Choose custody, software and backup methods based on the risks you actually face. The checks below separate control of keys, backup design, and promises made by a service.
- Wallets protect keys, not coins stored inside an app.
- Custody is a tradeoff between counterparty risk and operational responsibility.
- Test backup and recovery before committing meaningful value.
A wallet manages keys
Bitcoin remains recorded on the distributed ledger. Wallet software creates and protects keys, constructs transactions and helps you interpret your holdings. This distinction explains why restoring the same seed can recover access on another compatible wallet.
Custodial or self-custodial
A custodian controls withdrawal keys and promises to honor your balance. Self-custody removes that counterparty but makes your backup and device security decisive. Neither label alone guarantees good security.
Name who controls the key. A wallet interface, an exchange account, and a recovery backup can expose different people to different failures.
Hot and cold environments
Hot wallets are connected and convenient for routine use. Cold signing devices keep keys away from general-purpose internet-connected systems. Many people separate a spending wallet from long-term savings.
Evaluate before depositing
Check source transparency, reproducible releases where practical, backup portability, address verification and update history. Test recovery with a small amount before treating any setup as permanent.
The four kinds and who each suits
Exchange accounts hold coins for you — convenient for trading, exposed to the exchange's risk. Mobile and desktop software wallets hold keys on a device you control and are right for everyday amounts. Hardware wallets keep keys in a dedicated offline device and sign transactions without exposing them, the standard for savings.
Multisignature setups require several keys, held on separate devices or by separate people, and suit large holdings and organisations. Most experienced holders use two or three of these at once, sized to what each amount is for.
Reading a wallet's claims
'Non-custodial' means you hold the keys; check that the app gives you a recovery phrase you can restore elsewhere, and test it. 'Open source' means the code can be inspected; it does not mean it has been. 'Insured' at an exchange usually covers the exchange's hot wallet against theft, not your account against your own errors or the company's insolvency.
'Supports Bitcoin' can mean a multi-asset app that holds hundreds of tokens and treats bitcoin as one of them; a Bitcoin-only wallet has a smaller attack surface and usually better coin control and fee handling.
Setting up so recovery works
Write the recovery phrase on paper or stamp it in metal during setup, store it somewhere a fire or a burglar would not take with the device, and never photograph it. Send a small amount in, then restore the phrase on a second device or a fresh install and confirm the same address and balance appear — before trusting it with more.
Record the wallet's address type and derivation path with the backup; for multisig, back up every key and the wallet configuration file. The address checker on this site can confirm an address is well formed before the first real transfer.
Turn this into a recovery check
Write down who can authorize a spend, what must be backed up, and how recovery will be tested without exposing a seed phrase. Start with a small amount before relying on a new custody setup.
Common questions
Does a wallet store my bitcoin?
No. Bitcoin only exists as entries on the shared ledger. A wallet stores the keys that can spend those entries and builds transactions for you; back up the keys — usually as a recovery phrase — and the wallet software itself is replaceable.
What is the difference between a hot wallet and a cold wallet?
A hot wallet keeps its keys on an internet-connected device such as a phone, which is convenient for spending. A cold wallet keeps them on an offline device such as a hardware wallet, which is safer for holding. Many people use both for different amounts.
What happens if I lose my phone?
If you wrote down the recovery phrase, install any compatible wallet on a new device and enter the phrase; the same keys and coins reappear. Without the phrase, the coins are unrecoverable, which is why the backup matters more than the device.
Sources and further reading
Primary documents this guide draws on. Links open the original publisher.
- Choose your wallet bitcoin.org
- Developer guide: wallets developer.bitcoin.org
- BIP 39: Mnemonic code for generating deterministic keys Bitcoin Improvement Proposals
- BIP 32: Hierarchical deterministic wallets Bitcoin Improvement Proposals