What is a Bitcoin Wallet?

Simply put, a wallet is a program that stores your private keys. There are many different types of bitcoin and cryptocurrency wallets, each with different trade-offs, risks, and security profiles.

How Do Bitcoin Wallets Work?

Since bitcoin only exists on the blockchain, wallets don’t technically store your bitcoin. Your private keys provide access to your bitcoin, and your wallet stores these private keys.

Wallets also manage the derived public keys, bitcoin addresses, and QR codes that enable users to send and receive bitcoin. For key management, wallet software implements hierarchical deterministic keys (BIP32), organizing the parent and child keys into a structure where the mnemonic recovery can seed the root of the wallet and all its associated keys.

What Is the Best Bitcoin Wallet in 2020?

Bitcoin Core is the best wallet available. It may not be the most user-friendly, as it’s geared toward advanced users, but it’s the highest performing full node you can run. It’s free and supports peer-to-peer transactions. It can also be used with a hardware wallet or a privacy wallet.

So What Is the Best Bitcoin Wallet for Beginners?

There isn’t a single best choice—it’s all about trade-offs. Let’s start with the basics in this complete beginners' guide to wallets.

What Is the Difference Between a Bitcoin App and Other Payment Apps?

In most payment apps, every transaction is protected by the bank’s fraud protection. If someone steals your funds or you fall victim to fraud, the company can help you recover them. This is not the case with cryptocurrency.

With any bitcoin wallet, you are in full control of your funds. If you lose them, no one can recover them for you. This fact makes cryptocurrency wallets a prime target for hackers.

TIP: The risk of having funds stolen with bitcoin wallets is higher because they are typically connected to the internet. For better security, consider avoiding mobile wallets for long-term storage.

What Is the Difference Between a Bitcoin Wallet and a Physical Wallet?

A physical wallet holds cash directly, whereas a bitcoin wallet stores access to your funds on the blockchain through your private keys, similar to how a credit card gives access to funds in a bank account.

What Types of Wallets Are There?

• Mobile Wallets: Run on your phone.
• Desktop Wallets: Run on your computer.
• Web Wallets: Run in your browser.

There are also paper wallets and brain wallets, but it’s best to avoid these.

What Are Hot Wallets and Cold Wallets?

• Hot Wallets: Mobile, desktop, and web wallets that are connected to the internet, making them more vulnerable to hacking.
• Cold Wallets: Hardware wallets that keep your keys offline, providing the highest level of security.

TIP: Avoid using hot wallets for long-term storage. While they are convenient, they are not as secure as cold wallets.

What Are Custodial and Non-Custodial Wallets?

• Custodial Wallets: Your private keys are held by an exchange or service.
• Non-Custodial Wallets: You control your private keys.

When you move your funds off an exchange into a wallet you control, you’re using a non-custodial wallet.

How Do I Get a Bitcoin Wallet and Use It?

1. Step 1: Choose a wallet app and download it. If you're using a mobile device, download a mobile app from the app store.
2. Step 2: Open the software to create a wallet, private key, and mnemonic recovery phrase.
3. Step 3: Write down your mnemonic and store it somewhere safe.
4. Step 4: Create a receive address and QR code. Now you’re ready to receive bitcoin.
5. Step 5: Share your wallet address or QR code to accept bitcoin.

TIP: Ensure you’re using a Bitcoin BTC wallet and not one for Bitcoin Cash BCH. Confusing the two could be costly.

SECOND TIP: The experience of using bitcoin can feel similar to other payment methods, but Bitcoin is a digital currency, not just a payment app. Its properties differ from loyalty cards or services like Apple Pay or Samsung Pay.