin network is decentralised. In this way, the number of individuals and companies that run their own Bitcoin Node software are the network. And while the rules of Bitcoin already prevent bad behaviour on the part of node owners and operators, a Local Node offers total piece of mind. After all, what better way to trust a node operator, than when that operator is you? Take a look at the "Further Information" link below for suppliers of user-friendly full node products that can be ordered over the internet and that accept Bitcoin as payment!
Using the Tor network layer as a wallet privacy feature, allows all internet traffic sent from your wallet to be fully anonymous. No cookies, IP address or network information can be discerned by the Bitcoin nodes or intermediary services that may carry, process or receive your transaction data over the internet.
Usually when a Bitcoin transaction is created, there is a fairly simple way for outsiders to review the amount of funds transferred from one wallet address to another. A wallet that supports coinjoin will transmit your payments to the Bitcoin network by combining or "joining" it along with several others. This makes it harder (but not impossible) for third parties to discover which addresses are paying which other addresses.
On the Bitcoin network, a PayNym is a publicly shareable identity, like a name or an alias, that is cryptographically associated with a wallet address. Only yours and the recipient's wallet will ever be able to read the address. This is a privacy feature because it prevents analysis of previous transactions and the amounts sent.
How might you send a Bitcoin transaction without being connected to the internet? Well a Bitcoin transaction comprises purely digital data, therefore any computer or communications network is capable of transmitting it. Examples of transmission networks, other than the internet that some wallets are capable of using are Mesh Networks and Mobile Phone Networks (via SMS messaging).
One reason you might be interested in offline transactions are if you plan on being located somewhere with no or poor internet connectivity for some time.
Some wallets require users to setup an account either to satisfy KYC and AML laws (in the case of custodial wallets) or to offer a range of additional services such as Tweeting money to others or similar with other web-based services. Many people suggest that any requirement to disclose personally identifying information (PII) in order to transact, is the antithesis of Bitcoin itself, because Bitcoin doesn't care who you are, where you are or even what you are. Ideally therefore, Bitcoin wallets should not be requesting any such information.
It's also worth noting is that a wallet's parent company which holds zero information about you, has zero chance of leaking that information to unauthorised third-parties such as hackers. Data-breaches occur daily on the internet and large databases of PII are dumped onto the dark web and sold to the highest bidder more frequently than you'd think. It behoves bitcoin wallet users to take these matters into consideration
But as always "it depends". If you feel that you need a service or set of services provided by a wallet that requires an email address to signup with; then consider using a "burner" address - a disposable email address that is not tied to you in any way.
- "Sovereign" interaction with the Bitcoin Network (saumouraiwallet.com)
- Running a Full Node (Bitcoin.org)
- Why Every Bitcoin User Should Understand SPV Security
- Official Tor Project website
- The "Dojo" home node project from Samoura Wallet
- The "NODL" personal Bitcoin Assistant
- PayNym on SamouraiWallet.com
- "Mesh Network" on WIkipedia
- KYC Definition on Wikipedia
- Bank Secrecy Act on Wikipedia
- AML Definition on Wikipedia
Replace By Fee
A Replace By Fee feature ("RBF" for short) and also known as "Fee Bumping" or "Transaction Replacement" allows users to replace one of their currently unconfirmed transactions with a newer transaction.
Due to a lot of activity on the Bitcoin network, transactions can occasionally take longer to settle than the standard hour or so (Otherwise known as "confirmation" or "confirmation time"). Using RBF users can instruct their wallet to replace a pending or "unconfirmed" transaction with another one, that sets a higher fee. The purpose of this fee increase is to incentivise miners to process your transaction sooner than it would have otherwise with the initial and lower fee.
"Reproducible build" or "Deterministic build" describes a software package that should be able to be independently assembled according to specific instructions from publicly available sources like Github.
Someone following these instructions should be guaranteed to produce a package that is essentially the same as one built by the vendors themselves.
In and of itself this isn't terribly impressive, but the key thing to understand though is that the public sources can be independently reviewed by someone qualified such as a software developer. The developer can examine the files and could assert that there is nothing malicious lurking within. Therefore assembling those files into a package that matches exactly what's available in an app store is tantamount to performing the entire process on the downloaded package itself and coming to the same conclusions about it.
Reproducibility is especially important in the context of Bitcoin wallets because they're used to manage money. Wallets are produced by independent software vendors, not trusted entities like a bank for a roughly equivalent banking app. Users should not therefore need to blindly trust that app developers or even app stores themselves haven't hidden an exploit into the wallet's software.
Alice works on "WalletX" and claims to release reproducible WalletX packages. Carol is a software developer and knows a little about software reproducibility. She offers her services to Bob who wants to download WalletX becuase he saw it on WalletMatrix and thinks its features would be a good fit. Bob also knows and trusts Carol.
Carol reviews the wallet code and finds nothing malicious with it. She then compares the examined files as a software package, with the sources provided by Alice and establishes for Bob that WalletX is indeed reproducible as claimed by Alice, thereby providing assurances to Bob that the packaged app he downloads from an app-store is free of exploits.
In this example Bob does not need to trust Alice at all. As long there is trust between Carol and Bob, then that's all that's required to know that the package itself is indeed derived from the public source and is free of exploits. The need for trust between users of WalletX and WalletX as the vendor can be relaxed. Instead of trusting the vendor, WalletX users need only trust an independent expert of their own choosing.
Reproducible software in and of itself does not automatically mean that it is also free of exploits. It merely provides the pre-requisite for someone such as a software developer, to be able to examine it and then compare it to something else.
Your bitcoin funds are your responsibility so you it follows that you should probably be taking your wallet security seriously too.
Security is a far-reaching and detailed topic in its own right, for which there are already many good resources on the web.
All Bitcoin wallets offer a wide range of security features, but it can be hard to know which of these offer protections that are valid for scenarios you can envisage finding yourself in. This last point is very important to consider. What's the point in going to the nth degree to secure your funds, if all you're ever likely to hold are a few Satoshis? (A Satoshi represents a one-hundred millionth of a single bitcoin). On the other hand, what's the point in not securing your funds if you wish to manage multiple bitcoin? (hopefully via one or more hardware wallets).
It's important to understand one of the fundamental differences between currencies such as bitcoin and the Dollars, Euro, Yen or Paeso that you may be familiar with: A traditional bank may be able to refund you should you lose funds via unauthorised persons discovering your internet banking password or via stealing or skimming your credit card. But with cryptocurrencies, the burden of security is on you. If you lose access to your Bitcoin wallet by losing the Seed Phrase (Used to generate the private keys that it securely maintains on your behalf), then you have lost that Bitcoin forever. You only need to Google "Lost Bitcoin" to read some saddening stories of thousands of US Dollars worth of bitcoin having been lost forever, due to poor security.
Depending on the frequency with which you wish to use bitcoin for payments and the amount you wish to hold in bitcoin, you may choose to be more or less security conscious and therefore select from a subset of the total range of security features offered by currently available wallets.
This security feature allows you to create what appears to be a genuine wallet with a genuine wallet balance, but is in fact only a facade, containing perhaps only a fraction of your total bitcoin funds. This confers a "plausible deniability" ability onto users in a "5 dollar wrench" attack scenario.
Pin On Wallet
This security feature allows users to set a secret PIN on the wallet itself, which needs to be manually entered into a wallet, before being able to use it or any of its features.
Pin On TX
This security feature allows users to set a secret PIN for each transaction, which needs to be manually entered into a wallet before being able to send any transactions.
A wallet with an encrypted password feature will simply store the password in question in an encrypted form on the device itself, therefore rendering a stolen device such as a smartphone, useless to a thief or attacker who isn't also in possession of the cryptographic keys used to perform the encryption itself.
Unlike most decimal currencies that are divisible only to two decimal places, and usually employing a separate currency denomination e.g. Dollars and Cents, or Pounds and Pence; bitcoin is divisible to eight decimal places, each unit of which is known as a Satoshi. This immediately allows for very fine-grained payments called "micropayments" and Dust is the word generally used to describe extremely small amounts of bitcoin, usually in the context of receiving change from a bitcoin transaction at around the 1000 Satoshi mark (0.00000001 Bitcoin).
Wallets offering a scrambled PIN feature will scramble the digits on any PIN-entry screen, to confound screen-reading and key logging malware that could be present on a mobile device. Whenever the PIN-entry screen is displayed, the keypad will arrange each digit differently each time.
2 Factor Authentication
A wallet that features two factor authentication (2FA) will require you to use at least 2 different means (factors) of verifying that you have permission to either open a wallet or create and send a transaction on that wallet. It depends on the wallet itself as to how exactly this feature is implemented.
Ordinarily almost every wallet you'll come across will prompt you to store a set of 12 or 24 words known as a "seed" or "seed phrase" or "wallet seed" the first time you use it. This seed is used by your wallet to derive a cryptographic key which in turn is used to generate unlimited payment addresses. If you lose your wallet or it's stolen, then a new wallet can be easily purchased or downloaded and the funds associated with the former can be re-instated within the latter.
This is n amazingly useful feature except that you need to keep the seed somewhere secure away from the wallet itself. Often this means writing it down on a piece of paper, stamping it on some sort of indestructible steel device or material and storing that somewhere safe like a lock box or bank vault.
With a Keyless wallet however there is no single private key stored in a single location. Instead the key is derived from multiple, geographically separate and cryptographically produced pieces and assembled from each piece whenever they're needed, e.g. when your wallet digitally "signs" transactions on your behalf when making a payment. Only a small handful of wallets implement private key management in this way and there are criticisms of the underlying system they usually use to achieve it.
A wallet with a Touch ID security feature allows it to authenticate either for a making a transaction or for opening the wallet itself, with the use of a finger or thumbprint. If you have a recent Apple or Android smartphone, you'll probably already be familiar with this feature.
A Login Countdown simply locks users out of a wallet app if a PIN code or password challenge has not been completed within a particular time-frame. If the countdown expires, users are required to re-do the process of authentication.
You can consider this a "feature of last resort". If wallet users find themselves under duress such as during an in-person attack of some kind, they can "brick" the wallet (rendering it as useful as a brick) by entering a special PIN. The wallet is then left completely unusable by an attacker or anyone else. Once in a place of safety, all users need to do to, to "rebuild" their wallet (and all the funds it managed) by downloading and installing a new wallet app and pass it their 12 or 24 word seed phrase.
Some wallet apps will only allow access to funds and wallet features after scanning your face. This is a highly secure way to access a wallet. However, you are providing personal data to the app when you do this and without knowing what the app actually does with the resulting data or image; as with any feature that requires personal information, you should do your own research first. A really good way to start is to also search for wallets that have been certified as "Reproducible". You can select this option from the "Wallet Features" menu in The Matrix.
Wallets with a remote-wipe feature allow users to send "commands" from a remote location to a Bitcoin wallet installed on a Smartphone for example. The command will completely delete the wallet from that particular phone if a particular text message is sent to a particular number. This is a useful security feature to have, but for it to be utilised, an attacker or thief does need to know the PIN (or face/touch-id) of your wallet first, to even be able to get into the wallet in the first place. A system of remote-wiping can therefore be seen as a useful backup security feature.
Wallets with a withdrawal limit will prevent Bitcoin funds transfers above a specified limit. For example, wallet users might configure a limit of 50,000 Satoshi (0.0005 Bitcoin) that is able to be withdrawn (sent) from that wallet. This is a useful security feature to have, but for it to be utilised, an attacker or thief does need to know the PIN (or face/touch-id) of your wallet first, to even be able to get into the wallet in the first place. A withdrawal limit can therefore be seen as a useful backup security feature.
- General Security Considerations from the Casa App support website
- "Operational Security" on Wikipedia`
- The "5 Dollar Wrench Attack" explained on the Bitcoin WIki
- The "5 Dollar Wrench Attack" explored on the Casa App support website
- Official website of the Tor Project
- Scrambled PIN on SamouraiWallet.com
- About keyless technology from the ZenGo wallet
- Seed Phrase, on the Bitcoin wiki
- Shortcomings of Shamirs Secret Sharing (in keyless apps) via Casa Blog
- Remote Wiping via SMS (Samourai Wallet)
- About Reproducible Builds (WalletScrutiny)
Segwit Native Address
Segwit Native Address is a feature that resulted from a Bitcoin network upgrade in 2017 known as "Segwit" which had several intentions: In the context of wallets, this change resulted in the adoption of a new wallet address format known as a "Bech32 Encoded Address" a "Bech32 Address" or "Segwit Native Address", the design of which reduces the amount of data that needs to be included in a transaction and therefore permits a greater number of transactions to be included in each block.
When you need to send funds from your wallet to another wallet or service that only supports receiving funds to a Bech32 address.
Support & Policies
So called "soft" features of a wallet such as product support and privacy statements actually come from the company behind the wallet. WalletMatrix refers to these as "vendors". Various recent and historical hacks and attacks on bitcoin exchanges and wallet companies have lead to Bitcoin users requesting more transparency from vendors. This searchable feature therefore is not a feature of the wallet per se, but a link to further information on the vendor's website.
It is important for wallet users to understand how exactly data they may have knowingly or unknowingly provided to a wallet is used by the vendor and in what way. From a vendor's perspective, it is in their best interests to hold as little information about you as possible, and for as short a time as possible. Following this protocol is a mitigation against data breaches and hacks. A vendor providing a link to their data-retention policies is a vendor that has given this some thought and appears to want to be as transparent as possible with users as to to how they deal with the data they do collect.
Especially true for hardware wallet vendors is that the physical device they've produced can occasionally malfunction or behave in an unpredictable way. It might even just be plain broken! Just like anything else you buy at a physical or online store, you need to know where you stand with regard to product support.
Bitcoin is both a currency and a network. The former is called bitcoin and the latter is called Bitcoin and of which there are actually two, each with a slightly different use case:
- Mainnet is used when making day to day payments. You don't know you're even using it
- Testnet is used by wallet software developers when building and testing new features. It's used as if it were the Mainnet but without any danger of losing real funds. Think of it as a "Sandboxed" network.
Bitcoin software developers need to ensure that new features and bug-fixes work correctly while using a safe environment (testnet) which behaves as closely as possible to the real thing (mainnet). An environment where there is no risk of losing any real-world funds.
Features described elsewhere on WalletMatrix such as Batch Transactions and RBF will all have been tested on a Testnet.
If you've ever used internet banking you'll be used to adding a note to each payment. This is useful when you need to go back through your transaction history and locate a specific payment. There are also Bitcoin wallets that offer the same feature and which can help you audit yourself or create transaction reports for use with an accountant or other financial professional.
Ensure that your transactions stick to the rules of network.
Validation is one process that wallets perform when sending and receiving payments. Validation ensures that individual payments cannot break the rules of the network. Bitcoin is a "trustless" network of participants, humans and computers (known as "nodes") and in the case of a smartphone wallet app, your phone is also acting as a special kind of node.
Some wallets perform a minimal set of validation checks; these are designated as SPV (Simple Payment Verification) nodes and they represent a large proportion of available smartphone wallet apps, because SPV validation is very fast, and requires comparatively little data to be downloaded from the Bitcoin blockchain.
Other wallets will defer the validation process to a dedicated full node (usually hosted on a dedicated computer or a server) that it connects to, and which is located elsewhere on the Bitcoin network. This is done in order to perform a greater range of validation checks. Wallets that behave this way are known as Fully Validating.
You might select a wallet based on a particular form of validation for reasons of overall network health or for your own security reasons. A fully validating node will validate all transactions and will ensure network consensus rules are being adhered-to.
Importantly: Such a wallet cannot be tricked into receiving malformed payments.
Many wallets that have Lightning Network integration will use Neutrino payment validation. Unlike SPV, which only performs a subset of the possible range of validation tasks because for reasons of speed, it only ever receives a small amount of the available data from the network. Neutrino validation is able to perform a wider range of validation on more data, due to the advanced data compression it employs.
Some wallets will be fully-validating, but only by proxy - in that they run an instance of a Bitcoin Full Node on their own servers. Selecting the Via Own Servers validation option, will return you wallets of this kind.
Particular types of transaction, suit particular types of wallet.
A wallet app or hardware wallet may divide itself into independent "accounts: or "wallets" where each one designed for a specific purpose. This is analogous to a customer having several accounts within a bank such as a chequing, savings or revolving credit account. Or, to use a personal analogy; the use of a traditional personal wallet, money pouch or purse that may have a zipped pocket for coins, a wider slot for notes or bills and several smaller slots for credit, debit, barter and store cards.
You might use coins from the zipped pocket to pay for coffee or food at a market. You might use a chip-and-pin or EFTPOS card to pay for lunch and a credit card to pay for a new kitchen appliance such as a fridge or a used car. Each of these is a different form of payment designed to provide users with different features. The same is also true for individual software wallets within an app, computer or hardware device.
An On Chain wallet can usually be thought of as the default provided by most cryptocurrency wallet software and devices. It allows users to immediately send and receive peer to peer payments with the users of other wallets.
A BRD Wallet offers functionality or compatibility with the BRD wallet.
A Single Address wallet provides a wallet for which there is only ever a single address. This might be useful for example if you're accepting one-off payments as tips from your website (or your github account if you're a developer), although this sort of wallet is no longer recommended for privacy reasons.
An HD wallet can be thought of as the opposite of Single Use wallets. HD wallets will generate a new address every time you send funds from it These days most "default" wallet-types in apps are already HD "aware". If you're interested, "HD" stands for "Hierarchical Deterministic" which is a reference to the underlying cryptographic principles these wallets use.
Watch Only wallets allow wallet users to monitor activity for an address or collection of addresses. They won't let you spend from them or receive payments to them, rather they're more of use to advanced users who may want to observe the transactions that occur to or from any Bitcoin address, which needn't be one that they own.