A Starter's Guide to Bitcoin Burner Wallets

With DeFi, Ordinals and micropayments on the rise, Bitcoin has seen a surge in utility. This translates to more users and on-chain activity. However, this increase in activity has put Bitcoin users at the risk of more bad actors and scams.

Therefore, ensuring the security and privacy of your Bitcoin wallets should be a top priority. Of course, wallets like Leather already provide a base layer of security, but it’s important for users to take additional security measures while interacting on-chain. Bitcoin burner wallets are the perfect solution, especially for the transactions you feel unsure about.

Bitcoin burner wallets are temporary, untraceable addresses that maximize the security of your assets. In this post, we’ll learn more about Bitcoin burner wallets, why they’re a great option for Bitcoin security, and how to create one using Leather.

What is a Bitcoin Burner Wallet?

A Bitcoin burner wallet is a temporary address with a new private/public key pair. This private key is not linked to your main wallet. You can use this wallet for a specific transaction or purpose (like trading), without revealing your details.

This way, burner wallets break the connection between addresses, transactions, and personal identity — offering privacy and security. And once the transaction or purpose is complete, the wallet can be safely disposed of or "burned".

How Does a Bitcoin Burner Wallet Work?

Burner wallets are made by creating new accounts in your existing wallet. Each account has a separate private/public key.

However, your primary and burner wallets have the same seed phrase (Leather uses the term Secret Key to refer to see phrases), meaning you can use it to recover both of them. However, the funds stored in them are managed independently even though the same underlying seed technically connects both wallets.

Leather uses a Hierarchical deterministic (HD) model which allows you to manage and create multiple accounts using a single Bitcoin wallet or seed phrase. The HD wallet model makes private/public key management simpler. In HD wallets, the master seed phrase also acts as a backup as it can recover all the private/public keys attached.

With Leather, you can have multiple sub-wallets for different purposes, all derived from the same master seed phrase. For example, you can have one wallet as the main account, holding most of your Bitcoin for long-term savings. Another wallet can be your Bitcoin trading account, which you use to trade, pay people and conduct other transactions actively. And finally, you can have one or many burner wallets for private and secure transactions and one-off interactions with dApps.

Why Do Some Users Opt for a Bitcoin Burner Wallet?

The main security risks with any wallet come from your private key, which controls the ability to spend funds. Private keys can be stolen by phishing, malware, remote access of devices, or hacking of wallet providers. These keys are also prone to such risks, especially when transacting with new platforms like a DEX (decentralized exchange) or an NFT (non-fungible token) marketplace.

The advantage of using a burner wallet is that even if your private key is compromised, the impact is localized to the holdings in that temporary address.

Therefore, a Bitcoin burner wallet secures high-risk transactions by limiting exposure to your primary, long-term wallet. If you want to explore new dApps, anonymize Bitcoin payments, etc., consider using a Bitcoin burner wallet.

Benefits of Using a Bitcoin Burner Wallet

Bitcoin burner wallets offer benefits such as privacy, temporary storage, testing, anonymity, and so on. Let’s take a closer look at how a burner wallet helps with each one.

• Privacy: Burner wallets allow receiving payments without tying transactions or revealing users' portfolios.

• Temporary storage: Burner wallets are ideal for temporary and short-term storage of Bitcoin that one does not intend to hold for long periods.

• Testing: For developers, burner wallets provide a sandbox environment for safely testing dApps (decentralized applications). Developers can interact with new smart contracts, taking on minimal risk.

• Anonymity: For specific individuals like investigative journalists or political activists, burner wallets help minimize the traceable on-chain footprint.

• Localize risk: Burner wallets localize risk to a specific address while participating in high-risk activities like airdrop farming or NFT minting. Phishing, airdrop scams, and other malicious efforts are more likely to happen during such activities.

How to Create & Manage a Burner Wallet on Leather?

Here is a step-by-step guide on creating a burner wallet using Leather, the leading Bitcoin wallet.

Step 1: Log in to your Leather Wallet

Log in to your Leather wallet and click on your main account's name. This is usually listed as "Account 1" by default, but in this example it is "carey.btc" as you can also use Bitcoin domain names you've claimed in Leather.

Step 2: Click on "Create new account"

Now, click on "Create new account", and you will have a new address with a new private key and public address.

This account can now be used as your burner wallet.

Remember that both your primary and burner wallets are derived from the same mnemonic Secret Key. Hence, secure the Secret Key as safely as possible.

Bonus: Private Keys for a Specific Address

Extracting a private key for a specific address allows you to have granular control over a single address and be more secure. You can use this private key to migrate funds of your burner wallet  to another wallet, or integrate it with dApps that need your private key.

This Leather guide covers the entire process of extracting the private key for your burner wallet using Electrum.

Stay Anonymous With Bitcoin Burner Wallets

Bitcoin burner wallets are an excellent tool for users dabbling around the Bitcoin ecosystem and trying out new dApps and protocols. Burner wallets are ideal for one-time and anonymous Bitcoin transactions.

Leather provides a simple, easy-to-navigate interface to create new burner wallets and transact with them while offering enhanced security. Wallet security is one of the highest — if not the highest — priority for many of our users, and we want to give them a number of options to protect their assets as they engage with the Bitcoin network.

Connect to web3 applications built on Bitcoin with the Leather browser extension. Install Leather – the only wallet you need to tap into the multilayered Bitcoin economy – today.