Once you have bitcoin, you must keep it safe in an encrypted digital wallet. This guide explains what a wallet is and how you can choose a wallet based on your needs.

Similar to how you keep your cash and credit cards in a real wallet, you normally store your bitcoin in a wallet after purchasing it.

When you are prepared to purchase, earn, or accept bitcoin as payment for products and services, you should create a wallet so that the other party has a digital address to send bitcoin to.

To store your bitcoin, your wallet needs to be strong and secure. There are many different types of digital wallets available these days; this article provides extensive information to assist you in selecting the best one.

Wallets can be downloaded on a mobile device, accessed on a desktop computer, or kept on paper by printing a QR code that provides access to the private keys. Wallets can be software- or hardware-based.

WHAT IS A BITCOIN WALLET

As with a typical wallet, a bitcoin wallet is an electronic device that saves your coins or banknotes and enables you to transfer, receive, and access them. A bitcoin wallet, in contrast to a physical wallet, holds the private key—cryptographic data—which verifies ownership and grants access to the real money that is kept on the blockchain instead of actual coins.

A Bitcoin user's worst nightmare is losing or having their private key stolen because it means they will lose their money. For this reason, when you obtain or receive bitcoin, the first thing you should do is secure this cryptographic data. Additionally, phishing attacks, computer errors, device loss, and hacking could result in the loss of your private key.

The argument for self-custody is very compelling in light of the events that befell Celsius, Voyager, Three Arrows Capital, and FTX in 2022, when they lost all of the bitcoin that belonged to their clients due to unethical business methods, ultimately resulting in their bankruptcies. Even while the cryptocurrency industry found these bankruptcies to be difficult to accept, this was not the first time that Bitcoiners had to deal with insolvent exchanges; in fact, the Mt. Gox breach in 2014 sparked the campaign known as "not your keys, not your coins," which is still going strong today.

People that use bitcoin frequently describe themselves as independent people. You need to take ownership of your Bitcoin yourself in order to be a sovereign person. You must become knowledgeable about wallets in order to accomplish this.

WHY USE A BITCOIN WALLET

One of the most effective Bitcoin maxims is "Not your keys, not your coins," which implies that you don't genuinely own bitcoin if your wallet doesn't grant you exclusive access to your private keys. Rather, it will be held for you by a third party, such as an exchange, in the same manner that a bank holds custody of your money.

With Bitcoin, you may store your wealth safely, have financial sovereignty without the need for middlemen, and be protected from rehypothecation. Bitcoin was developed as an alternative to the banking system.

Because Bitcoin encourages financial self-reliance, you will learn to store your cryptocurrency safely and manage your spending. When following this path, one of the first things you have to learn is how wallets operate.

HOW DO WALLETS WORK

All bitcoin value exchanges take place through bitcoin wallets on the Bitcoin timechain, sometimes referred to as a blockchain. The private key to your wallet gives you permission to utilize your funds and serves as proof that you are the legitimate owner of the bitcoins stored within. It functions similarly to your online banking password.

Because private keys have 256 digits, you can't store, transact, or secure money with them. For this reason, they are safeguarded in a bitcoin wallet that pairs them with a public key to immediately activate them for transactions.

A seed, or recovery phrase, is automatically produced when you create a bitcoin wallet. This allows you to access your money even if you misplace your private key. A series of 12 or 24 syllables that will be used to produce any Bitcoin key you require in order to transfer and receive bitcoin is known as a seed phrase, mnemonic, or recovery phrase.

Although the configuration of these wallets is uniform, there are distinct wallets for varied needs and tastes.

Various bitcoin wallet kinds are available based on your needs. They all carry some risk, and custodial wallets controlled by third parties in particular should be taken into consideration. In order to prevent costly errors and the possibility of losing your money, we advise that you heed the following advice:

Use of a wallet that does not provide recovery data is not advised.
Use of a paper wallet is only recommended for experienced users who understand the risks.
Ideally, large bitcoin holdings ought to be kept in multisig wallets.
Don't forget to provide your heirs with recovery instructions.

DIFFERENT TYPES OF WALLETS

WALLETS OF MOBILE

Apps like BlueWallet and Bitcoin Wallet are examples of mobile wallets. These are lightweight, portable devices with a QR code for speedy in-person transactions. A few even employ near-field communication (NFC), which enables customers to tap their phones against the terminal of the merchant without having to present identification.

Given how simple it is to misplace your mobile device, they pose the greatest hazards because they are the least secure. If you possess the private keys, you can still recover your wallet on a different phone. However, because they rely so heavily on the internet, hacking may cause you to lose access to your money. They are therefore best suited for tiny transactions and should not be used to store substantial sums of bitcoin.

The wallet is less susceptible to hacks and sim-swap attacks when two-factor authentication (2FA) is used, ideally with an authenticator app like Google Authenticator, for added protection.

WEB WALLETS

Web-based wallets are typically exchange-based wallets that allow you to store and transact with bitcoin, such as BitGo or Blockchain.com. Because they are online websites that require a live internet connection, they are referred to as hot wallets.

Because users' private keys are kept on the provider's server, they are extremely susceptible to theft or hacking should the exchange go awry. It is strongly advised against keeping most of your bitcoin in a hot wallet.

DESKTOP OF WALLETS

Desktop wallets are open-source applications that you may download to your computer and save your private keys on your hard drive. Examples of these wallets are Atomic Wallet and Electrum, one of the first bitcoin web wallets, which has been active since 2011.

Because you aren't relying on third parties to retain your funds, they are typically more secure than mobile or web wallets, but they are still susceptible to hackers via an internet connection.

COLD STORAGE WALLETS

Any kind of wallet that is stored on a device without an internet connection is referred to as a cold storage wallet. An offline connection shields the wallet from online attacks of any kind.

Typical cold storage options are hardware wallets and paper wallets. Another option is deep cold storage, which is any cold storage wallet that is buried far below the surface of the earth, locked inside a vault, or protected in any other way to make sure your bitcoin is much harder to access than it would be otherwise.

HARDWARE WALLETS

Hardware wallets are actual physical objects that keep your private keys offline, similar to USB drives. Since they are not linked to the internet, they are typically regarded as being extremely safe from Internet hackers and computer viruses.

Although they take some technical know-how to set up, the manufacturer typically includes an easy-to-follow step-by-step instruction. Start by testing the wallet with a small amount of money to get a feel for it and feel more comfortable making a transaction. Load it with bitcoin only after you feel comfortable enough to send large amounts of money.

Make sure you always buy hardware wallets from reputable companies like Ledger, Trezor, or COLDCARD since counterfeit wallets found on sites like Amazon or eBay will steal your bitcoins.

PAPER WALLETS

Paper wallets, which need you to store your private keys offline on paper that you print out as a QR code, are also categorized as cold storage. To add the keys to a software wallet and complete a transaction, these can be swiftly scanned.

Because there are so many options these days, they are rarely utilized, yet they are extremely safe because passwords cannot be seen by hackers. Because personal information cannot be shared online, they are also quite private.

MULTISIG WALLETS

An additional layer of security is added by requiring multiple private keys in a multisig wallet in order to sign and approve a bitcoin transaction. It means that a transaction needs to be approved by a majority of parties, usually two out of three (or three out of five). This reduces the likelihood of a hack or theft, which is something single-signature wallets are more susceptible to.

Once all necessary signatures have been obtained, the transaction is complete. Just the quantity of signatures needed for each configuration is necessary; there is no requirement for a hierarchical order among the signatures.

THINGS TO LOOK FOR WHEN SELECTING A WALLET

MULTICURRENCY WALLET OR BITCOIN-ONLY WALLET

You can keep bitcoin in any cryptocurrency wallet, but only a select few allow you to store additional cryptocurrencies. Consider the solutions we've provided here and concentrate solely on obtaining a safe bitcoin-only wallet that gives you control over your private keys if your goal is sound money and you don't want to be distracted by other cryptocurrencies.

RESEARCH WALLET’S REPUTATION

While Bitcoin Magazine aims to educate you on the most reputable and trustworthy bitcoin wallets available, there is a wealth of information available online that gives you a comprehensive grasp of the various wallets and their reputation. For example, Jameson Lopp, a software engineer and Bitcoin enthusiast who is also the CTO and co-founder of Casa, a well-known self-custody solution, offers some of the most trustworthy and thorough educational content about Bitcoin on his own website.

RESEARCH WALLET BACKUP OPTIONS

The importance of backing up your wallet cannot be emphasized enough. Your primary means of recovery is to safely store your wallet seed phrase in a location you can recall and write down, along with a backup copy of your private keys.

You should never do this online, not even on your computer or cloud, since there is always a chance that hackers could take your money.

RESEARCH KEY MANAGEMENT

Managing your private keys is a crucial part of your wallet; just picture the security of your bank account. Find out if your wallet allows you to save your keys outside or on the same device as the wallet program, whether it has an automatic cloud backup feature or a manual one, and whether it is managed by many separate keys.

UNDERSTAND THE PURPOSE OF YOUR WALLET

Think about your priorities while selecting a wallet:

Convenience: is a wallet necessary for trading, daily purchases, or mobile use?
No matter what kind of wallet you choose, security should always come first.
Anonymity: Certain wallets prioritize privacy over others. Joinmarket & Wasabi Wallet provide excellent privacy.
Long-term investment: A bitcoin wallet for storing cryptocurrency.
Giving: You can give bitcoin as a gift without disclosing the private key by using a wallet like Opendime.

HOW TO SET UP A WALLET

It's not as hard as it seems to set up a bitcoin wallet, and most devices are easy to use and appropriate for novices. Most of the time, it's simple to follow the directions on the gadget as you proceed. However, the standard process for configuring a wallet is listed below:

Only the provider's website should be used to download and install the software, mobile wallet, or desktop wallet. To configure a hardware wallet, go to the manufacturer's instructions.
Follow the directions on the gadget; they are typically simple to understand. Usually, you can use the software or app right away after downloading it.
To ensure that you can restore your wallet in the event that you need to, secure your private key by writing down your recovery phrase;
To acquire some wallet practice, first transfer a tiny amount of bitcoin.

SECURITY RISKS WHEN USING A BITCOIN WALLET?

An increasingly common method of storing and using bitcoin is through wallets. They are vulnerable to security threats, though, just like any other digital gadget. The following are a few of the most frequent security threats connected to bitcoin wallets:

Theft: Your bitcoin could be taken if someone manages to get access to your wallet. Thus, always keep your wallet or wallets in a safe and secure location.
Coercion: Using multisig and cold storage options, you can prevent being physically forced to turn over your stack—a tactic known as a $5 wrench attack.
Hacking: It is possible for bitcoin wallets to be compromised, which might lead to the loss of your bitcoin. Hacking can take many forms, such as brute force attacks and phishing.
Malware: Computer programs designed to steal bitcoins can infect bitcoin wallets. Thus, make sure your operating system is virus-free and clean.

Using a multisig solution with a hardware wallet is the most secure way to store your bitcoin. For the bulk of your bitcoin or those you plan to hold onto for a long time, this is the strategy you should choose.

HOW TO MAKE YOUR WALLET MORE SECURE

When a bank holds your money in trust for you, the bank is in charge of safeguarding it, so you won't have to worry about the possibility of theft, floods, fire, or other types of losses.

You become your own bank and inherit the same worries that any bank management or bank security expert would have when you own bitcoin and assume personal responsibility for keeping it safe. You have the sole responsibility to safeguard your wealth.

Fortunately, we have a wide range of wallet options at our disposal to assist protect our investment. It's important to do your homework before selecting a wallet because some protect your bitcoin more than others. Here are some additional steps you may take to strengthen the security of your wallet.

STORE YOUR SEED PHRASE SAFELY

It's crucial to keep your seed phrase safe by keeping it in a secure location. For added peace of mind, you can take a few easy precautions: store it on paper, in a safe that is encrypted with cryptography, or on a metal plate like those offered by Coldbit or Blockplate.

Retain it private and don't divulge your seed phrase to anybody. To increase security, divide the seed phrase into two and keep them apart. As long as you can recall where and how to get your money back, be inventive when it comes to protecting your Bitcoin!

ADD 25TH WORD

The system advises you to securely store your seed phrase—usually a string of 24 words—when configuring your wallet. Some wallets let you add another phrase, which is meant to encrypt your root seed even more. The individual in possession of those compromised 24 words will unintentionally require the 25th word to obtain access to your root keys. If necessary, this solution buys you some time to switch wallets.

USE A MULTISIG SYSTEM

For your bitcoin, one of the best defenses is to use a multisig system. Multisig solutions come in two flavors: hosted (like Casa and Unchained), which maintains the private keys on your behalf, and unhosted (where you retain complete control). Each variety has pros and cons.

DECOY PASSPHRASE

When a password database is protected with a decoy passphrase, hackers are tricked into thinking they have cracked the file and are instead given legitimate credentials that do not grant them access to the private keys. Cybercriminals will still be able to decrypt that file, but the passwords they retrieve will be false or fraudulent.

USE MORE THAN ONE WALLET

The likelihood of losing all of your money in the event of a single point of failure may be decreased by using many wallets and distributing your money across them. To increase the accessibility of all of your devices, make sure you implement all of the security precautions described above.

ACCESS FROM A SECURE COMPUTER

Use a gadget specifically made for managing bitcoins to lower the likelihood that your computer will be compromised and your money will be taken. It is worthwhile because frequently used computers—especially those with lax OS security—are more likely to become infected with malware.

USE IN CONJUNCTION WITH A FULL NODE

You can secure your funds with the highest level of protection by using your wallet with a full node. Additionally, maintaining a full node improves the network for the good of all Bitcoin users.

By employing a decentralized technology that lets you operate in an environment devoid of trust, utilizing a node shields you against fraudulent activity. No rule breaker can have an impact on your money. Verify that you can configure how to connect to your own full node using your lightweight wallet.

INHERITANCE PLANNING

Though nobody like thinking about passing away or losing the ability to manage their finances, you may have questioned what happens to bitcoin in the event of your death. You must make arrangements for your heirs to receive your Bitcoin keys if you are keeping them yourself.

Being your own bank and having your own keys already involve a high amount of responsibility, therefore for some people, considering their own succession may be daunting. The first thing you should do is see a lawyer and draft a will so that the executor will be aware of your intentions about your BTC.

There are normally two ways to handle the inheritance of your bitcoin, both of which necessitate legal counsel for your own piece of mind:

Manual method: Since you're probably the most experienced person on this issue, you'll also need to leave your successors with instructions on how to use the private keys in addition to the private keys themselves. The keys should be maintained with a legal team, a trustworthy family member, or ideally a mix of both. To ensure that no party ever gets entire control or early control, it is advisable to limit access to certain parties.
Paid service: With the aid of a legal and technical team that can open the money for your beneficiaries, service providers like Casa can work with you to design an inheritance plan that enables your heirs to receive your bitcoin at the appropriate time.

A book called "Crypto Asset Inheritance Planning," produced by American lawyer and businesswoman Pamela Morgan under the technical direction of Bitcoin instructor Andreas Antonopoulos, also has a ton of helpful advice on preparing inheritance procedures.

FREQUENTLY ASKED QUESTIONS

WHERE CAN I BUY A HARDWARE WALLET?

Always purchase your bitcoin wallet from the official seller or the device manufacturer, as these are the sources that are the most secure. Never purchase anything from online stores like Amazon or eBay since the item might not be what it seems to be and your money could be stolen. It's always preferable to overspend and secure your money than to later regret not buying a new wallet in a secure manner.

WHAT IS THE BEST BITCOIN WALLET FOR INTERNATIONAL PEOPLE?

Because they are open-source and decentralized technologies, the majority of bitcoin wallets are accessible worldwide. The best international wallet is the one that best suits your needs. Devices like Electrum, Blockstream Green, or the hardware varieties can be downloaded or purchased from most nations.

HOW MUCH DOES A BITCOIN WALLET COST?

Most mobile and online wallets are cost-free. But if you want to buy cold storage, the price can run from $60 for a Ledger Nano S to more than $200 for the Trezor Model T, which is more secure.

HOW DO I SET UP A BITCOIN WALLET WITH NO ID?

The majority of bitcoin wallets don't need ID confirmation. When purchasing a hardware wallet, you must supply information in order to get the item. It is advised to employ clever strategies to prevent the delivery of your actual address or even just your name, email, and phone number.

The very least you can do, for instance, is offer a general delivery location of a store that might accept the wallet as a service that is either close to you or not. You can even slightly change your name, but keep in mind that the retailer could require identification.

HOW LONG WOULD IT TAKE TO CRACK A BITCOIN WALLET?

The good news is that it will be very difficult to compromise your bitcoin wallet if you take all of the aforementioned precautions. Your money is at risk if you use a web wallet or a mobile wallet for so-called hot storage. Make sure to use the strongest password you can if you're utilizing hot storage.

A four-digit pin code can be broken in as little as five milliseconds, according to calculations, but the longer your password, the better. With current technology, it would take two millennia to decipher twelve random letters.

CAN LAW ENFORCEMENT SEIZE A BITCOIN WALLET?

They can, yes. However, it depends on the kind of wallet used and the security measures used.

The largest danger are hot wallets or wallets hosted by centralized service providers, as law enforcement might simply compromise a bitcoin hot wallet or convince a centralized service provider to give access to the private keys in order to freeze or take your bitcoin.

Authorities may take a cold wallet device, but they will not be able to access your bitcoin until you give them access to your private keys, password, and recovery seed.

The strongest defense against confiscation, however, is a multisig wallet since, even under duress, you would not be able to provide the entire set of keys to access your bitcoin. This is especially true if your keys are kept by many people or organizations in various places.

WHAT HAPPENS IF I FORGET MY WALLET PASSWORD?

It is possible to reset or obtain a wallet password. Your cash could be lost if you forget your private key or lose access to it, therefore you must take special care to keep it safe at all times.

CONCLUSION

If you don't safeguard your bitcoin, your fortune is at risk. Strong, secure, non-custodial wallets are the way to go.

Small quantities of bitcoin can typically be kept anywhere and used for trading or spending. The highest level of safety you can give your bitcoin is multisig wallets in cold storage combined with a full personal node for larger quantities.

Governments, including the EU, have recently sought to outlaw bitcoin wallets or at the very least restrict their privacy and independence from other parties. Bitcoin cannot be outlawed or censored, but government-enacted persecution might undermine its decentralization and sovereignty.

With everything that has been going on in the cryptocurrency industry for years—from a regulatory perspective to criminal activity, exchange hacks, and so forth—Bitcoin is widening the gap with "crypto" and establishing its own ethical stance, which is backed by businesses that are only concerned with its soundness as money.

Taking personal ownership and custody of your bitcoin seriously has never been more crucial, and learning how to safeguard it is that extra work that is required to lower the danger of losing the most powerful asset you've ever owned.

WHAT IS A BITCOIN WALLET? A GUIDE TO STORING BITCOIN