What a wallet really is: keys, not coins

A crypto wallet does not hold your coins. It holds the keys that let you move them. Once that idea is clear, most of crypto security makes sense.

Where your coins are

Your coins never leave the blockchain. They are entries in the shared ledger, recorded against an address. Independent computers around the world hold copies of that record.

A wallet is a tool for using it. US securities regulators put it plainly: "Crypto wallets do not store crypto assets themselves." A wallet does three jobs:

It stores your private keys.
It reads the blockchain and shows your balance.
It signs transactions when you approve them.

A better picture

Think of a locked mailbox on a public street. Anyone can see the mailbox and drop something into it. Only the person with the key can take anything out.

The mailbox is your address on the blockchain. The key is your private key. The wallet is the key ring.

What follows from this

Losing the device is not losing the coins. If your phone breaks, the coins are still on the blockchain. You can restore the same keys on a new device from your backup. Lesson 23 explains that backup, the seed phrase.

Losing the keys is losing the coins. With no backup and no device, nobody can sign a transaction for your address. There is no password reset.

A copy of the keys is full control. Anyone who gets your keys can move your coins from anywhere in the world. They do not need your phone, your PIN or your permission.

You can change wallet apps. Keys follow shared standards. You can usually load the same keys into a different app and see the same balance.

Your balance is public. The wallet shows what the blockchain says. Anyone who knows your address can look up the same information.

Wallet and account

On Ethereum, the pair of keys is called an account, and the wallet is the app that manages it. One wallet app can manage many accounts. Bitcoin wallets go further and handle many keys and addresses for you behind the scenes.

The forms a wallet takes

A mobile or desktop app
A browser extension
A hardware device that keeps keys offline
A service that holds the keys for you, such as an exchange

The first three are self-custody: you hold the keys. The last is custodial: someone else does. Lessons 24 and 25 compare them.

The app or device is replaceable. The keys are not. Everything else in this level is about keeping them safe and backed up.