Bitcoin Basics

Wallets and Self-Custody

If you have bought bitcoin on an exchange, what you have is a balance in someone else’s system. A wallet is how you take direct control of it. This page explains what a wallet really is, the choices in front of you, and how to move your first coins without losing them.

What a wallet really holds

A bitcoin wallet does not hold bitcoin the way a leather wallet holds cash. Your bitcoin lives on the blockchain, the shared public ledger that every Bitcoin node keeps a copy of. What the wallet holds is a private key: a very large secret number that proves you are allowed to spend a particular set of coins.

From that key the wallet creates addresses, the strings of letters and numbers you give to someone who wants to pay you. Anyone can send bitcoin to an address. Only the holder of the matching private key can spend from it.

So “holding bitcoin” really means “holding the key.” Lose the key and the coins are frozen forever. Let someone copy the key and they can spend the coins as freely as you can.

Custodial or self-custody?

There are two ways to hold a key. With a custodial wallet, a company (usually the exchange where you bought the coins) holds the key for you. You log in with a password and they sign transactions on your behalf. With self-custody, you hold the key yourself, in an app or a device that only you control.

Bitcoiners sum this up as “not your keys, not your coins.” When an exchange holds your bitcoin, you have a claim on the exchange, not the bitcoin itself. If the exchange is hacked, freezes withdrawals, or goes bankrupt, as FTX did in 2022, that claim can be worth far less than your balance.

That said, self-custody is a responsibility, and it is only fair to say when the custodial route is reasonable. If you hold a small amount, a few hundred dollars, on a large US-regulated exchange with strong security settings turned on, the risk of losing it through your own mistake is probably higher than the risk of the exchange failing. Many people start there and move to self-custody as the amount grows.

A rough rule: once your bitcoin is worth more than you would be upset to lose, or more than a month of your expenses, it is time to learn self-custody.

Hot wallets and cold wallets

Wallets are also sorted by whether their keys touch the internet. A hot wallet keeps the key on an internet-connected device such as your phone or laptop. It is convenient for spending, and it is exposed to whatever malware reaches that device.

A cold wallet keeps the key on something that never connects to the internet, usually a dedicated hardware device. It is slower to use and much harder to rob remotely. Most experienced holders use both: a hot wallet with spending money and a cold wallet for savings.

Software wallets

A software wallet is an app. It is free, takes five minutes to set up, and is the right first step for most beginners. The key lives on your phone or computer, so this is a hot wallet. Three well-regarded, open-source options that are actively maintained as of 2026:

  • BlueWallet (iPhone, Android, Mac). Simple, bitcoin-only, and a good first wallet.
  • Muun (iPhone, Android). Self-custodial, and it handles regular and Lightning payments from one balance. Its fees can run higher than average when the network is busy.
  • Sparrow (Windows, Mac, Linux desktop). A power-user wallet with full control over every transaction. It pairs well with a hardware wallet and is the one to grow into.

Whichever you pick, download it only from the developer’s own website or the app-store listing that site links to. Fake wallet apps that quietly steal seed phrases are a common scam.

Hardware wallets

A hardware wallet is a small device, about the size of a USB stick or a credit card, that generates your private key and never lets it leave the device. When you send bitcoin, the unsigned transaction goes to the device, you confirm it on the device’s own screen, and only the signed result comes back. Malware on your computer cannot spend what it cannot see.

Well-known makers, all shipping current products as of 2026:

  • Coldcard (Coinkite, Canada). Bitcoin-only and built for security-first users. One caution: in July 2026 Coinkite disclosed that a firmware bug, present since version 4.0.1 in March 2021, made some Coldcard-generated seeds far weaker than intended, and it published fixed firmware in August and September 2026. Seeds generated on the fixed firmware, or with at least 50 of your own dice rolls, are not affected. If you generated a seed on an older Coldcard, read Coinkite’s advisory: its advice is to update, generate a new seed, test it, and then move your coins.
  • Trezor (Czech Republic). The original hardware wallet, open-source hardware and software, with the newer “Safe” line of models.
  • Ledger (France). The biggest seller, and it supports many coins besides bitcoin. Its companion software is not fully open source, which some bitcoiners hold against it.
  • Bitkey (Block, the company behind Cash App and Square). A beginner-friendly device paired with a phone app. It uses a 2-of-3 multisig design: one key on the device, one on your phone, and one held by Block purely for recovery.

Buy directly from the maker, never second-hand or from a marketplace reseller, and expect to pay somewhere between roughly $80 and $250 depending on the model.

The seed phrase

When you set up any self-custody wallet, it shows you a seed phrase: 12 or 24 ordinary English words, in a fixed order, drawn from a standard list of 2,048. Those words encode your private key. Anyone who has them can rebuild your wallet on any device and spend everything.

That is the point. If your phone dies or your hardware wallet is lost in a move, the words get your bitcoin back. How to back them up:

  • Write the words on paper immediately, then check your copy by reading it back against the screen.
  • For any amount you would hate to lose, stamp or engrave the words into a metal plate. Kits cost a few tens of dollars and survive fire and flood; paper does not.
  • Keep at least two copies in two separate places, for example a safe at home and a bank safe-deposit box or a trusted relative’s safe.
  • Never photograph it. Never type it into a website, an email, a notes app, a password manager, or a cloud drive. Photos get synced and clouds get breached.

And never share it. No wallet company, exchange, or support agent will ever need your seed phrase. Anyone who asks for it is robbing you.

Multisig and collaborative custody

Multisig, short for multi-signature, means a wallet that needs more than one key to spend. A common setup is “2-of-3”: three keys exist, and any two of them can move the coins. One lost key is survivable; one stolen key is not enough to rob you.

Collaborative custody services package this up for you. Casa and Unchained, both US companies operating as of 2026, set up a multisig vault in which you hold two keys (typically on two hardware wallets) and the company holds the third. The company cannot spend your coins on its own, but it can help you recover if you lose one key, and it can help your heirs. Both charge an annual fee.

This is a good fit for larger holdings or for anyone who wants inheritance planning. It is overkill for a first $500.

How to move bitcoin from an exchange to your wallet

  1. Set up your wallet and back up the seed phrase first. Do not skip this. If the phone breaks tomorrow, the seed is the only way back.
  2. In the wallet, tap Receive and copy the address, or show its QR code. Bitcoin addresses start with “bc1”, “3”, or “1”.
  3. On the exchange, choose Withdraw or Send, pick bitcoin, and choose the Bitcoin network (not Lightning or any other network unless your wallet supports it). Paste the address, then compare its first and last several characters with what your wallet shows.
  4. Send a small test amount first, say $10 to $20 worth. The exchange charges a withdrawal fee, which covers the network fee, the small payment to miners for including your transaction in a block. Check the fee before you confirm.
  5. Wait for confirmations. Your wallet will usually show the payment as pending within a minute, then as confirmed once a block includes it, about 10 minutes on average. Each later block adds another confirmation; most wallets and exchanges treat one to six as final.
  6. Once the test arrives, send the rest the same way. Use a fresh receive address if your wallet offers one; most do, for privacy.

Some exchanges hold withdrawals for a day or more after a new deposit or a security-settings change. That is normal, and it protects you if your account is ever taken over.

The three rules of self-custody: Your seed phrase is your bitcoin, so back it up on metal in two places and never in a photo or the cloud. Never share your seed phrase with anyone, for any reason. And always send a small test amount before a large one.

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