Bitcoin wallets and holding your own keys
A balance on an exchange is a promise. A wallet is a key. The difference does not matter at all until the day the exchange freezes withdrawals, and then it is the only thing that matters.
What a wallet actually holds
Coins live on the bitcoin network, not in any app. What a wallet stores is the private key that authorises spending them. Whoever has that key can move the coins, and nobody else can, including you if you lose it. There is no password reset and no support desk behind it.
The seed phrase
Setting up a wallet produces twelve or twenty four ordinary words. Those words are the key in a readable form, and anyone who reads them owns the coins. Write them on paper. Keep the paper somewhere a flood or a housemate will not reach it. Do not photograph it, do not type it into a phone, and do not put it in a password manager that syncs to a cloud.
The words are also the backup. A device that breaks or is lost is replaced by entering the same words into a new one, and the coins reappear, because they were never inside the device to begin with.
Software or hardware
A phone wallet is free and fine for an amount you would not mind losing with the phone. A hardware wallet is a small dedicated device that keeps the key off any computer and makes you confirm each payment on its own screen, which is what defeats malware that rewrites a copied address. It costs money and it is worth it once the amount would ruin your month.
The two makers worth knowing
- Trezor Made in Prague by Trezor Company s.r.o. The firmware is open source, so the code that guards the key can be read by anyone who cares to.
- Ledger French, and the other name you will see everywhere. Its secure element is a certified chip, and its companion app is closed source, which is the trade people argue about.
Buy either one from the maker's own site. Second hand devices and marketplace listings have been shipped with a seed phrase already written by the seller, which empties the wallet the moment it is funded.
Moving the coins off the exchange
- Set the wallet up first, write the words down, and check the words by restoring once.
- Copy a receiving address from the wallet and confirm it on the device screen.
- Send a small test amount from the exchange and wait for it to arrive.
- Send the rest once the test has landed.
The network fee for the transfer is paid to miners and has nothing to do with the exchange. Two transfers cost that fee twice, which is the price of finding out you had the address right.