BEGINNER_DOC_016 // BEGINNERS / WALLETS
WALLETS
A Bitcoin wallet does not store bitcoin. It stores private keys. Your bitcoin
lives on the blockchain as UTXOs — the wallet simply holds the keys needed to sign transactions
and spend them. Losing your wallet software is recoverable. Losing your keys is not.
The seed phrase is the wallet.
HD_WALLETS — HIERARCHICAL_DETERMINISTIC
BIP39 — FROM SEED PHRASE TO MASTER KEY
12 or 24 random words (from a 2048-word list):
abandon ability able about above absent absorb ...
↓ PBKDF2-HMAC-SHA512 (2048 rounds + optional passphrase)
512-bit seed: 5eb00bbddcf069...
↓ HMAC-SHA512 with key "Bitcoin seed"
Master Private Key (256 bits) + Master Chain Code (256 bits)
BIP32 DERIVATION
BIP32 — KEY TREE (UNLIMITED CHILD KEYS)
m ← master key
m/44'/0'/0'/0/0 ← first P2PKH address
m/44'/0'/0'/0/1 ← second P2PKH address
m/84'/0'/0'/0/0 ← first P2WPKH (native SegWit)
m/86'/0'/0'/0/0 ← first P2TR (Taproot)
One seed phrase → unlimited addresses, all recoverable
WALLET_TYPES
MOST SECURE
A dedicated physical device that stores private keys in a secure element chip, never exposing them to internet-connected computers. Signing happens on-device.
Examples: Coldcard, Ledger, Trezor, Foundation Passport
Private keys: Never leave the device
Signing: Transaction signed on device, only signature leaves
Air-gap: Some devices never connect to any computer (QR/SD)
Best for: Long-term storage of significant amounts
Software Wallet (Hot)
CONVENIENT
An application on your phone or computer that manages keys and signs transactions. Convenient for daily spending but connected to the internet.
Examples: Sparrow, Blue Wallet, Muun, Phoenix (Lightning)
Keys stored: Encrypted on device
Risk: Malware, device compromise, cloud backup leaks
Best for: Spending amounts you'd carry in a physical wallet
Never store more than you can afford to lose in a hot wallet. Treat it like cash in your pocket.
Paper Wallet / Cold Storage
OFFLINE
A private key or seed phrase written on paper and stored offline. Immune to remote attacks but vulnerable to physical threats: fire, water, theft.
Method: Generate key offline → write seed phrase on paper
Storage: Safe, safety deposit box, metal backup (Cryptosteel)
Risk: Physical damage, discovery, no passphrase protection
Best for: Long-term archival "cold" storage
THE_SEED_PHRASE — YOUR_MASTER_BACKUP
WHAT IT IS
12 or 24 words from BIP39's 2048-word list. Encodes your output/">master seed.
Anyone with these words can derive every private key
in your wallet and spend all your bitcoin.
HOW TO STORE IT
Write it on paper. Store offline. Never photograph it.
Never type it into any website. Consider a metal backup for fire/water
resistance. Keep multiple copies in separate secure locations.
TERMINOLOGY_INDEX
Seed Phrase
12 or 24 BIP39 words encoding the master seed. Can recreate an entire wallet from scratch.
HD Wallet
Hierarchical Deterministic wallet. Generates unlimited keys from a single seed in a tree structure (BIP32).
BIP39
The standard for converting a random seed into a human-readable mnemonic phrase of 12–24 words.
BIP32
The standard for deriving child keys from a master key using a path (e.g., m/84'/0'/0'/0/0).
Derivation Path
The tree path used to derive a specific key (e.g., m/84'/0'/0'/0/0 for first native SegWit address).
Passphrase
An optional 25th word added to BIP39 derivation. Produces a completely different wallet. Adds plausible deniability.