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🔑 Wallet Basics

Everything you need to know before using Bitcoin

🎯 Start Here First

Before using any Bitcoin wallet, understand what a wallet actually is, how custody works, and which type fits your needs. This foundation prevents costly mistakes.

💭 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.

A wallet is actually a key manager:

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?

The Golden Rule:

"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

💡 Common Strategy:

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

Example 2-of-3 setup:
• 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)
  1. Download from official source
    • iOS: App Store | Android: Google Play | Desktop: Official website only
    • ⚠️ NEVER download from random websites or links
  2. Create a new wallet
    • Choose "Create new wallet" or "Add wallet"
    • Select "Bitcoin" (not Lightning for first wallet)
  3. 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
  4. Verify your backup
    • App will ask you to confirm words (usually random ones)
    • Make sure you wrote them correctly
  5. Store backup safely
    • Keep paper somewhere safe (fireproof safe ideal)
    • NEVER store digitally (no cloud, no photos)
    • Consider a second copy in different location
  6. 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)
  1. 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
  2. Initialize device
    • Power on and follow setup wizard
    • Choose "Create new wallet" (not restore)
    • Set PIN code (device-specific protection)
  3. 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
  4. Verify seed words
    • Device asks you to confirm words in random order
    • Ensures you wrote them correctly
  5. 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
  6. Test recovery process
    • Send small test amount
    • Reset device and restore from seed words
    • Verify funds reappear—confirms backup works
💡 Pro Tip: Many people buy 2 hardware wallets of the same model—one for daily use, one as backup. Both can hold the same seed for redundancy.
🔄 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:

  1. Get new wallet app or device
    • Same wallet software (BlueWallet, etc.) OR
    • Any BIP39-compatible wallet (most modern wallets)
  2. Choose "Restore from seed" option
    • Usually "Import wallet" or "Restore wallet"
  3. Enter your seed words in order
    • Type carefully—some wallets autocomplete from BIP39 wordlist
    • Must be EXACT order: word 1, word 2, etc.
  4. 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?

🎮 Interactive Wallet Workshop 🔐 Practice Wallet Security Workshop 🥋 Take Security Dojo Assessment

📚 Recommended Learning Path:

  1. Interactive Wallet Workshop — Play with entropy, see HD derivation, explore address types (hands-on!)
  2. Wallet Security Workshop — Generate real seeds, practice backups, verify addresses
  3. Security Dojo — Get personalized security assessment and advanced training
  4. UTXO Visualizer — Understand how transactions actually work
  5. Emergency Kit — Know what to do when things go wrong