How do you create a Bitcoin wallet?
Welcome back to the wonderful world of Bitcoin – the Coca-Cola of the cryptocurrency world!
If you’re reading this, you might be thinking about buying some of those sweet, sweet, satoshis (there are 100 million satoshis in a bitcoin – it’s called that after the originator of the currency).
But, you’re smart. You’re thinking ahead. You’re thinking “where do I put this virtual coin when I’ve bought it?” So, let’s explain Bitcoin wallets.
The job of any wallet, real or virtual, is to keep funds safe: to allow you to access them but to stop everyone else. But how do you protect something that only exists digitally?
A bitcoin only exists on a blockchain. A blockchain is a worldwide shared database of transactions. It also provides an almost unlimited number of addresses: numbered slots that can have bitcoin in them. These “public” addresses are the key to sending and receiving bitcoin, and look like this:
Catchy, huh? Bitcoin addresses always start with a 1 or a 3. It’s quite safe for these to be viewed by the public – if you don’t give them out, you can’t be sent funds.
But how do you get custody of those startling satoshis? Well, by owning the key to the address: a key only you own (that’s why they call it a “private key”).
Here’s what a private key looks like:
Even catchier! Letting this key out in public lets anyone into your stash.
A wallet is a collection of addresses and private keys.
All reputable bitcoin wallets will give you a 12-word passphrase that allows you to access your addresses from different wallets, and never expires.
What type of bitcoin wallet can I choose?
Wallets exist to make it easy to access your Bitcoin. They manage and create addresses and private keys, and some have convenience features that allow you to assign friendly names to your public addresses. They will all allow you to receive and send funds.
Fun fact: you can receive funds into Bitcoin addresses without your wallet being connected, just like you can receive funds into your bank account while you’re not logged into your banking app. The address is always online, even if the key to access it isn’t.
In general, the nearer to the internet the wallet is, the less secure it is.
Wallets that are always connected to the internet are called “hot wallets”, and ones that aren’t are called “cold wallets”. You can’t send or receive Bitcoin from cold wallets, except by connecting them to the internet to do it, but they don’t need to be connected for long.
The first thing every piece of wallet software will do when creating a new wallet is to create a 12-word passphrase. This is the proof that you “own” your crypto and is the ultimate key to your stash. Write it down so you can recover it or import it into other software. Keep it safe: it could get wet, burned, ogled, or nicked. This is the ultimate backup!
A word about exchanges
In theory, keeping Bitcoin at centralised exchanges is regarded as the riskiest thing to do because they’re a major target for hackers. However, security at the best exchanges is much better than it used to be. You still don’t “own” your coins though. If you’re going to trade using exchanges such as Coinbase or Coinfloor, you would normally need to send your Bitcoin to the exchange to do it. Some people buy Bitcoin at an exchange and then just wait to sell it again. It’s a choice, but it’s a lot of trust to put in a company.
Many centralised cryptocurrency exchanges now make mobile wallet apps too, such as Coinbase Wallet and Trust Wallet (which is connected to the Binance exchange). These are usually easier to use than other mobile Bitcoin wallets because they’re aimed at retail investors and there are more funds to develop them. However, they do tend to tie themselves into the exchange they came from.
Mobile Bitcoin Wallets
Best examples: Exodus, Mycelium, Electrum (Android only).
The best wallet apps are now hardened to hacking nowadays, but there have been reported instances of muggers forcing people to log into their crypto app (by force, if necessary) and then getting them to transfer coins. If you’ve got substantial crypto reserves, it might be best not to wander around with them all the time. It’s asking for trouble.
If you’ve got a rich crypto stash, it might be an idea to keep the wallet software on another phone (perhaps an old one) or use a desktop solution. You wouldn’t carry around thousands of pounds in your real wallet, so why carry around thousands on your phone?
While Mycelium and Electrum are for advanced users, Exodus is more user-friendly, has a desktop version, and supports hardware wallets (see below!).
Should you use a mobile bitcoin wallet?
While they’re convenient and portable, ideal for face-to-face transactions, especially using QR codes, app marketplaces might delist or remove a wallet making it difficult to receive future updates, and damaging or losing your device can lead to loss of funds (if you didn’t write the passphrase down).
Bitcoin.org, one of the most official sites for bitcoin, has a wallet chooser that asks you numerous questions to find the best Bitcoin wallet for you.
Delving into their list reveals Electrum (desktop version) as one of the best desktop wallets, though as we mentioned, Exodus also has a mobile version which is highly thought of.
One of the advantages of desktop wallets is that they have a lot more screen to play with, so you can have a lot more visibility over your funds than on a tiny mobile screen: though this can turn into a disadvantage if the app uses that space to display more widgets than a NASA display.
A disadvantage is that desktop wallets are more susceptible to viruses or exploits, so keeping your machine protected and updated is a must.
Some desktop wallets such as Exodus support hardware wallets.
A hardware wallet is a USB device that stores the details of your keys. It will generate a passphrase for itself like anything else does which is the ultimate backup protection.
Quite often devices like this are protected by PINs or biometrics so that they can’t be used on a PC without an authorised user.
When hardware wallets are connected to a PC successfully, they can be accessed by compatible desktop wallet software like Exodus. This means you can do the normal things you’d do in a desktop wallet, but it leaves no trace on your hard disk or in your browser.
The big names in hardware wallets are Trezor and Ledger, which supply devices of all shapes and sizes that you can buy on Amazon. There are, as you’d expect, a lot of more generic cheaper devices. Even if they’re honest, they may not be reliable.
Of course, any device from these two big names would handle Bitcoin (and Ethereum), but most wallets handle a lot more than that. Which one to buy depends on your needs and your budget: do you want a lot of coins? How big do you want your device: small devices are more losable!
A very interesting alternative to the two big names is Mycelium Entropy, which is a small USB device that uses hardware based entropy to generate printable Bitcoin paper wallets. That’s what I call synergy! Though it’s currently out of stock.
Sitting crypto earns nothing!
Of course, one common aspect of all wallets is that without further action, your crypto just sits there. If you don’t need it for active trading, or you just want to buy Bitcoin to invest and earn interest, then you might want to consider AQRU’s interest-bearing crypto investment accounts, where you can earn interest on your bitcoin, paid daily (rates vary and are available on the app and website).
When you sign up, you even get 10 digital dollars (USDC) to invest to test the system (don’t worry, it’s yours to keep!).
If you already have Bitcoin, you can use your wallet to send it to AQRU easily with no deposit fees.
If you don’t, you can send in GBP or EUR by bank transfer and swap it for bitcoin at great rates (and also, no deposit fee).
You can also buy Bitcoin with a debit card from trusted third-party payment processor MoonPay.
Whichever way you go, once you’re signed up, verified and funded, you can press that “invest” button to invest your Bitcoin, and then watch it grow. Or, set it and forget it – despite its volatility, everyone’s hopeful it will be worth more in five years.
Whatever you do with your Bitcoin, we wish you good luck – and stay safe: the main risks in crypto are mostly human-based, so stay alert and sensible and you should have a safe crypto trip.