Crypto 101 · Crypto basics
What Is a Crypto Wallet? Keys, Coins and Control
Abstract
A crypto wallet is software or hardware that stores the private keys used to spend coins, while the coins themselves stay on their blockchains. We explain the idea in plain terms, show how keys, public keys and addresses relate, and explain why who holds the keys decides who controls the money.
Keywords: crypto wallet, private key, non-custodial, self-custody, address
1. In plain English
When you use a bank app, your balance is a number in the bank's database and the bank decides whether you can spend it. Crypto works differently. Your coins are entries on a public blockchain, and control of an entry belongs to whoever holds the matching private key, a very large secret number that acts like a signature only you can produce.
A wallet is the tool that keeps those keys and uses them to sign payments. It does not contain coins the way a leather wallet contains cash. If you delete the app but keep your keys, your coins are still yours. If someone else gets your keys, your coins are theirs.
2. Address, public key, private key
Your wallet creates three linked things. The private key is the secret. A public key is derived from it by one-way mathematics. Your address is a short code made from the public key, and it is what you give people so they can pay you. You can share your address freely; anyone who learns your private key can spend everything at that address [1].
3. Custodial and non-custodial
In a custodial wallet, a company holds the keys for you, like a bank holds your money. That is convenient, but the company can freeze, lose or misuse funds. In a non-custodial wallet, only you hold the keys. Nobody can freeze your coins, and nobody can rescue you if you lose the keys. The full comparison is in custodial versus non-custodial.
4. Kinds of wallets
Table 1. Common wallet types.
| Type | Where the keys live | Trade-off |
|---|---|---|
| Mobile or desktop app | On your phone or computer, encrypted | Convenient; protect the device and keep a backup |
| Hardware wallet | On a dedicated device that signs offline | Strong protection; costs money and can be lost |
| Web wallet | In your browser's storage | Easy to open anywhere; a cleared browser can erase it, so keep a backup |
| Exchange account | With the exchange, which holds them for you | Custodial: the company controls access |
5. Go deeper
Bitcoin's original design describes payments as chains of digital signatures: an owner transfers a coin by signing a hash of the previous transaction and the next owner's public key [2]. Wallet software automates that signing, tracks which outputs you can spend, and often derives many keys from a single recovery phrase so that one backup covers them all [3, 1].
6. In Scrypt Wallet
Scrypt Wallet keeps a separate key for each coin, created and encrypted on your device. You can also set up a 12-word recovery phrase that protects every coin at once, add keys one at a time, and use a PIN or passkey to protect signing. Read backups and recovery before you put real value in any wallet.
References
- Bitcoin Project (2020). Wallets, Bitcoin Developer Guide. Explains that wallets store the private keys used to spend coins and how they are backed up. https://developer.bitcoin.org/devguide/wallets.html
- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Whitepaper. https://bitcoin.org/bitcoin.pdf
- Palatinus, M., Rusnak, P., Voisine, A., & Bowe, S. (2013). BIP-39: Mnemonic code for generating deterministic keys. Bitcoin Improvement Proposal defining how a list of words encodes the entropy behind a wallet's keys. https://github.com/bitcoin/bips/blob/master/bip-0039.mediawiki
Common questions
Where are my coins stored?
On the blockchain, not inside the wallet app. The wallet stores the keys that let you send them.
What happens if I lose my phone?
If you saved your recovery phrase or keys somewhere safe, you can restore your wallet on a new device. If you did not, no one can recover them for you.
General education, not financial, tax or legal advice. Figures are schematic. Protocol parameters are cited to primary sources and can change; verify against the linked source before relying on them.