Ultimate Guide to Seting Up a Bitcoin Wallet
A Bitcoin wallet is just a bitcoin address and its corresponding private key. That is the identifier on the Bitcoin blockchain that is used to send bitcoin to and from. It is a bit more technical than that, it also includes the child addresses that are created every time a transaction takes place but for the purposes of this guide we won’t be discussing the particulars of xpub and HD deterministic wallets since while most wallets do support these features, it is usually handled away from the end user’s view.
The term Bitcoin Wallet is really a catch-all phrase for the various different ways you can secure your private key and organize your public keys. There are different ways this can be done, with various degrees of security and usability.
Bitcoin wallets can be loosely categorised into 3 main types: Web-wallets, Local wallets, and hardware wallets. In this guide, we will explain how to set up each of these.
Web wallets are the least secure but the most accessible, designed to hold small amounts of bitcoin and be used to make purchases
Web-wallets are wallets created and hosted by a website such as Coinbase or blockchain.info. Much like a bank in traditional finance, users of a web wallet don’t actually possess their own bitcoin. To set one up simply go to the site of your choice, go through the sign-up process and you are done. Of course, you won’t hold the private keys yourself and, much like a bank, you will be dependent on the site’s sustainability in order to access your bitcoins. Sites like BitGo offer significantly more security than a typical web wallet (and even let you generate your keys offline) but there is still a level of trust needed there.
Hardware wallets are the most secure and are best suited for long-term savings. The process for setting one up is dependent on the hardware. First, of course, you need to purchase some hardware (we have a comparison guide on the most popular ones) and then generate a key pair according to the manufacturer’s directions.
Securely setting up a local wallet is a bit more difficult, but worth it for its combination of security and usability.
First, you have to choose your software. Just like Android is a piece of software run on billions of phones but has many different flavors all based on the same core technology, Local Bitcoin wallets can have vastly different experiences and functions but are all based on the fundamentals of bitcoin’s base software.
The most vanilla Bitcoin wallet is called, unsurprisingly, Bitcoin-Core. It requires every step to be performed by the user, including downloading the entire bitcoin blockchain. Download the software, install it as you any other software but keep in mind when it asks you where you would like to save the blockchain, to pick a drive with significant space. The blockchain is currently over 155GBs and is constantly expanding.
Once installed, a wallet will be auto-generated and the long process of synching the blockchain will begin. Once completed, or while you wait, you should encrypt your wallet and write down the password. If you lose your password, there will be no way to recover your bitcoins. Then you should back up your wallet and store those files on a USB drive or other media that is separate from your computer. This is a very important step because if your computer crashes or you otherwise lose your wallet file, all of your bitcoins will be lost.
Another option is Electrum. Electrum works much the same way as Bitcoin Core but instead of downloading the entire blockchain it connects to a decentralized server that stores and updates the blockchain. It also supports 12-word seed recovery, multi-signature wallets, and SegWit, which allows for lower transaction fees when sending to supported wallets.
Simply choose which wallet you want to use and Electrum will give you a 12-word recovery seed. Write this code down on a piece of paper and keep it safe. If your computer crashes, you simply lose the file, or the Electrum network shuts down, this seed can be used to recreate your wallet using Electrum or a variety of other wallets.
There are other software options available, but using the instructions above, any user with competent computer skills should be able to figure them out.
A paper wallet is simply the private and public key of a bitcoin wallet printed out on paper. You can simply write down the key a wallet like Electrum created for you, but it is suggested that you use software to generate a key while your computer is disconnected from the internet. Walletgenerator.net is a good option. Go to the site, let it load, turn off your Wi-Fi, and then generate the key by moving your mouse. For maximum security, you can download the entire webpage and then use a USB drive to move to a computer that is not connected to the internet and then generate the key there. Then print out the resulting keys and you are done. Simply use the public key to receive bitcoins. When you are ready to spend your bitcoins, you will have to sweep the wallet using an electronic wallet (either local or web). Most wallet software has an option to do so and it is pretty straightforward.
With your wallet all ready to go, now you have to purchase some bitcoins to fill it up.