If you have Bitcoin (BTC) or plan to buy coins, you’ll need a Bitcoin wallet to securely store them. However, Bitcoin wallets can differ drastically in security, control, and features, meaning the type of wallet you choose can have a profound impact on your experience with Bitcoin.
For example, many people leave their BTC on the exchange where they bought it. While convenient, this doesn’t give you full control over your digital assets. To prevent an exchange from losing your BTC, you should consider transferring your assets to a self-custodial wallet, where you’re in charge of your private keys and securing your BTC.
This article explores the different types of wallets, including software, hardware, and paper wallets, and helps you find the right one for you.
- How to choose the right Bitcoin wallet for you
- The best Bitcoin wallet for you
- How to create a Bitcoin wallet with Proton Wallet
How to choose the right Bitcoin wallet for you
When you’re considering which Bitcoin wallet is right for you, the best place to start is looking at the differences between hosted vs. self-custodial wallets.
Custodial wallets
A custodial (or hosted) wallet doesn’t actually let you hold your coins, meaning they’re not really a wallet at all. Instead, your BTC is held by a third party (typically a crypto exchange) that pools all your coins in with its other users and then uses a database to keep track of who the coins belong to. They’re almost always web app “hot” wallets, or wallets that are always connected to the internet. Hot wallets, since they’re online, are generally accessible across devices but this also means they need strong cybersecurity.
These custodial solutions do not offer their users a private key — this allows crypto exchanges and similar services to simplify their setup process. However, a hosted wallet also requires you to put all your trust in the institution holding your coins — which has not always been a good idea(new window).
Best for: Hosted wallets’ main selling point is that they’re easy to use. However, you should never use a custodial wallet because they have serious security problems that can lead to you losing all of your BTC. If your exchange hosting your custodial wallet gets hacked(new window) or is mismanaged, there is nothing you can do. Billions of dollars worth of BTC have been lost by people who stored their coins with crypto exchanges (for example, FTX(new window)).
Self-custodial wallets
A self-custodial wallet is the opposite of a hosted wallet — it lets you hold your BTC, meaning you’re always in complete control. This also means that you must manage your private keys yourself. These wallets generate a 12-24 word code, called a seed phrase (or recovery phrase), that can be used to generate your coins’ public and private keys. With a seed phrase, you can recover access to your coins on another device or with another wallet.
Self-custodial wallets are limited in the recovery options they can offer. If you lose your private keys/seed phrase, you could lose your BTC. And if an attacker gets a hold of your seed phrase, they’ll get access to the funds in your wallet. However, as long as you keep your account password, keys, and seed phrase safe, your coins are safe.
While hosted wallets are almost exclusively software “hot” wallets, self-custodial wallets can exist as hot wallet apps, physical hardware, or codes written on paper. These last two are “cold” wallets, or ones where your keys are held offline, so we’ll cover them separately.
Best for: Secure storage that you need regular access to, similar to a savings account at a bank. Since you’re in control of your coins’ keys, you don’t need to worry about them vanishing. However, self-custodial wallets require Bitcoin transactions to happen on-chain, which incurs Bitcoin network fees and means you must enter your intended recipient’s long, complicated Bitcoin address correctly.
How to set up a self-custodial wallet:
- Download the app
Most self-custodial wallets do not require an account or password. Simply download the app and you’re ready to get started - Write down your seed phrase
This is a random phrase (usually made of 12 to 24 words) that you must store in a secure location. It will let you access your coins if you forget your account information or if you need to switch wallets. - Transfer crypto to your wallet
Most non-custodial wallets don’t support buying BTC, so you’ll need to purchase some from an exchange and then transfer them to your self-custodial wallet.
Hardware wallets
A hardware wallet is typically an external device the size of a flash drive that you can plug into your computer for transferring BTC. Once you disconnect this flash drive from your computer, it and your coins’ private keys are entirely offline, providing strong security. However, you can only transact your BTC when your hardware wallet is connected to a configured computer, meaning they’re not ideal for daily transactions. Additionally, hardware wallets can be expensive and require some setup before you can use them.
Best for: Long-term storage of your coins. Hardware wallets are pretty cumbersome if you need to use your coins on a regular basis, but they’re one of the most secure ways to store large amounts of BTC. You still have to download and trust the software app of the hardware wallet maker, but generally as long as you don’t lose both the hardware device and the seed phrase, your BTC should be safe.
How to set up a hardware wallet:
- Buy the hardware
Again, as this is the item that will be holding your BTC, it’s crucial you choose a trusted, reliable brand. Trezor(new window) is completely open source and has a good track record. - Install the software
Every hardware wallet requires you to install software to configure it and transfer your coins onto it. Make sure you only download the software from your hardware wallet’s official website. Then follow the instructions to create your wallet. - Transfer your Bitcoin to your wallet
Most hardware wallets don’t allow you to buy BTC (although Trezor does(new window)), so you’ll need to purchase some from an exchange and then transfer them to your hardware wallet.
Paper wallets
Paper wallets were the original cold BTC storage. Similar to a hardware wallet, it lets you hold your coins’ keys offline, meaning they offer strong protection. However, the fragility of paper as a medium, along with the reliance on third-party apps to simplify the wallet creation process (which can be spoofed or monitored by malicious actors) has made paper wallets a cumbersome and potentially risky storage option.
Best for: Honestly, unless you cannot afford a hardware wallet or you’re a tech-savvy user, paper wallets are best avoided. Hardware wallets are much simpler and more secure tools for long-term storage of your coins.
The best Bitcoin wallet for you
The right wallet for you will depend on exactly what you want to do with your BTC and your risk tolerance. However, an ideal Bitcoin wallet would combine the ease of use of a hosted software wallet with the security of a self-custodial wallet. More precisely, this wallet would:
- Be accessible across all your devices
- Make it simple to send and receive BTC
- Be self-custodial so only you can access your BTC
Proton Wallet is a self-custodial Bitcoin wallet designed to be the safest software wallet without requiring you to buy specialized and expensive hardware. Its self-custodial nature means Proton cannot access your BTC, so your coins are protected in the unlikely event that Proton is compromised. Thanks to our robust recovery methods, your BTC will remain safe even if Proton goes out of business or disappears.
Unlike other software wallets, Proton Wallet also benefits from added safety features like Proton Sentinel(new window), which can protect your Bitcoin even if an attacker somehow manages to steal your password. Finally, sending Bitcoin is as easy as sending an email with our Bitcoin via Email feature, which allows you to send BTC to anybody using Proton Wallet with just their email address. This makes it easy to verify that you sent your coins to your intended recipient and removes the error-prone process of entering and confirming long, random hashes that make up Bitcoin addresses.
If you have a low risk tolerance, you can also split your coins up between multiple wallets. In this case, you can keep the BTC you want for day-to-day transactions in Proton Wallet and hold the majority of your BTC in a hardware wallet for longer-term storage.
How to create a Bitcoin wallet with Proton Wallet
Proton Wallet is currently in its early access period, and given the high demand it received, we’ve created a limited-time waitlist to ensure smooth, seamless service. Once you have access access to Proton Wallet, creating a Bitcoin wallet is simple:
- Sign up for a free Proton Account and join the waitlist for Proton Wallet. Once you receive access, go to wallet.proton.me(new window) and sign in using your Proton username and password.
- After you log in, a pop-up window will appear asking for your preferred currency.
- Once you’ve entered this information, select Create new wallet.
Learn more about creating Bitcoin wallets with Proton Wallet
You’re now ready to begin transacting BTC. You can also easily import your existing Bitcoin wallets to Proton Wallet.
Join Proton Wallet and take back control of your financial freedom from financial institutions.
