Wallet Types

A Bitcoin wallet is software or hardware that manages private keys and signs transactions. All wallets do the same fundamental thing: they hold your keys and let you authorise transfers. The differences are in where the keys are stored, how they are protected, and what attack surface they expose.

Hardware Wallets

A hardware wallet is a dedicated physical device whose sole purpose is to store private keys and sign transactions. The keys are generated on the device and never leave it. When you want to send bitcoin, the transaction is constructed on your computer or phone, sent to the hardware wallet for signing, and the signed transaction is returned. At no point does the private key exist on a networked device.

This is the gold standard for individual self-custody. The attack surface is minimal: an attacker would need physical access to the device and knowledge of the PIN, or they would need to compromise the firmware — which, for reputable manufacturers, is open-source and audited.

Reputable open-source hardware wallets include Coldcard, Trezor, Jade, and Foundation Passport. Prices range from approximately €50 to €300. The differences between them are in user interface, firmware transparency, and additional features like air-gapped signing (via SD card or QR code). All of them do the essential job well.

Software Wallets (Hot Wallets)

A software wallet runs on your computer or phone. The private keys are stored on the device itself — encrypted, but present on a machine that is connected to the internet. This is called a "hot" wallet because the keys are online.

Hot wallets are appropriate for small amounts that you spend regularly — the equivalent of a physical wallet in your pocket. They are not appropriate for savings. A compromised phone or a piece of malware that captures keystrokes can extract the keys.

Good mobile hot wallets include Muun, Phoenix, and Blue Wallet. For desktop, Sparrow Wallet provides advanced features including coin control and hardware wallet integration. All of these are open-source.

Paper Wallets

A paper wallet is a private key printed on paper. It was a common early method of cold storage. It has largely been superseded by hardware wallets because it introduces problems: key generation must happen on a secure, offline machine; the paper itself is vulnerable to water, fire, and physical deterioration; and spending from a paper wallet requires importing the key into a hot wallet, which re-exposes it.

Paper wallets are not recommended for new users. Hardware wallets are strictly better for the same use case.

Brain Wallets

A brain wallet is a private key derived from a memorised passphrase. The theory is attractive: no physical device to lose, no paper to be found. The practice is dangerous. Human-chosen passphrases are weak against brute-force search. Automated tools systematically try common phrases, literary quotes, and dictionary combinations. Funds stored in brain wallets have been stolen within minutes of deposit.

Do not use a brain wallet for any amount you cannot afford to lose.

Which Wallet for Which Purpose

• Hardware wallet — savings, long-term holding, amounts you care about. This is the default for a Bitcoin standard.
• Mobile hot wallet — spending money, Lightning payments, daily transactions. Keep only what you would carry in a physical wallet.
• Desktop wallet (Sparrow) — advanced users who want coin control, UTXO management, and hardware wallet integration.
• Paper/brain wallets — not recommended for general use.

The next module covers the most important part of any wallet setup: securing the seed phrase that can reconstruct it.