RadVladdy All About Bitcoin

Storing your Bitcoin

There are many ways to store your bitcoin. Most of these are called “wallets” although the term isn’t too accurate. The truth is, the bitcoin isn’t “in your wallet.” It’s on the blockchain–it’s everywhere, and nowhere. The wallet just contains your “private keys.” Your private keys allows you to control bitcoin on the blockchain, including the ability to send it to another address.

There are different types of wallets. Some of these overlap. Each type of wallet has certain security trade-offs. If you want a wallet that is ultra-convenient, it will likely have the lowest-security. If you want extra-high security, using will be rather inconvenient. It’s a good idea to consider how much value is at risk to decide how you want to store your private keys. You can have all kinds of wallets that you use in different situations. This is no different than money. You might keep $100,000 in a vault under secure lock and key, and you might throw some bills in your back pocket. Very different security, very different level of convenience.

Types of bitcoin wallets:

  • Custodial wallet
  • Paper wallet
  • Brain wallet
  • Mobile wallet
  • Desktop wallet
  • Hardware wallet
  • Multi-signature wallet

Custodial wallet

Think of a custodial wallet like you think of a bank. Essentially, someone else is holding your bitcoin for you. You technically don’t control that bitcoin, but you trust the company to take good care of it. In bitcoin, there’s a saying, “don’t trust… verify.” Bitcoin was invented to allow each of us to be our own banks, so no one else could censor transactions. While it’s very convenient to have someone else to care for your bitcoin, you’re taking all kinds of risks. What if they get sued, go bankrupt, get hacked, embezzled, etc. etc. Your bitcoin is at risk under their care. Totally fine for small amounts, but you don’t want to trust your precious bitcoin to someone else.

Paper wallet

A paper wallet is a physical (paper) copy of your generated public and private keys. You can send funds by transferring the money to wallet’s public address and you can withdraw or send your currencies by entering your private keys or by scanning the QR code on the paper wallet. Here’s an example:

Anyone who has physical access to a paper wallet can control all of the funds in that wallet, so you want to be extra careful about giving anyone access to that secret. Hide it well. Make sure it’s water and fireproof. Make sure anyone who has possession is highly trusted. Paper wallets are kind of old-fashioned, but definitely work.

Brain wallet

Computer geeks have made a way to encode that private key (e.g. the strange multi-letter/number series above) into a series of words. Almost all of the wallets you will ever use will instruct you to backup your wallet by writing down your secret backup words (a.k.a “seed phrase” or “recovery phrase”) which is typically 12 or 24 words. Here’s an example of a 12-word secret backup words:

witch collapse practice

feed shame open

despair creek road

again ice least

It is bad practice to store the secret backup words digitally or take a picture of it on anything connected to the internet. If someone got access to that seed-phrase, they have access to all of your bitcoin. Best practice is to handwrite your secret backup words, pen on paper, and then store it very securely. Perhaps make a copy and leave with someone you highly trust. Make sure all copies are always kept secure. It might be a good idea to write it on something that no one would think you’d keep something so important (hiding in plain sight).

So… a brain wallet is your own made up 12 or 24 word secret backup words. You might use a quote from literature or something like that. It’s generally a terrible idea to have a brain wallet, because the words aren’t random. So computers scouring literature might try words in an attempt to find your keys.

On the other hand, if you get a randomly generated secret backup words and memorize it, that’s also considered a brain wallet. The idea is that the wallet and funds are “in your head”. If you get a head injury or get hit by a bus, your funds are forever gone. So you might consider having a paper version of your brain wallet somewhere secure for your family.

Mobile wallet

Some bitcoin services like exchanges have mobile apps that show your bitcoin holdings, but they’re actually holding your bitcoin. Those are custodial mobile wallets. In that case, they hold the private keys to the bitcoin, and you have an account with them.

There are other mobile apps you can install on your phone that hold the keys, right there inside your phone. In most cases, the app generates the 12 or 24 random word secret backup words, and recommends you back it up, by writing them down. You can send and receive bitcoin from your mobile wallet. If someone gets access to your phone, they could send your bitcoin to their wallet. It’s gone. Your phone is always connected to the internet, so if your phone somehow gets hacked, someone could steal your bitcoin. Mobile wallets are great, but you probably don’t want to have a lot of value stored there. A list of the best mobile wallets:

Desktop wallet

Like a mobile wallet, but installs on your computer. Just the same, you’ll want to backup your seed phrase on paper if your computer dies. As your computer is typically connected to the internet, anyone who has access to your computer can control your bitcoins. A good desktop wallet is Wasabi wallet. YouTube Video: How to use Wasabi Wallet

Hardware wallet

Hardware wallets are (usually) small computing devices specifically built to hold bitcoin. They’re generally not connected to the internet, which means hackers have little to no chance of getting to your bitcoin. You temporarily connect the device to your computer of phone when you want to send bitcoin. Once you’ve okayed the transaction on the device, you can disconnect it. You’ll want to keep these devices secure like you would a paper wallet. Devices typically cost between $50 and $200, so they make sense if you’ve got $5,000+ in bitcoin to secure.

The best inexpensive, beginner hardware wallet is:

My preferred, more advanced, most-secure hardware wallet:

  • Coldcard by Coinkite
  • Shop the Coinkite store
  • I prefer the Coldcard basic bundle (includes 2x industrial MicroSD cards).
  • Can be used as part of multi-signature wallet

Multi-signature wallet

This is a bit of an advanced topic at present, but there are ways to require multiple devices to approve a bitcoin transaction. For example, one might have 3 hardware wallets, a Coldcard, a Trezor model A, and a Trezor model T. Typically a fraction of the devices (2 out of 3) are required to sign a bitcoin transaction. So in the example, you might want to send a large amount of bitcoin, and you can send if you sign the transaction on both the Coldcard and one of the Trezors. This is an additional layer of security as you can geographically distribute the devices, and involve other trusted people to help secure your bitcoin. If one gets lost or stolen, you’ve still got the other 2 to sign transactions. You might consider Multi-sig wallet if you’ve got over a $million in bitcoin to secure.

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