After finding out the first things about Bitcoin by reading a book and getting hands on a very privacy-friendly mobile phone and VPNs, you are about to get a wallet. A Bitcoin wallet is the software you need to store your Bitcoin. There are many different options for this. Both for mobile and desktop. In the previous post, a bitcoin wallet like Samourai was mentioned, which is definitely the way to go to have an always-on hot wallet for daily spending. But to get the full picture, it makes sense to cover other types of wallets as well. Sparrow wallet for Desktop is another great solution. By the way, you will come across many new words, phrases and things in this article that require further research and in-depth discussion. I’m sure I’ll cover everything in later posts, or you can do your own research, as you always should. DO YOUR OWN RESEARCH TOO!
What is a Bitcoin wallet?
A Bitcoin wallet is the storage solution for your Bitcoin. Imagine a normal wallet that can be filled with notes and coins. And of course, these can also be spent to pay for goods. In most cases it is digital and can be easily created, for example by rolling dice (for advanced users), by writing down randomly generated words from a list or by handing over your personal data to a “crypto” exchange. This then takes care of the wallet, which you can usually access by logging in via email and password. However, an exchange is the worst option you can choose.
It is basically a pair of keys that you can use to send and receive BTC. And because it’s so easy to say, you can also manage your keys yourself.
A Bitcoin wallet consists of two so-called keys. The public key is the wallet address that other people can use to send bitcoins to the corresponding wallet. The private key, on the other hand, allows bitcoins to be sent to other people. The combination of the recipient’s public key and the private key makes a transaction of Bitcoin possible. If someone gets hold of a wallet’s private key, that person can withdraw the coins from the wallet. It is therefore strongly recommended to keep the private key as secret and secure as possible.
Types of wallets
There are three types of wallets I would like to mention.
- Paper Wallet
- Hot Wallet
- Cold Wallet (Hardware Wallet)
What is a paper wallet?
A paper wallet is a printout of the private and public key on a piece of paper. Most of them also have QR codes that can be scanned to make a transaction.
The advantage of a paper wallet is that the keys are not stored digitally and therefore cannot become the target of a cyber attack or hardware failure. A disadvantage is that paper can also be lost. It is vulnerable to water and fire, but it is much more likely that moths will eat away at the paper over the years or make it brittle.
Where to get a paper wallet?
Visit the following website, https://www.bitaddress.org, disconnect from the internet and generate the wallet there. Then you can print it out and use the QR codes to send some BTC to it. It’s nice to play around and get a feel for how a wallet is generated. But I wouldn’t recommend creating one. There is something similar, but it is tied to hardware and sold as Open Dime. You can have a look at that. https://opendime.com/
What is a hot wallet?
Hot wallets for Bitcoin are also very often called software wallets. Because they are usually some kind of app or software and are connected to the internet. There’s nothing wrong with that, unless it’s a wallet based on an exchange or some other software that is so kind and custodial of your keys. Custodial means that someone else holds your private and public keys, the BTC are not 100% yours. Of course this is convenient, but it also carries the risk that the exchange will lock your funds and you won’t have access to your BTC until certain criteria are met. Happened many times and it is the same case as if a bank does not allow access to your account / money for some reason, or freezes the account.
NEVER 👏
KEEP 👏
YOUR 👏
BITCOIN 👏
ON 👏
AN 👏
EXCHANGE 👏
and
hold your keys-hold your coins!
A list of so called hot wallet types
- Exchange
The easiest way, but you have to register there. (Every “crypto” exchange asks for a lot of data, biometric checks like a facial recognition etc., it’s like revealing everything about your personality). They store all the data and probably ask questions about where the money or BTC came from and so on. They can never destroy the history of purchases or the addresses you sent bitcoin to and from. They will literally be watching you.
KYC! –> Know Your Customer
Know Your Customer is almost always required.
If you HODL some coins and sell them later there is nothing wrong with buying coins via an exchange, but after the deal send them to a cold storgae or a wallet you have all the keys. You can always sell them again later on the same exchange.
- Software wallet
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Desktop wallet: Software for your PC/laptop to store BTC.
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Mobile wallet: Like the previous one, but for your mobile phone
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Online wallet: Website where you need to register and send your coins, never do this
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Non-custodial is the best way
When you install a wallet app on your phone and create a bitcoin wallet, if it’s a non-custodial wallet, you can create a seed phrase of 12 and up to 24 words that are unique to that combination and contain your private and public keys. If you cannot do this or there is no other way to secure your wallet, then it is not a good wallet. As it is most likely hidden, you are not the master of your BTC. Many wallets also contain a connection to a server that is not under your control. Nothing to wory about. But after a while you will get rid of the wallet and switch to one that is connected to your own node, but this is more for advanced users and not relevant yet.
I have already mentioned many things that will be a topic later. But the path to keeping control of yourself and your finances is rocky, but it will prove to be a valuable experience later on. Considering the many things you don’t know yet.
Cold Wallet - Long time storage for Bitcoin
I don’t want to go into too much detail, but a so-called cold wallet is the best way. You can keep your private key secret and sign every transaction without fear of giving the key to strangers / hackers or whatever.
Because it’s so incredibly important, it makes sense to cover this in a separate post. In general, I could write a lot more about wallets.
But it can’t hurt to search for the following using a search engine of your choice. Hardware wallet, ColdCard, SeedSigner, Foundation Passport.
Sparrow Wallet - A desktop wallet for your BTC
The following steps will provide a quick guide how to create a desktop wallet with Sparrow Desktop https://www.sparowwallet.com
You will have self custody in a few minutes. Be your own bank!
1. Download the wallet from the website
2. Connect to a server (for a first test, it’s fine to use a public server, but be informed that it knows all transactions; the better option is to have your own node in the future and connect it. But this is way too advanced and technical (for a non-technical person who has started to explore the rabbit hole, but it is actually quite simple)
3. Create a new wallet ( File > New Wallet > Name > Create)
4. Choose “New or Imported Software Wallet)
5. Mnemonic Word (BIP39)
5.1. Select 12
5.2. Generate New
5.3. WRITE THEM DOWN ON A PIECE OF PAPER, LEARN THEM BY HEART, no picture, no screenshots, no second person or cloud storage.
5.4. Only you should own the private and public keys!
6. You can add a passphrase to this wallet (like a 13th or 25th word) as another layer of security, but I would leave it blank. In the end, the 12 words plus passphrase are their own wallet, so 12 words is a unique wallet, the 12 words plus passphrase is a different wallet.
7. Save via click on Appply
8. You will be asked if you want a password to save in Sparrow (it is not the passphrase already mentioned), which I recommend as it encrypts the wallet file and only with the password can the wallet be opened in “Sparrow Wallet”.
9. Bitcoin wallet created!
Samourai Wallet - A mobile wallet for your BTC
Samourai is my wallet of choice. In order not to make it too complicated and to stick to the 5-minute-per-post rule, this already quite intensive blog post does not contain any information and instructions on Samourai Wallet. This will be covered in the next topic.