Using a Bitcoin Wallet
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:
- Buy Bitcoin on an exchange
- Withdraw to a phone wallet or hardware wallet once the Bitcoin amount is large enough
- Later, learn how to run a full Bitcoin node
- Make use of multi-signature (either with a provider or DIY)
Paying with a Bitcoin wallet
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.
Receiving with a Bitcoin wallet
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.
Phone and Software wallets
Note that it may be worth your while to skip phone wallets and go directly to hardware or multi-signature wallets.
- Phone wallets: Samourai Wallet (Android only), Blue Wallet (Android or iPhone), Blockstream Green (Android or iPhone), Casa Wallet (Android or iPhone)
- Desktop wallets: Electrum, Specter Desktop, Blockstream Green
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.
- Order direct from the manufacturer where possible, and if possible, order to a PO Box, work address, or similar, rather than using your home address. There have been privacy leaks with some hardware wallet manufacturers.
- Where possible, look for open-source, well-tested wallets supported by other software and providers in the industry.
- Note that the Trezor devices, while well-supported in the industry, will not be secure against an attacker with physical access. To protect against this, it is good practice to use a passphrase (an additional set of words that help secure your coins). This will be available in the Trezor software that goes with your device.
- Keep an eye out for firmware updates on your hardware device, but also be wary that hackers and attackers may carry out "phishing" attacks and pretend to be the manufacturer, tricking you into installing malware that will steal your Bitcoin. Do not click links from an email, but instead go to the manufacturer website, and if you can verify the PGP signatures for an update, do so.
- When withdrawing from the exchange, you can test out with small Bitcoin values before withdrawing the full amount to your hardware wallet.
- The best practice is to test your recovery procedure to ensure that you will be able to recover from the 12/24-word seed backup before loading significant funds/Bitcoin on the device.
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.
- Never type your 24-word seed into a computer. There have been malware and keylogger attacks on PCs, instantly stealing people's Bitcoin once typed in. If you need to recover a wallet, do it into the hardware wallet directly using something like Coldcard, Trezor Model T, or Ledger. This will be more difficult for you to type and make it more difficult for a hacker to steal your Bitcoins.
- Some online scammers will masquerade as tech support or celebrities and ask for your seed words to "help you". Never give your seed words to anyone on the internet. Bitcoin wallets and Bitcoin company tech support teams are generally trained never to ask you for this as they know this is a common scam/attack by malicious actors.
- In many cases, you will only store the first four letters of each word for your metal seed backup. The unique word list your seed words are chosen from ensures that only the first four letters are required.
- A useful site for recovering Bitcoins is walletsrecovery.org
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:
- Guided multi-signature with a provider like Unchained Capital or Casa. These are options where you are not running the underlying Bitcoin node.
- DIY multi-signature. This is not recommended for beginner or intermediate users. However, over the coming years, the tooling will improve. Software and tooling to look into this would include Specter Desktop, Coldcard, Cobo Vault, and Seedpicker. For more, see this Bitcoin security guide.
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
This work is licensed under a Creative Commons Attribution 4.0 License.