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Bitcoin Wallet FAQ
Bitcoin Wallet FAQ
In recent weeks, Bitcoin has reached all new highs in terms of both popularity and price. And because of this, a number of people are eager to get in on the action—maybe you’re one of them. Maybe not. Before you can buy Bitcoin, understanding Bitcoin wallets is very important. And we aren’t talking the kind of leather wallet that you can buy at the mall. Below (FYI), I'm going to use the word Bitcoin and Bitcoins interchangeably.
What Is A Bitcoin Wallet?
Bitcoin wallets come in different forms. If you want to get technical, no wallet actually contains any Bitcoin. Wallets of any kind productize access and security of the private key.
For the non-technical person, there are hardware and software wallets.
Which Is Better?
Well, the word better isn’t necessarily the best word in this case. The real question is, which is safer FOR YOU, specifically. And the answer depends on what you plan to do with your Bitcoin, as both wallets have real risks and benefits. The answer also depends on the kind of person you are and what you can take on in terms of responsibility. The answer depends on what's at stake.
Also, what matters is WHO or what entity has CONTROL or CUSTODY of your Bitcoin. If you use a service like a wallet or an exchange to hold your Bitcoin, that centralized entity has custody of your Bitcoin. NOTE: If you buy Bitcoin through entities like: PayPal, Robinhood ---> THEY have custody of your Bitcoin. You do NOT have the private keys to them (as of the publication of this blog post, neither service provider allows you to take the Bitcoin you purchase out of their wallet gardens). You CANNOT move your Bitcoins out of PayPal or Robinhood. I do NOT recommend PayPal/Robinhood for buying Bitcoin. (see previous article -- best places to buy Bitcoin as a beginner are Swan Bitcoin, CashApp, Coinbase (tho it has higher fees - usually I'll point folks to Coinbase PRO if you want to use Coinbase....).
If you have Bitcoin in Coinbase, BlockFi, Bittrex, Binance, Celsius, Jaxx or any of these centralized applications and exchanges (aka software), THEY have custody/control over your Bitcoin. Again, you don't have the private keys to your Bitcoin, You CAN move your Bitcoins in/out of these applications as you choose, as long as there are no issues with your 1) identity, 2) relationship with the government, etc.... If anything happens to these companies, your Bitcoin is at risk. If these centralized companies are attacked, your Bitcoin is at risk. If you are in trouble with the government for any reason, your Bitcoin is at risk. So please act accordingly.
What About Hardware Wallets?
Unlike "software wallets", hardware wallets are nearly unhackable. Unless someone has your Seed Phrase, they cannot get access to your wallet. Not only that, but if you physically lose your hardware wallet, you can buy another one, enter your Seed Phrase (which is like a 12-24 word password) and recover all of your Bitcoins.
Here’s the problem. If you lose that Seed Phrase, which is assigned for you by the device, you will not, ever, ever, get your Bitcoins back. They are gone forever. This is what people mean when they say they’ve lost access to their Bitcoins—they’ve locked themselves out of their hardware wallets forever. And if you haven’t seen the news lately, there are people all over the world ripping their hair out at the passwords they lost to Bitcoins that are now worth millions.
Hardware wallets are generally safer if you plan to hold Bitcoin for a long time (and you can write down/remember a 12-24-word password, aka the Seed Phrase, and not lose it). Where a hardware wallet is kept offline, it is also known as cold storage.
If you are going to go the hardware wallet route, I generally recommend Coinkite, Trezor or Ledger as they are generally easier to set up and use for hardware wallets. (Side note, Ledger has gotten hacked recently - so they leaked ALL of their customer data recently. Hopefully they've increased their security measures and fixed their vulnerabilities since then...). Don't buy them anywhere. If you buy them on Amazon, make sure you're buying from the specific company directly. Do not buy from a second hand or grey market. Trezor and Ledger are also the largest players in the space. Whatever you do, find a way to remember that passcode and keep it safe (and store it physically FAR AWAY from your hardware wallet)! VERY IMPORTANT.
What About "Software" Wallets?
There's no real such thing as "software wallets". The term that matters more is Cold wallet versus a Hot wallet:
Generally, if you're not using a hardware wallet, it's all software (or seed phrases). Also, most of the applications in the space have very minimal customer support... so don't rely on being able to get good customer support in this space.
Generally, there's always a risk of an exchange or wallet provider getting hacked (you are responsible for double checking when you decide which exchange or wallet application to use), and this is still a risk you have to take when choosing a wallet. The risk comes from "centralization" -- most exchanges and wallet providers are centralized private companies. This means they are literally a "honey pot" for the bad guys to attack (like we've seen time and time again in the centralized world: Target, Marriott, Facebook, Equifax, etc...)
What are the benefits of NOT using a hardware wallet? Well if you plan to trade cryptocurrency on a daily basis and often, it will get quite annoying to transfer it on and off the exchange to your hardware wallet constantly. Make sure you choose a reputable wallet provider, because they aren’t all the same. Then again, the annoyance might be a good thing for that extra level of security.
Which Wallets Are The Best?
Again, there is no "best wallet". Again, the real question is, which is SAFE FOR YOU, specifically. And the answer depends on what YOU plan to do with your Bitcoin, as different wallets have different real risks and benefits. The answer also depends on the kind of person you are and what you can take on in terms of responsibility.
I have heard of people recommending the Coinbase wallet (Coinbase wallet was a spinoff by "Toshi" of the real Coinbase market/exchange.... so it's really confusing. Be careful), or Exodus, as these are supposedly fairly easy to use. I personally think their products are not easy to use. I'm not a user of either of them. There's a Bitcoin Wallet wizard you can try out: https://bitcoin.org/en/choose-your-wallet.
Some quick recommendations:
You can trade your crypto assets on any exchange you are using to trade it. The decision is yours. Know that exchanges are more likely to be targets to hacks - so best practice is to NOT leave your crypto assets on an exchange in terms of storage.
There are a number of combo wallets out there which employ a little bit of both technologies. These are also an option, but are generally more complicated than just picking one or the other.
So Where Should I Keep My Bitcoin?
Well, if reading this far hasn’t answered your question, this is entirely up to you and what you feel is a greater risk for yourself personally: is it losing your password or is it being the victim of a hack? Are you better at keeping your passwords secure and safe? Are you good and not losing your car keys? Only you know what's best for you. Again, do not store your Bitcoin on an exchange - it is generally NOT a best practice.
Objectively, there is no "best wallet". There is only "the best wallet for you", based on how you want to handle and store (or not store) your wealth, based on your personal needs. At this point in the Bitcoin infrastructure buildout, there is basically a solution to fit every person's individual needs. It's a big spectrum of needs and wants - and a person must go and get it to learn.
Generally, I would advise that you spend the time to DO YOUR OWN RESEARCH. Self education is very important in this space. Learn. Learn as much as you can. LEARN. Watch and listen to videos. Read. Don't do anything you are unfamiliar or uncomfortable with - feel free to reach out to others in the community to verify or ask questions. But ONLY YOU can make the ultimate decision as to where you would feel safest storing your Bitcoin.
Hope that helps!
Bitcoin's price has been going up a lot recently with new all time high's achieved so I prepared an FAQ: Where to Buy Bitcoin (Getting Started) for new folks coming into Bitcoin. Lots of folks have been reaching out to me (which is great), and I realized that there are quite a few frequently asked questions, so I thought I'd share here, too!
Please let me know if you have any questions.
FAQ: Where to Buy Bitcoin (Getting Started)
1) Partial Bitcoin
You can buy less than 1 whole Bitcoin at a time. You can buy $1 worth, you can buy $10 worth, you can buy $500 worth - whatever you are comfortable with. You don't have to buy a whole Bitcoin. Start buying, and do dollar cost averaging ---->
2) Dollar Cost Averaging (DCA)
Before you start, I want to give you this piece of advice that is literally the best advice you can get for someone wanting to get into Bitcoin. Dollar Cost Average: Buy a small amount every week. Do not try to time the market, you'll be disappointed. One of the best tools I've discovered (easy to use, great resources, best low fees) is Swan Bitcoin. Use my link and get $10 Free in Bitcoin: https://www.swanbitcoin.com/windshieldtime/
You can buy Bitcoin via cryptocurrency exchanges like Bittrex, Coinme (which is done through their partnership with Coinstar/ATM, look for the green machines in grocery stores), Coinbase, CoinbasePro, FTX, etc.... Be careful. The apps are generally a bit tricky to use (**Coinbase is the most accessible and probably the easiest to use out of them). If you do small buys ($10-$1l), the fees are higher than I like, which is why I recommend Swan Bitcoin above (FYI: the fees are usually made in the "spread" of the Bitcoin you are buying). You can get free $10 in Bitcoin for using my link: https://www.coinbase.com/join/yu_1k
4) Consumer Trading Applications
There are consumer trading applications that you would use for buying stocks or for payments like Robinhood, CashApp, PayPal that now also allow you to buy/sell Bitcoin.
To be candid, be careful with this. The only one I will actually recommend is CashApp. CashApp. (Here's my signup link for CashApp if you want to use it - you get a free $5 for signing up too https://cash.app/app/XJCWNGQ). I really like their overall experience for consumers - there's a debit card with shopping boosts you can use while shopping for 3% back in Bitcoin, or 15% back at USPS or the grocery store. Robinhood/PayPal do not actually give you custody or access to the BTC you buy (they only give you the ability to buy/sell this Bitcoin). While this is "nice" in that you get to participate in some way, you don't actually get the full benefit of buying Bitcoin in the first place - so I don't recommend Robinhood/PayPal for buying Bitcoin/crypto.
5) Indirectly Buy Bitcoin
An indirect way to get BTC is through something like $GBTC (Greyscale Bitcoin) in your stock brokerage/IRA/401k account (like Fidelity, eTrade, etc.). I personally have put a lot of my retirement into GBTC because I believe in this space overall. GBTC is a great buy for an investor who doesn't want to trade cryptocurrency on an exchange (but wants exposure to Bitcoin). At times, it can trade at a pretty high premium due to high demand and limited supply because of what I call the "convenience" GBTC provides for investors. Overall, have done really well with this strategy personally and so I recommend it.
Side note: There are other cryptocurrencies out there, but NONE of them have as comprehensive and as complete command of the fundamentals of good money, good store of value, security of the network and everything that Bitcoin does. You may assume they are seemingly "cheaper" and assume that they are the same thing as Bitcoin (BTC), they are not (For example XRP, DOGE, etc.... -- they are NOT the same as Bitcoin.) Do your own research, feel free to ask questions.
Hope that helps.
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