A cryptocurrency wallet is software or hardware that manages the credentials needed to receive assets and authorize transactions. It may also track balances, construct transactions, estimate fees, and connect to a node or service.
The wallet does not contain coins in the way a physical wallet contains cash. Assets are represented in a network's ledger state. The wallet controls the keys or account permissions that can change that state.
For Bitcoin-style wallets, the Bitcoin developer guide separates key management, signing, and network access. Those functions can live in one app or be split between an offline signer and an online watching-only wallet.
Keys, addresses, and signatures
A private key is secret signing material. A corresponding public key can be shared, and an address is a network-specific encoding used to describe a payment destination or spending condition. An address is not always a public key: it may encode a key hash, script hash, contract, or another program.
When a wallet spends funds, it builds a transaction and produces the signatures or other proofs required by the relevant spending rules. The network's validating nodes decide whether that transaction follows consensus rules.
Anyone with the required key material can usually authorize a spend. Anyone who loses the only usable copy may permanently lose access. That is why custody and recovery matter more than the wallet's visual design.
Start with custody
Wallets and wallet-like services first differ by who can authorize a transaction:
- A custodial wallet or exchange account holds the keys on the user's behalf. Recovery may be familiar, but access depends on the provider's security, solvency, policy, and availability.
- A non-custodial wallet gives the user the signing keys or recovery material. This removes the custodian from ordinary spending, but transfers backup, malware, and inheritance risk to the user.
- A multisignature or contract wallet divides authority across several keys or rules. It can reduce some single-key risks while adding coordination and recovery complexity.
"Self-custody" does not mean "risk-free," and "custodial" does not mean "always unsafe." The useful question is which failures each model makes possible.
Wallet types overlap
Common labels describe different dimensions, so one wallet can fit several at once.
| Label | What it describes | Main tradeoff |
|---|---|---|
| Mobile or desktop | Where the software runs | Convenience versus exposure to the device and operating system |
| Hot wallet | Keys are available on an internet-connected device | Faster access with a larger remote-attack surface |
| Hardware wallet | A dedicated device signs transactions | Better key isolation, with device, firmware, supply-chain, and backup risks |
| Offline signing setup | Signing occurs on a system kept off the network | Stronger isolation, with more operational complexity |
| Browser or web interface | The interface runs in a browser or hosted app | Easy access, but origin, extension, and phishing risks matter |
| Full-node wallet | The wallet validates through its own node | Greater verification and privacy at a higher resource cost |
| Light or SPV wallet | The wallet downloads less chain data | Lower resource use with additional server, privacy, or validation assumptions |
A paper backup is not an interactive wallet, and an old-style single-key "paper wallet" is easy to create or spend incorrectly. Modern deterministic recovery backups are generally easier to audit and restore.
The same balance can hide different powers
Imagine two devices showing the same receive address and balance. One holds the signing keys; the other holds only public information. Both can monitor payments, but the watching-only device cannot spend by itself. A successful balance lookup therefore does not prove that your recovery backup contains the signing material.
Electron Cash's documentation describes this separation for its BCH wallet: keys can stay offline while a watching-only wallet connects to servers. Its SPV model also illustrates a separate choice: controlling your keys does not mean the app independently performs every full-node validation check.
Recovery formats are another independent choice. Trezor's backup documentation distinguishes BIP39 and SLIP39 backups. Do not assume that matching word counts make two wallets compatible; check the backup format, network, derivation path, and any extra passphrase.
Choose by failure mode
Before choosing a wallet, ask:
- Who can authorize a transaction?
- What must be backed up, and can that backup be restored elsewhere?
- Which network, address format, and token types does it support?
- What does the wallet trust for balances, transaction history, and fee estimates?
- What happens if the company, device, or app disappears?
- Can you verify the destination, amount, asset, and fee before signing?
The next article covers the features behind those questions. The final article in the series turns them into a practical security routine.