Terminology

First, let’s define some of the key terms you will come across when you buy, sell or store Bitcoin:

Wallet: A wallet is used to store private and public keys. A wallet can be compared to a bank account, a credit card, or even the wallet in your pocket. However, unlike these, a crypto wallet doesn’t actually store your Bitcoin, but rather the keys you use to access your Bitcoin.

Public Key: A public key is like a bank account number. This is the address another sender will use to send Bitcoin to you.

Private Key: A private key is required to access your Bitcoin. In order to send Bitcoin from your wallet, you will require the private and public keys.

Software wallet: A software wallet is a wallet that you download to a PC, notebook, or mobile device.

Popular Bitcoin Software Wallets include:

For Windows: Bitcoin Core, Electrum, ArcBit, Armory

For Android: Bitcoin Wallet, Bither, Edge, Electrum, Airbitz

For iOS: Edge, Green Address, Bither

Hardware wallet: A hardware wallet is a device similar to a USB stick that allows you to store your keys offline.

Popular hardware wallets include: Trezor, Ledger Nano S, KeepKey

Hot wallet: A hot wallet is any wallet that is online. This can be a software wallet on your own devices, or a wallet hosted on an exchange or elsewhere in the cloud.

Cold Wallet: A cold wallet is an offline wallet. Cold storage means either keeping your keys on hardware wallet or printed on a piece of paper, stored in a safety deposit box or hidden somewhere.

Backup: A backup is a file containing your private and public keys which will allow you to restore your wallet if you lose a device or if your hard drive is damaged.

Which Wallet Is Right for You?

Your choice of wallet comes down to the trade-off between security and convenience. The easiest way to store Bitcoin is on an exchange. However, this is also the least secure method. When your cryptocurrencies are stored on an exchange, you do not have control of your keys. If the exchange is hacked, the hackers can steal the assets belonging to all the exchange’s clients, including yours.

At the other end of the spectrum are hardware wallets and paper wallets. If your assets are stored offline, hackers can’t get hold of them. But this also means you need to take full responsibility for storing your keys where nobody can get them.

If you own very little in the way of Bitcoin, an exchange is probably the way to go. If losing your Bitcoin would be a big problem, a software wallet is a better option. And, if your crypto assets are worth a considerable amount, you’ll want to keep the bulk of those assets offline, either on a hardware wallet, or a securely stored paper wallet.

All the Ways to Back up Your Bitcoin Wallet

One of the disadvantages of decentralized ledgers is that you cannot retrieve a lost password. If you lose the password to the website, or if you forget the PIN code for a bank account, there is always a way to reset that password.

Public keys are like a bank account numbers on a blockchain, and private keys are the passwords to access those accounts. The problem is that if you lose either, there is no one to turn to. If you lose the device that stores those keys, they are gone forever, and so are your Bitcoin. Therefore, you must always back up your wallet.

There are several ways to back up your wallet, the following being the most popular:

Seed phrase: Most wallet software does include a recovery process. The software will generate a seed phrase, which you need to write down and store somewhere safe. If for whatever reason, you lose your wallet, you can use this phrase to recover it.

A seed phrase will look something like this:

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The words need to be in the exact order they are generated. For most wallets, if you lose your password, it cannot be recovered or reset, however, if you do lose the password, you can recover the wallet using the seed phrase.

Text File: Software wallets have a function that allows you to export your keys. On some wallets, the function is labeled backup wallet, while on others it is labeled export keys. When making backup files, it’s a good idea to disconnect your computer from the internet before doing so.

On the Electrum wallet, the function is under Wallet > Private Keys > Export and looks like this: