A Bitcoin wallet is how you interact with the Bitcoin network. It will manage your Bitcoin private keys for you, though there are different types of wallets. Bitcoin users typically go through a progression in terms of wallet types, and ways of interacting with the network.
As you read this text, consider how you would select a bitcoin wallet, what kinds of Bitcoin wallets there are, how to send and receive, and what other progression steps you can take when using Bitcoin. Think about how you can move through the different levels, how backups work, and how you would secure your Bitcoins against loss.
Using Bitcoin for yourself can be confusing at first, so it's best to take it one step at a time. When you want to purchase Bitcoin on an exchange and have not yet taken self-custody, explore these options for how you can progressively improve your security.
A typical progression might be to:
Generally, in order to make a Bitcoin payment, you will scan a QR code with your phone or copy-paste a Bitcoin address and amount. You will then confirm the payment on your device before hitting send. When spending, you may also wish to use a website like mempool.space to 'target' the fee to attach to your transaction. The higher your fee, the higher priority your transaction will be.
The usual procedure here will be to open your Bitcoin wallet software and go to "receive" or "generate new address" or similar. You can then have your transaction counterparty scan the QR code with their phone, or you can copy-paste the address and amount of payment to be made to them. When receiving Bitcoin, it is good practice to wait for at least one confirmation (that is, for that transaction to be included in at least one block on Bitcoin's blockchain). For larger values, you should wait for more confirmations.
Note that it may be worth your while to skip phone wallets and go directly to hardware or multi-signature wallets.
Coldcard, Trezor, Ledger are all well-known Bitcoin hardware wallet brands. Hardware wallets represent a good trade-off between security and usability for the average user. They usually range from $100 to $200 for the device, so usually once you have more than about $1,000 or so in Bitcoin, hardware wallets start to become worthwhile. They are created to protect your Bitcoin private keys and help you manage your Bitcoins in terms of holding or spending.
When you create a Bitcoin wallet, you will typically write down a 12- or 24-word seed backup. These seed words (also called recovery phrases) represent a backup for all future transactions on this device. Do not take a picture of this, do not put the seed words anywhere that someone else may see them, and do not save them on your Google or Apple cloud drive. Anyone who gets these 12/24 words will have the ability to steal your Bitcoin.
While there have been some Bitcoin thefts, it's also very common for people to lose their Bitcoins because they did not back up their seed or test their seed backup.
Metal seed backup products are available to help protect your backup seed against the risk of fire, waterlogging, or otherwise. Example products/providers are SEEDPLATE (by CoinKite, makers of Coldcard), CryptoSteel, Billfodl, CypherWheel by CypherSafe, and Coldbit.
A big improvement to Bitcoin security is available with multi-signature. Typical Bitcoin spends are done from a single signature wallet – that is, one device is able to spend. Multi-signature makes it so that you can require multiple devices to spend coins. The typical set-ups are 2 of 3 devices or 3 of 5 devices.
You have two main options:
Remember that you will not live forever, and you must ensure that your family/heirs will be able to access your Bitcoins when you're gone or incapacitated. Consider how to make your Bitcoins accessible to your heirs in the event of your death/incapacitation, but not before.
In some cases, it may be suitable to use a passphrase on your hardware wallet and keep the passphrase on a metal seed backup in a vault or safe deposit box, where you instruct your lawyer to give access to your heirs on your death. Similarly, if you are using multi-signature, you may instruct your lawyer to hold one of your hardware device keys from a multi-signature set for handing to heirs.
Consider not using complicated schemes, since this may make it more difficult for your heirs to recover your Bitcoins. Guided multi-signature providers may also assist in these scenarios, depending on the product or service.
Source: Saylor Academy
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