Why Many Beginners Misunderstand How Bitcoin Wallets Works

[Sammysmart001]

I can remember vividly when i started learning about Bitcoin, all my thought was that apps(exchange) are the one storing my Bitcoin. But as time goes on i start to understand how everything works. I realize that a lot of us, mostly beginners has the same mindset too, they think that both custodial exchanges like Binance, Bybit and self custody wallet such as Trust Wallet, Blue Wallet and lot more stores store their Bitcoin same way. They all think all this exchanges apps holds their coin, If in any way this apps is being affected or they can’t access it, they all think that their coin is gone, if exchange is being hack many beginners assume that Bitcoin itself it hacked.

What Bitcoin Wallet Really Does
Bitcoin is always being recorded on the blockchain, So wallet are there to store and manage your cryptographic keys (not Bitcoin) this cryptographic keys allows you to spend and access BTC that are associated with your address. Let all see a blockchain as a public record, wallet as key chain, private key as our own house key and in all seed phases as a master backup for your whole keychain.

Differences between Private key and Seed phrase

Private key:this gives a control over a bitcoin that is associated with a particular address and it also authorizes spending from Bitcoin control by your key. You having acces to your private keys, means you have the ability to spend your Bitcoin from that very address. lossing this private key and not having you seed phrase as backup means you have no access to your Bitcoin again. It just as if you want to access a door lock and you have the key you can go in, but you standing there without the key no way to come in.

Seed Phrase: is the Backup that allow you to recover your wallet and also it private key that associated with it . If in any way you misplace your phone/device with the help of this seed phrase you can gain back access to Everything again.

Mistakes most of our beginners make
1. Storing of seed phrase online (WhatsApp, photos, emails, screenshots and iCloud) if in any way account is being hacked your Bitcoin could be stolen.
2. Having your seed phrase stored only in one location. At least two should be okey, separately secure in different location. If one gets misplace that you can’t find it, the other will be there to save.
3. Making use of our exchange account as wallet. If you stand out not to have the seed phrase you aren’t controlling the keys, that not self custody but rather custodial storage.

We getting to understand how our wallet works gives us good understanding about Bitcoin. Wallet is only a tool, true ownership comes from you controlling your own private key. You don’t have full control over your BTC if you can’t be in control of your keys . Do well to protect ur seed. Once you as a beginner is able to understand how this works, then you will focus  more on self custody.

My question for us all
When you start using bitcoin, did you think that wallet stores your BTC or you do understand how it works from
The very beginning?

[knowngunman]

They all think all this exchanges apps holds their coin, If in any way this apps is being affected or they can’t access it, they all think that their coin is gone, if exchange is being hack many beginners assume that Bitcoin itself it hacked.

But does it make any difference if you can't access the coin? As long as you have your recovery seed, you can access your coin somewhere else with your recovery seed even if your wallet provider is not accessible. But for the exchange, it's good to assume your coin is gone for good because you don't have what it takes to access the coin and when the exchange is hacked, there's no point thinking otherwise. Bitcoin itself can not be hacked, it can only be stolen when your wallet is hacked. The only way you can get back your coin after exchange hack is exchange willing to compensate you.

[Doan9269]

One of the reasons I see many newbies fail in their journey in cryptocurrency at the early stage is because of wrong information and a lack of the necessary awareness needed; this way we need to encourage them to learn more to know what is expected of them in crypto.

Bitcoin wallet are of different types and before a beginner could make decision on which wallet to use, they have to understand how this wallet operates because it's may constitute a little bit of technical understanding, is where they knowing about custodial and non-custodial wallet first set in, then as a newbie, wallet like exodus is more advisable because of being easy to understand and operates, not only this, a newbie shouldn't take a step without having a good understanding of what is doing so that he don't lose everything he has by making a silly mistake.

[Lucius]

~snip~
My question for us all
When you start using bitcoin, did you think that wallet stores your BTC or you do understand how it works from
The very beginning?

Everyone had to learn the basics and probably most were a little confused at the beginning. Although it is technically correct that BTC is on the blockchain, and that private keys are stored in wallets, it is still most important for an ordinary user to understand that they should not be shared with anyone else and that in case they want to do a wallet recovery or change a wallet, they always make sure to download a legitimate wallet.

These are not things that are difficult to understand (learn), but many people rush into it without even knowing the basics.

[Sammysmart001]

Everyone had to learn the basics and probably most were a little confused at the beginning. Although it is technically correct that BTC is on the blockchain, and that private keys are stored in wallets, it is still most important for an ordinary user to understand that they should not be shared with anyone else and that in case they want to do a wallet recovery or change a wallet, they always make sure to download a legitimate wallet.

These are not things that are difficult to understand (learn), but many people rush into it without even knowing the basics.

You are right on the line @Lucius the thing is that allot of us from the beginning we do believe that our wallets do store our Bitcoin just as our local banks save our money. Getting to understand that our wallets mange’s our key not our coin is the very big part of learning. And as you have made mention the importance lesson is getting to protect your keys and recovery seed, and also downloading wallets from a legitimate source. This are good habit that prevent beginners and also keep them safe in practice of learning.

[SilverCryptoBullet]

I can remember vividly when i started learning about Bitcoin, all my thought was that apps(exchange) are the one storing my Bitcoin. But as time goes on i start to understand how everything works. I realize that a lot of us, mostly beginners has the same mindset too, they think that both custodial exchanges like Binance, Bybit and self custody wallet such as Trust Wallet, Blue Wallet and lot more stores store their Bitcoin same way.

Centralized exchanges give custodial wallets (no private keys, no seed phrases).
Non custodial wallets give seed phrases, private keys, that is good but not enough.
Users must choose non custodial wallets with another thing: open source. With open source code, these wallets are reproducible and can be tested more and deeper by community.

Reminder: do not keep your money in online accounts.
Events made you scare about custodial wallets, centralized exchanges.

Trust wallet is close source. Blue wallet is open source.
https://walletscrutiny.com/?platform=allPlatforms&page=0&query-string=trust
https://walletscrutiny.com/?platform=allPlatforms&page=0&query-string=blue

[noorman0]

My mentor taught me how to use a non-custodial wallet from the start. Unfortunately, my first lesson wasn't a Bitcoin wallet, although I eventually created one myself without his guidance. I simply didn't know which wallet app would generate valid keys that could be imported into any wallet app. My first Bitcoin wallet was blockchain info.

[dzungmobile]

My mentor taught me how to use a non-custodial wallet from the start. Unfortunately, my first lesson wasn't a Bitcoin wallet, although I eventually created one myself without his guidance. I simply didn't know which wallet app would generate valid keys that could be imported into any wallet app. My first Bitcoin wallet was blockchain info.

In Bitcoin forum, years ago, Lauda already wrote a thread and taught newbies about that.
[General] Bitcoin Wallets - Which, what, why?

Problems with newbies are not like they don't have any resources to learn but they ignore available resources and want to do what they feel easy.

Control your private keys
Services like Coinbase and Circle offer “Bitcoin wallets”, but in reality control your private keys. It’s best to use a wallet where you control your private keys. This is the only way to have full control of your funds and not have to rely on third parties for security.

For example, from that, if newbies are interested in, and feeling that is important, they will learn more.

[Hatchy]

My question for us all [/b]
When you start using bitcoin, did you think that wallet stores your BTC or you do understand how it works from
The very beginning?

These are basic knowledge that most of us who started bitcoin learning about bitcoin knew from the start. But sometimes I still wonder why some big investors lack knowledge on these aspects. The second thing you get familiar with immediately you understand what bitcoin is, is leaning how to store your coins. That's where wallets comes in. Every genuine investor will be willing to know the various types of wallets they require in other for their coins to remain safe. Those who fail to go through this stages eventually learn sthe hard way. Things like exchanges do not give your control over your coins they are centralized for that reason, meaning they have control over your assets and not you. What you have displaying on your exchange accounts are just numbers and access can be denied at anytime.

[Sammysmart001]

nges give custodial wallets (no private keys, no seed phrases).
Non custodial wallets give seed phrases, private keys, that is good but not enough.
Users must choose non custodial wallets with another thing: open source. With open source code, these wallets are reproducible and can be tested more and deeper by community.

Reminder: do not keep your money in online accounts.
Events made you scare about custodial wallets, centralized exchanges.

Trust wallet is close source. Blue wallet is open source.
https://walletscrutiny.com/?platform=allPlatforms&page=0&query-string=trust
https://walletscrutiny.com/?platform=allPlatforms&page=0&query-string=blue

Thank you for bringing this up. No doubt I completely agree with you that just using a non custodial wallet shouldn’t just be what users will only put into consideration. Weather a wallet is an open source it also important because it allows community verify and review code, this gives users confident on how wallet operates.

This thread I wrote focuses more on helping beginners understand how Bitcoin wallet works and the difference between self custody wallets and custodial. But I really appreciate your point, this because it adds value to beginners, mostly for those who are looking for wallet to choose  carefully

[promise444c5]

..Unfortunately, my first lesson wasn't a Bitcoin wallet, although I eventually created one myself without his guidance. I simply didn't know which wallet app would generate valid keys that could be imported into any wallet app. My first Bitcoin wallet was blockchain info.

Blockchain wallet do have valid keys that can be imported, even if you had the old json wallet data file(not straightforward but still valid)..

The only problem with their wallet is that they upgraded and combine both wallet and exchange together,  requiring you to input your email address  and a password just like how the recent tether wallet does it ,  before you can use their wallet..

[Dex_master25]

nges give custodial wallets (no private keys, no seed phrases).
Non custodial wallets give seed phrases, private keys, that is good but not enough.
Users must choose non custodial wallets with another thing: open source. With open source code, these wallets are reproducible and can be tested more and deeper by community.

Reminder: do not keep your money in online accounts.
Events made you scare about custodial wallets, centralized exchanges.

Trust wallet is close source. Blue wallet is open source.
https://walletscrutiny.com/?platform=allPlatforms&page=0&query-string=trust
https://walletscrutiny.com/?platform=allPlatforms&page=0&query-string=blue

Thank you for bringing this up. No doubt I completely agree with you that just using a non custodial wallet shouldn’t just be what users will only put into consideration. Weather a wallet is an open source it also important because it allows community verify and review code, this gives users confident on how wallet operates.

This thread I wrote focuses more on helping beginners understand how Bitcoin wallet works and the difference between self custody wallets and custodial. But I really appreciate your point, this because it adds value to beginners, mostly for those who are looking for wallet to choose  carefully

A beginner like myself knows how difficult it is for me to understand what a difference between self custody wallet is and what a centralized exchange wallet is because self custody wallet sounds like a lot of personal responsibility and adherence to safety tips unlike centralized wallets that could be easily accessible. The safety risk for both differ and while one can hold coins for longer in a self custody wallet, the same cannot be said for an exchange wallet that should be used for quick transactions.
The part about securing the private keys is one that makes me understand that safety is in keeping secrets even to close persons because once the keys is in another persons hand, it doesn't become yours anymore.

[Ambatman]

Weather a wallet is an open source it also important because it allows community verify and review code, this gives users confident on how wallet operates.

Alright since you already know about this
I would like to add that Trustwallet you shared on your OP isn't really open sourced
And not to mention it's currently owned by a centralized exchange, Binance.
If I would recommend without much Grandeur it would be Electrum for Android and Desktop and
Blue wallet for iPhone.

[Die_empty]

My mentor taught me how to use a non-custodial wallet from the start. Unfortunately, my first lesson wasn't a Bitcoin wallet, although I eventually created one myself without his guidance. I simply didn't know which wallet app would generate valid keys that could be imported into any wallet app. My first Bitcoin wallet was blockchain info.

I was not properly guided when I started my Bitcoin journey, so I failed to back up my seed phrase. But I was lucky that there was not much money in the wallet. Trust Wallet was my next wallet after I got the knowledge of keeping my seed phrase in more than one location. The forum exposed me to how the wallet and blockchain work. Trust Wallet is no longer recommended since it is not open source, so I have switched to other safe wallets.

[promise444c5]

I was not properly guided when I started my Bitcoin journey, so I failed to back up my seed phrase. But I was lucky that there was not much money in the wallet. Trust Wallet was my next wallet after I got the knowledge of keeping my seed phrase in more than one location. The forum exposed me to how the wallet and blockchain work. Trust Wallet is no longer recommended since it is not open source, so I have switched to other safe wallets.

Haha.. I think most people here got tricked by the word ‘trust’ here.. lol . I used to have  trust wallet before joining the forum and it was only after joining I get to know the whole truth behind trust wallet. Not like it’s a entirely bad wallet though , there’re worse out there .. but  it hard to trust non- open source wallet and  the fact that they are adding some features lately raise concerns about the wallet .

I used have blockchain wallet aswell, so much as changed with it too even though they’ve always required email address for a very long time.

The forum really did a great job as an eye opener to a lot of users here..

[Cookdata]

You are right on the line @Lucius the thing is that allot of us from the beginning we do believe that our wallets do store our Bitcoin just as our local banks save our money. Getting to understand that our wallets mange’s our key not our coin is the very big part of learning. And as you have made mention the importance lesson is getting to protect your keys and recovery seed, and also downloading wallets from a legitimate source. This are good habit that prevent beginners and also keep them safe in practice of learning.

The internet is so big that if you learn about Bitcoin wallet, there are chances that you would have come across articles that differentiate between bank account model and Bitcoin utxo model. They are not even related by any means but because we have people that are interested in making money from Bitcoin than people that want to see how it works, we end up making assumptions and this is why we can't avoid even the basic mistakes of Bitcoin wallet.

My mentor taught me how to use a non-custodial wallet from the start. Unfortunately, my first lesson wasn't a Bitcoin wallet, although I eventually created one myself without his guidance. I simply didn't know which wallet app would generate valid keys that could be imported into any wallet app. My first Bitcoin wallet was blockchain info.

I Had Bitcoin blockchain wallet. It was so popular in my country then when I started Bitcoin. I'm not sure which had promotion between the wallet and Trust wallet. I forgot about password one time and I search how wallet were created and I refused to use it again.
There was a time they were locking users wallet after they start asking for kyc for their internal exchange, if you have coins in there and refused what they request, you are not getting your coins out. The people I knew used it has abandoned it long time now.

[CryptoHeadlineNews]

Mistakes most of our beginners make
1. Storing of seed phrase online (WhatsApp, photos, emails, screenshots and iCloud) if in any way account is being hacked your Bitcoin could be stolen.
2. Having your seed phrase stored only in one location. At least two should be okey, separately secure in different location. If one gets misplace that you can’t find it, the other will be there to save.
3. Making use of our exchange account as wallet. If you stand out not to have the seed phrase you aren’t controlling the keys, that not self custody but rather custodial storage.

In addition to this list of mistakes newbies make when investing in Bitcoin, I will also like to add mine, which involves;
4. Newbies telling people the exact amount of Bitcoin they own in their respective wallets, be it an exchange or non custodial wallets. Because this very singular mistake have cost many people lost of lives when they told others how much they invested in Bitcoin and got robbed.
5. Not double checking wallet address before transferring Bitcoin. Because many people have lost their Bitcoin by this singular mistake of not checking and confirming a Bitcoin wallet address before clicking the sent button.

[moneystery]

When you start using bitcoin, did you think that wallet stores your BTC or you do understand how it works from
The very beginning?

To be honest, I used to think that exchange wallets were a safe place to store Bitcoin, but as time went on and I read more about Bitcoin, I came to understand that exchange wallets are simply a terrible place to store your Bitcoin because it's like giving them complete trust to store and manage your assets.
But that's our journey from beginners to truly understanding things that previously seemed so abstract to us. The point is, we're willing to learn and be open to receiving various kinds of information, and that's what makes our knowledge even better. Because most beginners just jump in and don't understand Bitcoin properly, they skip a lot of things and are vulnerable to errors and scams because they don't have a good understanding of Bitcoin.

[Freeveto]

My question for us all [/b]
When you start using bitcoin, did you think that wallet stores your BTC or you do understand how it works from
The very beginning?

The general mindset must beginners have is just to invest in bitcoin, and exchanges like Binance and others are like banks where they can store their bitcoin. Beginners believed this narrative and they leave their bitcoin with centralized exchanges; when they start to understand why bitcoin is created and how works, they then realize that they have saved bitcoin in the wrong wallet and that is when they start to learn about wallets to move their bitcoin to.
As a beginner, the problem you will have is to stop learning, if you stop learning, you will easily get loss and lose money to crypto trading.

[Sammysmart001]

Alright since you already know about this
I would like to add that Trustwallet you shared on your OP isn't really open sourced
And not to mention it's currently owned by a centralized exchange, Binance.
If I would recommend without much Grandeur it would be Electrum for Android and Desktop and
Blue wallet for iPhone.

Thanks for pointing that out. The reason why I made mention of the Trust wallet it because it one one the wallet most beginners are family with, but from you explanation now have learnt  that being non custodial alone is not enough when making decisions to choose a wallet. I will do well to go learn more about open source wallets so I do make I better recommendation next time. Thanks for helping to improve my  understanding