What is a crypto wallet? (And what's a recovery phrase?)

A crypto wallet doesn't hold coins, it holds the keys that control them. Custodial vs self-custody wallets, and why your recovery phrase matters so much.

A crypto wallet is the tool you use to hold, send and receive crypto. The surprising part: your coins aren't actually "in" the wallet. They live on the blockchain. The wallet holds the keys that prove they're yours and let you move them.

Two kinds of wallet

• Custodial wallets. A company holds the keys for you. This is what you get when you buy crypto on an exchange or app. It's convenient, and you can reset your password if you forget it. But you're trusting the company to keep your coins safe and to let you withdraw them.
• Self-custody wallets. You hold the keys yourself, using an app on your phone or a small hardware device. No company can freeze or lose your coins. But if you lose your keys, nobody can help you get them back.

There's a well-known saying in crypto: "not your keys, not your coins". The collapse of FTX in 2022, where customers couldn't get their money out, is why many people take it seriously.

What is a recovery phrase?

When you set up a self-custody wallet, it shows you a list of 12 or 24 ordinary words. This is your recovery phrase (also called a seed phrase). It's the master key to your wallet. Anyone who has these words can take everything in it, from anywhere in the world.

Rules for your recovery phrase

• Write it down on paper and keep it somewhere safe. Some people use a fireproof safe.
• Never type it into a website, email or chat, and never take a screenshot of it.
• Never share it with anyone. Not support staff, not "mentors", not friends.
• No real company will ever ask for it. Anyone who does is trying to steal from you.

Which should a beginner use?

Most beginners start with a custodial account on a platform licensed by MAS, because it's simpler and harder to lock yourself out of. Some move to self-custody later, once they're confident handling their own keys. Either way, turn on two-factor login with an authenticator app.

Hot and cold wallets

You'll also hear "hot" and "cold" wallets. A hot wallet is connected to the internet (most apps). A cold wallet is kept offline, like a hardware device, which makes it much harder to hack. Many people keep small amounts in a hot wallet and larger amounts in a cold one.

For more on avoiding theft, see how to spot crypto scams in Singapore.

General market information for education only, not financial advice. Crypto-assets are highly volatile; never risk money you can’t afford to lose.