How to Bitcoin
Part 3. Hot wallets & what if it gets lost?
Well done. You got through all the theory of this course. From here on in, it´s all practical, and it begins with a few questions. Where do you keep your Bitcoin? How do you send and receive Bitcoin? What if you lose your Bitcoin? Lets get into it.
Where do you keep your Bitcoin?
You may recall this bullet point from “key points” in the previous chapter:
“Payment verification is simplified, so we don´t need to run a full network node to use Bitcoin.”
Let´s break this down. Since you´re a beginner, it´s better for you to start with something simple like a hot wallet on your phone or computer. Because Bitcoin´s payment verification is simplified, you don´t need to run a full node to get started. You can use what we call a “hot wallet” to start using Bitcoin. There are however a couple of things you need to know, for security purposes.
Custodial vs self-custodial/non-custodial wallets
You will want to avoid custodial wallets. These often take the form of exchanges such as FTX, Coinbase, and others like them. The vast majority of people who get into Bitcoin for the first time go this route, and never take their Bitcoin off of these exchanges. This is much like buying paper silver; can you verify that you own anything? Not your keys, not your coins.
Self-custodial wallets (often called non-custodial) are what you´re looking for. When you use one of these wallets, you own your Bitcoin, and don´t need to ask for the permission of any third party to use it.
Proprietary vs open source
This comes second to the custodial matter, and it´s extremely rare to find a custodial wallet which is open source anyway. As a second beginner step towards financial sovereignty, it´s highly advised that you use a wallet that is open source. When the wallet is private property, the code is encrypted, and there is no way to verify that the wallet is legitimate. Even if you can´t read code, it´s a lot easier to investigate open source code on the internet. Don´t trust, verify.
What if I lose my Bitcoin wallet?
You´ve probably heard a lot of horror stories about unfortunate people losing dozens of Bitcoins in unfortunate accidents or misplacement. What the fear-mongering media never include in the story is the built-in safety feature to recover these lost balances. Bitcoin isn´t stored in the wallet, it´s on the blockchain. Similar to a TV remote controller, our wallets are the remote key to send and receive our Bitcoin, and offer a visual interface to help us interact with this technology in a user friendly way.
Imagine you lost your TV remote (and I mean really lost it) you can just buy a new one, tune it to the right frequency, and reconnect it to your TV. Pretty simple right? When you set up a Bitcoin hot wallet, the system will give you a 12 or 24 word combination, which you must make a record of in an offline and non-digital manner (write it down somewhere). We never put our seed phrase into any hackable electronic device. If you ever lost your wallet, you can recovery it to a new device by entering this combination into the wallet recovery feature. You could memorize 12 words, and walk through a border naked, with enough money to buy a farm, car, and house on the other side.
