Why Many Beginners Misunderstand How Bitcoin Wallets Works

[KingsDen]

Your topic is teaching many things and mentioning different things at a time. You could create three different threads from this particular thread of different subjects. You made your points even to the extent that you tried contradicting yourself.

To correct one impression, if you have a CEX account and hold BTC there, it is that CEX that holds your BTC. So, it is not wrong for newbies to think that exchanges hold their coins.

However, who holds the coin is not the major problem of newbies provided that they can see some figures on their dashboard representing their coins.
But it is simple to tell them that if they don't own or hold the keys, they are not the real owners of the coin.

[Mpamaegbu]

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 reasoned that way too. I guess it was one of a general happenstances with every newbie. It was the ignorance we all enjoyed 😂

If I would recommend without much Grandeur it would be Electrum for Android and Desktop and
Blue wallet for iPhone.

Since you recommended Electrum, knowing there could also be fake Electrum wallet apps, you could've helped OP and other newbies with link to avoid phishers. Let me help you out with Electrum app on Playstore.

[Catenaccio]

Since you recommended Electrum, knowing there could also be fake Electrum wallet apps, you could've helped OP and other newbies with link to avoid phishers. Let me help you out with Electrum app on Playstore.

Can I trust you?
Can other newbies trust you?

I am not attacking you but this is a warning for all newbies, don't trust, verify from the original source. You are a Legendary member that can be trusted by newbies quite easily, but if they have this approach and naively trust legendary members, they will be scammed in the future.

The Electrum wallet website
http://electrum.org/

Download the wallet from the page
https://electrum.org/#download

[Mpamaegbu]

~snipped~

Can I trust you?
Can other newbies trust you?

I got your drift on that. No offence taken. I couldn't lay my hands on the right website at the time I was posting that and didn't want to quote what I wasn't sure of. Thus, I had to use the link from the Playstore of the Electrum wallet I've been using which I got from the original Electrum site. If anything, I knew it was authentic.

Again, while I got the angle you wrote from, I ain't sure any high ranked member would want to risk their reputation by sending a wrong or phishing link in the public. If it were through DM, it would be understood.

[Peanutswar]

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?

The most common question of the newbies are "Where do I buy?" and "What wallet should I use?" These questions already sign that newbies are always seek for a question and want to secure their bitcoin. Yes if you are a beginner all of the things you have seen is quite overwhelming, downloading of the wallet, make a configuration of the seed, password and make a transactions so few of them prefer with the use of the exchange which is they can create an account and deposit or even trade to buy but sooner or later once they tooks so long into the crypto space they will realize that its more safer to have a crypto wallet that can be use to make their bitcoin safe. But base on my experience when I started in my crypto journey I already use with the Electrum and the mobile application and shifted into their desktop and tried other wallets thats suits to my activities.

[joniboini]

I can't really remember what's my impression about Bitcoin wallet since that's so long ago. I fairly remember reading about exchange wallet vs Electrum (self-custody) wallet a while back. Maybe that's why I didn't mix them together from the beginning. I forget why I stumble upon that thread/article though. As far as I can recall, I found Bitcointalk early and tried to read about bounties and whatnot at first.

As of now though, I believe we can blame some of them to exchange marketing itself. I realize that a lot of users don't actually engage in forum like Bitcointalk but discuss in social media instead. It's hard to actually share or correct information when you have to deal with dozens of bots or paid accounts.

[Sammysmart001]

Your topic is teaching many things and mentioning different things at a time. You could create three different threads from this particular thread of different subjects. You made your points even to the extent that you tried contradicting yourself.

To correct one impression, if you have a CEX account and hold BTC there, it is that CEX that holds your BTC. So, it is not wrong for newbies to think that exchanges hold their coins.

However, who holds the coin is not the major problem of newbies provided that they can see some figures on their dashboard representing their coins.
But it is simple to tell them that if they don't own or hold the keys, they are not the real owners of the coin.

Thanks for the observation. I Just checked back and I understand what you mean. My thread explained wallets, seed phrases, private key and beginner mistakes all in one post. And me checking back,  having to create a thread for each  will probably bring a clearer discussion and will be more detail on each discussion.

And about custodial exchanges, I appreciate your clarification. You are right that when a BTC is being kept on a centralized exchange, the exchange will be holding it on behalf of the user.
The very point am making here, is that as a beginner those balance on your exchange , shouldn’t be see as true  ownership if you don’t control your keys. This give a true example of not your key not your coin.

[KiaKia]

I was once a newbie and the mistake I made for a very long time without even knowing it was the type of wallet I choose to use and this was the genesis of my losses in crypto space.

Someone said where to buy and I think that's a valid point too but things have changed today because you can easily find where to buy Bitcoin anywhere online without doing the wrong thing unlike the past where online exchanges are limited and information is low.

I choose and used centralised wallet for years before I knew that I shouldn't be using a custodial wallet to keep my crypto assets, Xapo wallet and Free wallet for example, and they cost me, I learned the hard way.

[lovesmayfamilis]

If you consider that a beginner has never used any sites for which it is necessary to save usernames and passwords or has never used electronic wallets, which also require careful use, then learning the basics of Bitcoin security will be difficult for him. But we have been living in the age of the Internet for a long time, and preserving our seed phrase and proper Internet security will not be difficult for someone who was not born yesterday and did not start using their devices for financial matters yesterday. There is no higher mathematics here, but there is a desire to replenish your information, grow, and learn.

[ImGenius]

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.
-snip-
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 mistakes are very similar to my first mistakes in crypto. When I first opened a wallet I also saved the seed phrase on my own device. although it was not a problem because I did not have much funds in my wallet at that time. I did not understand how a wallet works but I understood that it is just like keeping money in a bank but I have a little more control over it than the bank because I have the main key to access it, through which I can easily control it.

[tbct_mt2]

These mistakes are very similar to my first mistakes in crypto. When I first opened a wallet I also saved the seed phrase on my own device. although it was not a problem because I did not have much funds in my wallet at that time. I did not understand how a wallet works but I understood that it is just like keeping money in a bank but I have a little more control over it than the bank because I have the main key to access it, through which I can easily control it.

Storing your wallet seed phrase or wallet files online like cloud storage is very risky and nobody have experience will recommend that. There are many threats online and put your wallet backups online to be possibly exposed with more threats is not a good idea.

You don't need to be too experienced to know that because there are warnings about online risks.

Seed Backup Threat Model

We already know why we are creating seed backups - to protect against loss of whatever devices (if any) we are storing the keys on for regular use. But what do we need to worry about protecting the backups themselves against?

    Loss due to destruction
    Loss due to complexity / not being able to restore from backup
    Loss to an attacker

Terrible Backup Schemes

Let's begin by going through some common forms of backing up seed phrases that are incontrovertibly prone to failure.

Storing your (unencrypted) seed phrase in any online service. This includes:

    Taking a photo of your seed phrase.
    Any note taking apps that get synced to the cloud.
    Services that sync files from your phone / laptop to the cloud.

Basically, any online account that could potentially be compromised by an attacker and have its contents read by them. This includes employees who work for that company / service!

[EluguHcman]

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.

Invariably the exchange is as vulnerable that if hackers can succeed in gaining certained access point to the site, they (hackers) may also gain the access to steal your funds.

So your Bitcoin can of course be lost in such circumstance.
The only advantage is that some exchange can refund users who losses their Bitcoin in cases where their website is defaulted over security vulnerability against the online attackers.

But in other words, if a wallet or and exchange platform is hacked does not mean the Bitcoin core is affected.

[Bitcoin Smith]

A Bitcoin wallet is not rocket science, anyone will get the idea if they starts using but the problem is they don't even know that a wallet exists because they don't even know what is bitcoin but they purchased their bitcoins already after reading the title from a breaking news like bitcoin went up 10% in the last 24 hours, and so they wanted to buy bitcoin to make profits. These kind of bitcoiners won't bother learning at all they used to the trust and centralization they are okay with holding on exchanges.

[Smartvirus]

However, who holds the coin is not the major problem of newbies provided that they can see some figures on their dashboard representing their coins.
But it is simple to tell them that if they don't own or hold the keys, they are not the real owners of the coin.

One funny truth is, this is how scam cloned sites work, you get to see some loaded fork designated as BTC or Bitcoin with some numbers right on a dashboard meter and you find newbies smiling.
Let’s hope we don’t have newbies falling victims to buying coin on cloned site.

Back to it,
Exchanges aren’t wallets, they make use of custodial wallets and users that own accounts on the exchange are given access to an address. In essence, a user on an exchange owns nothing and is only granted access to whatever the exchange decides. Which explains how some exchanges can even limit the amount you can sell or buy due to your KYC level.

One way for a newbie to understand these things, the mechanisms and operandum of wallets is by actively using them. When they don’t, it doesn’t matter how you teach it, they would be stunned on the first trier still.

[KingsDen]

Thanks for the observation. I Just checked back and I understand what you mean. My thread explained wallets, seed phrases, private key and beginner mistakes all in one post. And me checking back,  having to create a thread for each  will probably bring a clearer discussion and will be more detail on each discussion.

And about custodial exchanges, I appreciate your clarification. You are right that when a BTC is being kept on a centralized exchange, the exchange will be holding it on behalf of the user.
The very point am making here, is that as a beginner those balance on your exchange , shouldn’t be see as true  ownership if you don’t control your keys. This give a true example of not your key not your coin.

Glad you understood my point.
Next time, it'll be nice to discuss those ideas separately.

But the good thing is that we are on the same page. Beginners must wake to the consciousness of self custody. They don't need to depend on the 3rd party for a long term storing of their bitcoin.

However, who holds the coin is not the major problem of newbies provided that they can see some figures on their dashboard representing their coins.
But it is simple to tell them that if they don't own or hold the keys, they are not the real owners of the coin.

One funny truth is, this is how scam cloned sites work, you get to see some loaded fork designated as BTC or Bitcoin with some numbers right on a dashboard meter and you find newbies smiling.
Let’s hope we don’t have newbies falling victims to buying coin on cloned site.

I cannot count how many times newcomers came asking for my help to retrieve their bitcoin on a trust wallet. Just figures they don't control at all and it's funny how they react if I tell them there's no coin while they are seeing thousands of them.

[khaled0111]

Exchanges aren’t wallets, they make use of custodial wallets and users that own accounts on the exchange are given access to an address

I get your point and I'm not trying to nitpick here, but to be precise, those exchanges don’t and would never give you access to the address. To have access to an address, you need its private key, which is something no centralized exchange would do.
As many members have explained above, exchanges are not wallets and they are not meant to be used to store your coins, especially for the long term. To have full control over your coins and to keep them safe, use a real wallet that was designed for that purpose.

[PX-Z]

Exchanges aren’t wallets, they make use of custodial wallets and users that own accounts on the exchange are given access to an address

..., but to be precise, those exchanges don’t and would never give you access to the address. To have access to an address, you need its private key, which is something no centralized exchange would do.

Yeah, what Smartvirus mean of "access" is ambiguous, it could mean view only or full control. So yeah, a specific way to describe it is important, and you're also right. So for everyone to understand especially if we are talking to newbies about such info, it should be more specific.

[snowpega]

I was once a newbie and the mistake I made for a very long time without even knowing it was the type of wallet I choose to use and this was the genesis of my losses in crypto space.

Someone said where to buy and I think that's a valid point too but things have changed today because you can easily find where to buy Bitcoin anywhere online without doing the wrong thing unlike the past where online exchanges are limited and information is low.

I choose and used centralised wallet for years before I knew that I shouldn't be using a custodial wallet to keep my crypto assets, Xapo wallet and Free wallet for example, and they cost me, I learned the hard way.

Sorry i don't understand what you lost when you was a newbie in crypto space. Because what i understand reading your post is that you seem to be an older crypto space user than me. So can you tell or explain me in easy way that what mistake you made and in a result what you lost? Other than this, you are totally correct at this point because today getting or finding information is way more easy than one can think. Now we are living in the time where AI is more used and you can get any information by giving a single command and AI bring you more detailed information that if you find it by yourself will probably take more and more time as compared to getting it from AI.

[AVE5]

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?

But come to think it, if it's not wallet that stores your bitcoin, what else does? Obviously where you keep your bitcoin stores the bitcoin for you as the case maybe, it's called bitcoin or storage system.
What's questionable in the system is the custodial status quo of the wallet, if it's a non custodial wallet, then you're in charge of controlling your funds because you've access to your wallets recovery keys but there in custodial wallet the platform controls your funds because you won't have access to your recovery keys.
Well I had this very basic knowledge from my beginners stage because I was thought basically about wallet and bitcoin storage even before I bought my first bitcoin.

[Sammysmart001]

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.

I so much will love to warn people about this, I can remember last two year my university Days this happen to one of my lodge mate. I don’t really know how the new spread out but it most have being somone very close to him that most have pass such information, he was a tech guy and into crypto. So that very day he just step out in the evening and on his way home he was attacked by some men. And they were requesting for money that they head he hold BTC ….. he couldn’t help out they beat him up and took so much from him.

So pls let do well to keep our mouth shut for this kinds of talk, trust no one any amount of coin you are holding should be only known by you. Stay safe