April 30, 2023

Bitcoin Wallets for Beginners: From Zero to Self-Custody

Bitcoin Wallets for Beginners: From Zero to Self-Custody

Everything You Need To Know About Bitcoin Storage

Bitcoin is the most well-known cryptocurrency. Even people who don’t know what crypto is have heard of Bitcoin. It’s incredibly popular and is usually the go-to for new crypto investors.

However, what many people don’t consider is where they’re going to store their newly purchased Bitcoin. Usually,people make the rookie mistake of keeping it on the exchange they bought it on. While this is convenient and user-friendly, it comes with complications and cons – which we’ll get into.

In this article, you’ll learn about different Bitcoin wallets, the importance of self-custody, and why you should avoidstoring your investment in your exchange account.

What Is A Bitcoin Wallet?

A Bitcoin wallet is a digital storage facility, either a program or hardware, that stores the private keys, so you can access and safely store your Bitcoin.

Contrary to what many people believe, a Bitcoin wallet doesn’t have your Bitcoin inside.

Rather, it is used as an access point to get to your Bitcoin. The Bitcoin itself is stored on the blockchain, the wallet acts as a gateway to stop other people from accessing it.

Bitcoin Self-Custody Wallet vs. Custodial

Here's where we talk about the complications and cons of storing Bitcoin on an exchange.

The account you open on an exchange is a custodial cryptocurrency wallet. This means that the private keys to the wallet are controlled by and accessible to a third party. At no point are you given the private keys. Therefore, you don’t technically own the Bitcoin, the exchange does.

There is a popular saying in the industry – not your keys, not your crypto.

One of the most recommended steps to take is to get yourself a self-custody Bitcoin wallet.

Self-custody means you open a wallet and transfer your Bitcoin to it. There is no third party that has your private keysor access to your funds – only you.

How to Self-Custody Bitcoin

Step 1: BuyYour Bitcoin

Before you can safely store your Bitcoin, you need to buy it. The most user-friendly option is to head to a popularexchange, such as Coinbase, Binance, or Kraken.

They provide an easy onramp for buying Bitcoin with fiat currency. All you have to do is set up an account with your email address or phone number.

From there, add your card details, or make a bank transfer to fund your account with fiat currency.

Sometimes, there are transaction fees charged for using credit or debit cards. However, it’s free to fund your accountvia a bank transfer.

Once you’ve done that, you’re ready to buy your Bitcoin. Navigate to the buy section of your chosen app, hitBitcoin, and select how much of your account balance you’d like to swap for Bitcoin.

Step 2: Create A Self-Custody Wallet

Congratulations, you’ve finally got your first satoshis! (the smallest denomination of Bitcoin – like cents, but for Bitcoin).

It’s time to move them away from the uncertainty of the exchange to a self-custody wallet.

Creating a self-custody wallet is easy. All you need is an email address or your phone number, no other personal details.

Upon creation, you’ll be provided with a few pieces of important information:

Public key: this is the address for Bitcoin wallets – you’ll need it for transferring and receiving transactions.

Private key: this is an alphanumeric string of code used for verifying transactions.

Seed phrase: also known as a recovery phrase, this is a randomly generated collection of 12 - 24 words.

Step 3: Secure Your Private Keys & Seed Phrase

Before you do anything else, make sure to note down your private key and seed phrase and keep them safe.

You don’t have this worry when using custodial Bitcoin wallets, but if you lose your private key and seed phrase,you’ll never be able to access your Bitcoin again.

Step 4: Transfer the Bitcoin to the Self-Custody Wallet

It’s time to make the switch. In your self-custody Bitcoin wallet, hit the receive button. This will open a screen detailingyour public key. Go ahead and copy this.

Now, open your crypto exchange app and find the sell section. Now, follow the process of transferring your Bitcointo the self-custody wallet address you just created and copied.

Bitcoin Wallets: Hot & Cold Storage Explained Hot Storage & Online Bitcoin Wallet

Hot Bitcoin wallets are the most commonly used by new investors switching to self-custody. Hot wallets usuallycome in the form of mobile apps or browser-based extensions.

Benefits of hot Bitcoin wallets:

●               Easy to set up

●               Rapid transactions – open the app, and you’re ready to go

●               No physical device you could potentially lose

Cons of hot Bitcoin wallets:

●               Always connected to the internet and blockchain

●               The easiest target for hackers and bad actors.

Cold Crypto Wallets

Cold storage or Bitcoin hardware wallets refers to keeping your Bitcoin offline. This can be done as a paper walletor on a physical device such as a USB or hard drive.

Benefits of Bitcoin cold storage:

●               More secure than hot wallets

●               Reduced risk of hacks because they’re rarely connected to a network

●               Private keys remain offline

Cons of cold Bitcoin wallets:

●               Have to connect to an internet-enabled device to perform transactions

●               They can be less user-friendly than hot wallets

In Summary

When looking at Bitcoin wallets, self-custody is the best option. Whether you opt for hot or cold storage will depend on your personal requirements. Bitcoin self-custody means there is no ownership dispute, the Bitcoin is yours, and you’re responsible for protecting it.

Don’t leave your crypto with an exchange. It’s not worth the risk. Instead, try Escrypto’s institutional-standard wallets for retail investors.

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