Home / Academy / Wallets and custody

Wallets explained: where your mined bitcoin really lives

A wallet holds keys, not bitcoin. Exchange account, phone wallet or hardware wallet: what each one is and which to mine to.

Basics

A bitcoin wallet does not hold bitcoin. Your bitcoin is a record on the Bitcoin network, written next to an address. What the wallet holds is the private key that can spend from that address. Whoever holds the key controls the bitcoin. Every wallet choice below comes down to one question: who holds the key, and where is it kept?

Three words to know

Address: what you give out to be paid. It is safe to share. Your machines pay out to one.
Private key: what signs a payment out of that address. It is never shared with anyone.
Recovery phrase: 12 or 24 words that rebuild all your keys on a new device. In practice the phrase is the wallet. See Seed phrase safety.

The three kinds of wallet

Type	Who holds the keys	Good for	Main risk
Exchange account	The exchange	Selling BTC for cash	The exchange freezes, fails or is hacked
Software wallet (phone app)	You, on a phone that is online	Small amounts, learning	Malware, or a lost phone with no backup
Hardware wallet	You, on a device that stays offline	BTC you plan to keep	Losing the recovery phrase

Exchange account

An exchange gives you a deposit address, but the exchange holds the key. What you see on screen is a balance the exchange owes you. That is convenient: you can sell for dollars or your local currency in a minute and withdraw to your bank. It also means your BTC depends on the exchange staying solvent, staying online and keeping your account open. An exchange account is a place to sell from, not a place to keep years of mining.

Software wallet

A software wallet is an app on your phone or computer. It creates the keys on your device and shows you a recovery phrase to write down. You hold the keys, so nobody can freeze the balance. The weak point is the device: it is connected to the internet every day, and a phone can be lost, stolen or infected. A software wallet is fine for small amounts and for learning how sending and receiving work.

Hardware wallet

A hardware wallet is a small device built to do one thing: keep the keys away from the internet. You prepare a payment in an app, the device signs it, and the key never leaves the device. A thief who breaks into your phone or laptop gets nothing. What you must protect is the recovery phrase on paper: lose the device and you can restore, lose the phrase and the device and the bitcoin is gone.

Which one to mine to

Your machines pay out to one address at a time. Which address fits depends on what you do with the bitcoin once it arrives.

You are just starting: a software wallet or an exchange account you already use is enough to watch the first payouts arrive and learn the flow.
You sell part of each month's mining, for example to pay your hosting invoice: an exchange deposit address makes selling one step. First check that the exchange accepts payouts from mining pools and credits small deposits. See Which exchange is right for me.
You keep most of what you mine: a hardware wallet address. Payouts land directly on keys that only you hold.
You do both: mine to one, and move the rest on a schedule. See Cold storage basics.

Good to know: The payout address is not a one-time choice. You can change it as your needs change: see Change your payout address safely.

Careful: Firsthand Bitcoin only ever needs an address from you. Nobody from Firsthand will ask for a private key or a recovery phrase. Anyone who asks for one is trying to take your bitcoin.

Set up a SafePal wallet