Note: This article originally published on Zonotho, a financial education start-up, in December 2019. Reading about the exchange hacks led to ask me how about to keep their Bitcoin investments safe.
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Bitcoin is designed so that any user can safely secure their funds, without the need for a bank, exchange, or third party.
In the previous article we discussed why keeping your Bitcoin on an exchange is a bad idea. In this article we’ll look at how you can fix that by setting up your own digital wallet.
What is a Bitcoin Wallet?
A Bitcoin Wallet is an app on a phone, PC, or device that can send and receive Bitcoins. The most important feature of a Bitcoin Wallet is its Private Key.
A Private Key is a special password that controls your funds. Think of a Private Key like an e-mail password. Anyone can send e-mail to an e-mail address, but only the person with the password can send e-mail from that address. Similarly, anyone can send Bitcoin to a Wallet, but only the person with the Private Key can send Bitcoin from that Wallet.
Private Keys are also known as ‘seed phrases’, ‘mnemonic keys’, or ‘backup seeds’. A typical Private Key looks something like this:
“witch collapse practice feed shame open despair creek road again ice least”
You can read more about Private Keys here.
Choosing a Bitcoin Wallet
My recommendation is that for small amounts of money, you should download a free wallet for your phone. For large amounts, it is better to purchase a hardware wallet, a dedicated Bitcoin storage device which offers superior security to a phone. In South Africa, hardware wallets are available on Takealot. I don’t recommend keeping your funds on a PC, laptop, or website unless you have expertise in computer and network security.
Note: if a ‘Wallet’ doesn’t let you control your own Private Keys, or if it is not specifically for Bitcoin (BTC), then it is NOT a Bitcoin Wallet.
Installing a Bitcoin Wallet
For the rest of this article, I’ll assume we’re setting up Blockstream Green Wallet on Android. This is one of the wallets I use, but do your own research. Most wallets should have a similar set-up.
1. Download the Wallet App from the Google Play Store
2. Open the app and select: “Create New Wallet”
If you already have a Private Key, you can load it with the “Restore Wallet” option.
3. Write down your Private Key
At some point, the app will prompt you to write down a series of words. This is your Private Key.
Do NOT store this on a computer, do NOT take a screenshot, and do NOT put it on Google drive or any device connected to the internet.
Write your Private Key on a piece of paper with a pen and store it in a secure location. Consider making more than one copy. Many computers have been hacked but, until now, nobody has figured out how to hack a piece of paper.
Make sure this key is safe. If you lose access to your phone, this is the only way to access your funds.
(The screenshots below are ONLY for illustration purposes. Do NOT screenshot your Private Key)
4. Complete the set up
Many wallets will also prompt you to set up a pin code or 2-Factor Authentication. This is recommended for additional security.
5. Send your Bitcoin to your new wallet
Once you Wallet is set up, it’s time to send it from the exchange.
On the Wallet click “Receive”. A QR code will show up as well as an address. An address is like an e-mail address that you can send Bitcoin to.
On your exchange find the ‘Send’ or ‘Withdraw’ button. It will ask you to enter a Bitcoin address. Copy-paste the address from your Wallet or scan your QR code. From there, follow the prompts, click confirm. You should see the money in your Wallet shortly.
I recommend that you start with sending a small amount first. Once you’re comfortable that you understand how it works, you can send the rest of your balance.