New

Cryptocurrency

9 min

Bitcoin wallet

Anyone who owns cryptocurrencies like Ethereum or Bitcoin, or plans to invest in them, should get to grips with wallets early on. Without a suitable BTC wallet, securely storing Bitcoin can quickly become a challenge. But which Bitcoin wallet is the best choice? Should it be a hardware wallet or is a software solution enough? And what does it actually mean to manage your own keys?

Our guide gives you an overview of the different wallet types, explains what to look out for when choosing one and shows you how to store your coins securely.

A Bitcoin wallet allows you to receive, send and securely store BTC using keys and can be used as a hardware, software or custodial wallet.
Those who want full control over their keys should choose a non-custodial wallet, while a custodial wallet is more user-friendly.
Hardware wallets offer high security, while hot wallets are better for quick access and daily use.
The choice of the right Bitcoin wallet depends on whether security or convenience is the priority – for long-term storage, a cold wallet is recommended.

What is a Bitcoin wallet?

A Bitcoin wallet is a digital wallet that lets you receive, send and securely store Bitcoin (BTC). It manages the private and public keys required to access your coins. Without a Bitcoin wallet, you can't carry out BTC transactions. It's therefore an essential tool for anyone trading in Bitcoins or wishing to store them long term.

What is a Bitcoin wallet address?

A Bitcoin wallet address is a unique combination of numbers and letters that serves as the receiving point for BTC transactions. Usually, the wallet's public key generates the address.

A BTC wallet address looks like this, for example:

Bc1qar0srrr7xfkvy5l643lydnw9re59gtzzwf5mdq

Each wallet address is unique, and you can use it multiple times or just once – depending on the security settings of the wallet you use.

How does a Bitcoin wallet work?

Only those who understand what happens during a BTC wallet transaction can protect their funds in the long term. It's especially important to know the basics with self-managed wallets – such as how access is secured and what happens in the background when sending Bitcoin.

This is how a wallet works:

a wallet is a digital tool for receiving, storing and sending coins and tokens.
basis is a key pair: a public key (wallet address) and a private key (access and signature).
the private key secures access to the digital assets.
depending on the wallet type, either the user or a provider manages the private key.
access to the wallet is usually via an app, a browser or an installable program.
when creating a wallet, a new key pair is automatically generated.
transactions are signed using the private key.
whoever holds the private key controls the coins and tokens in it.
secure storage of the private key is crucial – especially with self-managed wallets.

A Bitcoin wallet works exclusively with the Bitcoin blockchain. The wallet only processes Bitcoin transactions and uses specific address formats such as "bech32" or "P2PKH", which are technically different from addresses in other networks. The UTXO model ("unspent transaction output") is also specific to Bitcoin – this means your wallet manages individual outputs rather than a simple account balance. As a result, transactions can seem more complex, although the actual balance remains the same.

What types of wallets are there for Bitcoin?

Custodial and non-custodial wallets are the two main types of BTC wallets. With a custodial wallet, a provider manages the keys, while a non-custodial wallet gives the user full control over the keys. Wallet types also include hot wallets (online) and cold wallets (offline), with the latter offering greater security.

All types of wallets for Bitcoin at a glance:

Hardware wallets
Software wallets
Mobile wallets
Desktop wallets
Web wallets
Paper wallets
Multisignature wallets

Pros and cons of the various Bitcoin wallets

Each Bitcoin wallet has specific pros and cons, which can be decisive depending on usage and security requirements:

Advantages of the different Bitcoin wallets

Hardware wallets: high security thanks to offline storage of keys
Software wallets: easy to use and quick Bitcoin payments
Mobile wallets: convenient for everyday use as they're always available on your smartphone
Desktop wallets: full control over keys without relying on a provider
Web wallets: quick access to BTC without needing to install software
Paper wallets: no risk from hacking, as the keys exist only physically
Multisignature wallets: increased security as several keys are needed to approve a transaction

Disadvantages of the different Bitcoin wallets

Hardware wallets: require an additional device which can be lost
Software wallets: increased risk from malware or hacking
Mobile wallets: security risks if your smartphone is lost or stolen
Desktop wallets: risk from malware accessing the device
Web wallets: high dependency on the provider, who may have access to the keys
Paper wallets: risk of loss or damage as they exist only on paper
Multisignature wallets: more complex to use, as multiple keys must be managed

Creating a Bitcoin wallet – here's how

If you understand how to set up a wallet, you'll not only protect yourself better against losses but also grasp key security mechanisms of the blockchain.

How to create a wallet for cryptocurrencies:

choose a wallet type that suits your security needs and usage (e.g. self-custodial or hardware wallet).
find a trusted provider offering security, user-friendliness and compatibility.
download the wallet app and set it up according to the type of wallet you've chosen.
create your wallet account – this automatically generates a wallet address and private key.
write down the recovery phrase for your wallet, making sure to note the words in the exact given order.
store your access details offline – no digital storage in the cloud or on a smartphone.
test your wallet with a small transaction to ensure everything works properly.

Unlike other cryptocurrencies, Bitcoin doesn't have a central platform for creating a wallet. Instead, you can choose from many different providers, some of which offer solutions tailored specifically to Bitcoin. Keep in mind: Bitcoin uses its own address format and, as a network technology, doesn't support smart contracts like many other blockchain projects. For this reason, some wallets differ in their interface, security options and how they process transactions.

Where can you create Bitcoin wallets?

You can create a Bitcoin wallet at crypto exchanges, from specialised wallet providers or as a hardware wallet. The choice of the right provider depends on your security requirements, ease of use and control over your keys.

Here’s an overview of the common options:

Crypto exchanges: many exchanges offer integrated custodial wallets for easy use.
Software wallets: providers like Electrum or BlueWallet allow you to create a non-custodial wallet with full control over the keys.
Hardware wallets: brands like Ledger or Trezor offer hardware devices that ensure particularly high security.

A Bitcoin wallet can be created directly at Bitpanda and offers a simple way to buy, sell and securely store BTC. All holdings are stored in modern offline wallets to ensure maximum security. In addition, Bitpanda offers two-factor authentication (2FA), session management and protection against DDoS attacks, allowing users to optimally secure their wallet and account.

Are you ready to buy cryptocurrencies?

Get started now

Which Bitcoin wallet is right for me?

The choice of the right BTC wallet depends on various factors, including security requirements, frequency of use and control over the keys. Those who trade Bitcoin regularly need a wallet that is quickly accessible, while long-term holders prefer a solution with stronger security features.

For maximum security: a hardware wallet, such as a Ledger device, is ideal as the keys are stored offline.
For daily use: a mobile or software wallet offers quick access but carries higher risks.
For users who want to hand over control: a custodial wallet, e.g. with an exchange, enables easy management, although the provider controls the keys.

When using a Bitcoin wallet, network fees may apply, which depend on network traffic and transaction size. Some wallets allow you to set the fee level yourself, which affects confirmation time. Additionally, some providers charge fees for deposits, withdrawals or buying and selling Bitcoin. Software wallets are usually free and therefore the most cost-effective option.

Bitpanda charges a trading fee of 0.99% for buying and selling Bitcoin. SEPA deposits are free. Third-party providers may charge fees depending on the provider – such as exchange rate fees for unsupported currencies. Bitpanda also optimises transaction costs using technologies such as Segregated Witness and Transaction Batching to reduce fees for users.

The decision depends on whether convenience, cost or security is your priority.

Are Bitcoin wallets secure?

In principle, Bitcoin wallets are secure if used correctly. The underlying blockchain technology offers a high level of protection as transactions are secured by cryptography and stored in a decentralised way. However, the actual security of a wallet depends on its type and the care taken by the user. Hardware wallets, such as Ledger, are considered particularly secure because they operate offline and are therefore not vulnerable to hacking. Software wallets are more practical but pose a greater risk due to malware or phishing.

What you can do to make your Bitcoin wallet more secure:

Store the key safely: keep your private key or recovery phrase offline in a secure location.
Use two-factor authentication (2FA): activate 2FA where possible to add extra protection.
Perform regular updates: always keep your wallet software up to date to avoid security vulnerabilities.
Be cautious about phishing: never click suspicious links or enter sensitive data on unsecured websites.
Use cold storage: use a cold wallet if you hold larger amounts of Bitcoin or Ethereum to ensure maximum security.

Frequently asked questions about Bitcoin wallets

Here you’ll find more about the unique aspects of a Bitcoin wallet.

Which Bitcoin wallet is best for beginners?

The best Bitcoin wallet for beginners should be easy to use, offer a clear interface and support basic security features. It's particularly important for beginners that the wallet guides them step by step through the setup and explains terms in an easy-to-understand way.

Many wallets offer additional features such as two-factor authentication and the ability to deposit fiat funds. An integrated link to a trading platform can further simplify getting started with Bitcoin.

Are there Bitcoin wallets with Lightning?

Yes, there are Bitcoin wallets that support the Lightning Network. The Lightning Network is a so-called second-layer solution on the Bitcoin blockchain that enables particularly fast and low-cost transactions. Wallets with this feature let you carry out Bitcoin payments almost in real time – especially useful for small amounts or frequent transactions.

However, when using the Lightning Network, a basic level of technical understanding is helpful, as setting up so-called payment channels involves additional steps.

Bitcoin wallets without entering personal data – is that possible?

Yes, there are Bitcoin wallets that can be used without registration or providing personal data. These are usually non-custodial wallets. You install them locally on your device and upon setup you get immediate access to the wallet address and backup phrase – all without verification.

However, you can’t use these wallets to trade Bitcoin directly, such as exchanging Bitcoin for other digital assets or depositing fiat funds. For such features, you typically need to connect to a platform where verification is legally required. You can find more about this in our guide on buying Bitcoin anonymously.