Wallets, keys and seed phrases

A wallet holds keys, not coins

Your balance is recorded on the blockchain. What a wallet stores is a private key: a secret number that proves you are allowed to move those funds. From it, the wallet derives your address, which you can share so people can send you crypto.

• Address: safe to share, like an account number.
• Private key: never share. Whoever has it can move everything at that address.

Seed phrases

Most wallets generate all of your keys from a seed phrase, also called a recovery phrase: usually 12 or 24 ordinary words. If you lose your phone, the seed phrase restores the wallet on a new device.

That also means anyone with your seed phrase can empty your wallet, from anywhere in the world. There is no password reset and no bank to call, and blockchain transactions cannot be reversed.

Exchange or self-custody

• On an exchange (custodial): the exchange holds the keys. You log in with a password, and if you forget it, they can help. But you rely on the exchange. Exchanges have frozen withdrawals, been hacked and gone bankrupt; when FTX collapsed in 2022, customers lost access to their funds.
• Self-custody: you hold the keys, in a software wallet on your phone or computer, or in a hardware wallet, a small device that keeps keys offline. No company can freeze your funds, and no company can recover them if you lose the keys.

The trade-off is convenience and recoverability against depending on a third party.

Security basics that prevent most losses

• Never type your seed phrase into a website or share it with anyone. No legitimate wallet, exchange or support team will ever ask for it. Messages that do are scams, however official they look.
• Store the seed phrase offline, written down, somewhere safe. Not in a screenshot, a cloud note or an email.
• Check addresses carefully. Some scams send tiny amounts from look-alike addresses, hoping you later copy the wrong one from your transaction history.
• Send a small test amount first when using a new address.
• Use unique passwords and two-factor authentication on exchange accounts, with an authenticator app rather than SMS where possible.
• Be suspicious of urgency. “Act now or lose your funds” is one of the most common lines in crypto scams.