Private Keys, Seed Phrases and Wallets

A crypto wallet does not contain coins. It manages keys: a public key that others can send to, and a private key used to sign transfers. The assets remain in the blockchain's ledger – the key is the proof that you are allowed to move them.

What a seed phrase is

A seed phrase, often 12 or 24 words, is a human-readable encoding of the secret value from which all your keys are derived. With the words, the wallet can be recreated in any compatible software. That makes them a complete copy of your control – and the only thing an attacker needs.

Three ways to hold custody

• Custodial storage: a platform holds the keys on your behalf. Easier to get started, but you depend on the company's security, licensing and continued existence.
• Self-custody in software: the app on your phone or computer holds the keys. Convenient for smaller amounts, but exposed to malware.
• Self-custody in hardware: the keys reside on a separate device and signing happens there. A higher barrier to entry, but the private key never leaves the device.

Common mistakes

• Photographing the seed phrase or saving it in a cloud service, email or password manager connected to the internet.
• Giving the words to anyone claiming to be support, an auditor or a regulator – legitimate parties never ask.
• Keeping a single copy that could be destroyed by fire or water, with no plan for family members.
• Never testing a recovery, only discovering during a crisis that the note was written down incorrectly.

Do a small test transfer and a test recovery before moving larger amounts.