🔑 Wallet Basics
Everything you need to know before using Bitcoin
💭 What is a Bitcoin Wallet?
A Bitcoin wallet is NOT a physical container. Your Bitcoin doesn't "live" anywhere—it exists as entries on the blockchain that everyone can see.
It stores your private keys—the secret passwords that let you spend Bitcoin associated with your addresses.
✅ Better Analogy
A wallet is like a keyring that holds keys to safe deposit boxes. The boxes (Bitcoin) are in a public vault (blockchain), but only your keys can open them.
❌ Common Misconception
Bitcoin is not stored "in" your wallet like cash in a physical wallet. Your wallet just proves ownership on the blockchain.
🔐 Custodial vs. Non-Custodial: Who Has the Keys?
"Not your keys, not your coins."
If you don't control the private keys (the seed words), you don't actually own the Bitcoin—someone else does.
How to Recognize Each Type:
⚠️ Custodial Wallet
Someone else controls your keys.
How to Recognize:
- ❌ No seed words given to you
- ❌ Just username & password login
- ❌ You can "reset password"
- ❌ Terms say "we custody your assets"
Examples:
- Coinbase, Binance, Kraken (exchange accounts)
- Cash App, PayPal, Robinhood
- Strike (before self-custody feature)
When It's Okay:
- Small amounts you can afford to lose
- Actively trading or testing
- Very short-term holding before withdrawing
✅ Non-Custodial Wallet
You control your own keys.
How to Recognize:
- ✅ You get 12 or 24 seed words
- ✅ Warning: "Write these down or lose access forever"
- ✅ No "forgot password" recovery
- ✅ App says "only you control your funds"
Examples:
- Software: BlueWallet, Sparrow, Electrum, Samourai
- Hardware: Coldcard, Trezor, Ledger, Passport
- Mobile: Muun, Phoenix, Breez
When It's Required:
- Amounts you can't afford to lose
- Long-term holding ("HODLing")
- True financial sovereignty
🔥❄️ Hot vs. Cold Wallets
Once you've chosen non-custodial, the next choice is connectivity:
🔥 Hot Wallet
Connected to the internet
Pros:
- ✅ Convenient for daily use
- ✅ Fast transactions
- ✅ Free (software) or cheap (phone)
- ✅ Good for small amounts
Cons:
- ❌ Vulnerable to hacking
- ❌ Malware risk
- ❌ If device is compromised, funds at risk
Examples:
BlueWallet, Sparrow (on laptop), Muun, Phoenix
❄️ Cold Wallet
Never touches the internet
Pros:
- ✅ Maximum security
- ✅ Immune to online attacks
- ✅ Best for large amounts/savings
- ✅ Physical control
Cons:
- ❌ Less convenient
- ❌ Costs money ($60-$300+)
- ❌ Learning curve
- ❌ Can be lost or damaged
Examples:
Coldcard, Trezor, Ledger, Passport, Jade
Use both! Hot wallet for spending money (like a regular wallet), cold wallet for savings (like a safe).
🔑 Single-Sig vs. Multisig
How many keys are needed to spend Bitcoin?
🔑 Single-Signature (Standard)
One key controls everything
- One seed phrase = full control
- Simpler to use and back up
- Most common setup for individuals
- If seed is compromised, all funds at risk
Best for: Personal wallets, most users
🔑🔑🔑 Multisignature (Advanced)
Multiple keys required to spend
- Requires M of N keys (e.g., 2-of-3, 3-of-5)
- No single point of failure
- Can share responsibility or add redundancy
- More complex setup and usage
Best for: Large amounts, inheritance, business/shared funds
• Key 1: Hardware wallet at home
• Key 2: Hardware wallet in safe deposit box
• Key 3: With trusted family member
Need any 2 to spend. Losing one key doesn't lose funds.
📋 Step-by-Step Setup Guides
📱 Setting Up a Software Wallet (BlueWallet Example)
- Download from official source
• iOS: App Store | Android: Google Play | Desktop: Official website only
• ⚠️ NEVER download from random websites or links - Create a new wallet
• Choose "Create new wallet" or "Add wallet"
• Select "Bitcoin" (not Lightning for first wallet) - Write down your seed words
• App shows 12 or 24 words
• Write on paper IN ORDER
• Number them: 1. word 2. word 3. word...
• ⚠️ NEVER screenshot, photo, or type into computer - Verify your backup
• App will ask you to confirm words (usually random ones)
• Make sure you wrote them correctly - Store backup safely
• Keep paper somewhere safe (fireproof safe ideal)
• NEVER store digitally (no cloud, no photos)
• Consider a second copy in different location - Test with small amount first
• Send $10-50 worth to test
• Practice sending it back out
• Delete wallet and restore from seed words to verify backup works
🔐 Setting Up a Hardware Wallet (General Process)
- Buy from official source
• Order direct from manufacturer (Coldcard, Trezor, Ledger, etc.)
• ⚠️ NEVER buy from Amazon, eBay, or third parties
• Verify tamper-evident packaging on arrival - Initialize device
• Power on and follow setup wizard
• Choose "Create new wallet" (not restore)
• Set PIN code (device-specific protection) - Generate and write seed words
• Device generates 12 or 24 words
• Write on recovery card or paper included
• Some devices (Coldcard) never show seed on screen—extra security - Verify seed words
• Device asks you to confirm words in random order
• Ensures you wrote them correctly - Connect to wallet software
• Use manufacturer's app OR use Sparrow/Electrum (more privacy)
• Device stays offline; only public keys shared with computer
• Private keys never leave the hardware wallet - Test recovery process
• Send small test amount
• Reset device and restore from seed words
• Verify funds reappear—confirms backup works
🔄 Recovery & Backup Strategies
When You Need Recovery:
- Lost or broken phone/hardware wallet
- Deleted wallet app
- Device stolen or damaged
- Moving to new device
How to Recover:
- Get new wallet app or device
• Same wallet software (BlueWallet, etc.) OR
• Any BIP39-compatible wallet (most modern wallets) - Choose "Restore from seed" option
• Usually "Import wallet" or "Restore wallet" - Enter your seed words in order
• Type carefully—some wallets autocomplete from BIP39 wordlist
• Must be EXACT order: word 1, word 2, etc. - Wait for sync
• Wallet scans blockchain for your transactions
• May take a few minutes
• All Bitcoin should reappear
Backup Best Practices:
✅ DO
- Write on paper or metal plate
- Store in fireproof safe
- Keep second copy in different location
- Use metal seed storage for fire/flood protection
- Test recovery with small amount first
❌ DON'T
- Screenshot or photograph seed
- Store in cloud (Google Drive, iCloud, Dropbox)
- Email to yourself
- Store in password manager (controversial—some disagree)
- Share with anyone, including "support"
🎓 You Now Understand Bitcoin Wallets!
You've learned the foundation. Ready to see how it all works interactively?
📚 Recommended Learning Path:
- Interactive Wallet Workshop — Play with entropy, see HD derivation, explore address types (hands-on!)
- Wallet Security Workshop — Generate real seeds, practice backups, verify addresses
- Security Dojo — Get personalized security assessment and advanced training
- UTXO Visualizer — Understand how transactions actually work
- Emergency Kit — Know what to do when things go wrong