How a crypto wallet works
The wallet generates a seed, derives private keys from it, and from each key a public address to receive on. To send, the wallet builds a transaction, signs it with the key and broadcasts it to the network.
Everything else is convenience on top: balances read from the blockchain, address books, fee estimates, swaps and connections to apps.
The kinds of crypto wallet
- Custodial: a provider holds the keys and the user logs in to an account
- Self-custodial: the user holds the keys, usually backed up as a seed phrase
- Hot: keys on a device that is online
- Cold: keys kept offline, as on a hardware wallet
- Embedded: created inside another app at sign-up, with no seed phrase to manage
The first distinction is the one that matters in law and in product design, because it decides who can move the assets.
Why the kind of wallet matters to a product
A product that holds keys for its customers is providing custody, which MiCA defines as safekeeping or controlling crypto-assets, or the means of access to them, on behalf of clients. It carries the security and the liability that go with it.
A product that only connects to wallets its customers control avoids custody and gives up account recovery, since nobody can reset a lost key.
Crypto wallet, digital wallet or exchange account?
- Digital wallet
- An app such as Apple Pay or Google Pay that stores tokenised payment cards. It holds no private keys and moves no crypto-assets.
- Wallet address
- The public identifier that funds are sent to. One wallet manages many addresses.
- Exchange account
- A balance on a company's ledger. The exchange's wallets, not the customer's, hold the assets.
Where a crypto wallet shows up in a platform
Modules that do the work
- Custody & walletsWallets on every major chain, with MPC custody from leading providers or your own keys.
- AuthenticationSign-in, passkeys and second factors for customers and staff, on your identity provider or ours.
Platforms that need it
Guides that go deeper
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.