Answers>Learn about wallets & identity>What is a crypto wallet?
What is a crypto wallet?
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TL;DR: A crypto wallet is a tool that stores the cryptographic keys you need to interact with blockchain networks. Despite the name, a wallet does not actually hold cryptocurrency the way a physical wallet holds cash. Your assets exist on the blockchain itself. What the wallet stores is your private key, the secret piece of data that proves you own those assets and authorizes you to send, receive, and manage them. Without your private key, you cannot access your funds. Without proper key security, anyone who obtains your private key can take everything.
The Simple Explanation
Your cryptocurrency does not live inside your wallet app. It lives on the blockchain, recorded in a public ledger that anyone can view. What your wallet holds is the key to that record. Think of it like a safe deposit box at a bank. The valuables are in the box. Your wallet is the key that opens it. Lose the key, and the valuables are locked away forever. Let someone copy the key, and they can empty the box.
Every crypto wallet involves three core components. The private key is a randomly generated 256-bit number, essentially a very long password, that gives you complete control over the assets at your blockchain address. The public key is derived mathematically from the private key and can be shared freely. The wallet address is derived from the public key and serves as your receiving address, the equivalent of a bank account number that others use to send you funds.
When you "send" cryptocurrency, your wallet uses the private key to create a digital signature proving you authorized the transaction. This signed transaction is broadcast to the blockchain network, where validators verify the signature, confirm you have sufficient balance, and include the transaction in a block. At no point does anything physically "move." The blockchain simply updates its record of who owns what.
Types of Crypto Wallets
Wallets are categorized by how they store private keys and whether they maintain a connection to the internet.
Hot wallets are software applications that store your private keys on an internet-connected device. They come in several forms. Browser extension wallets like MetaMask and Phantom run inside your web browser and enable direct interaction with decentralized applications. Mobile wallets like Trust Wallet and Coinbase Wallet run on your phone and are convenient for everyday transactions and QR code payments. Desktop wallets like Exodus run on your computer and offer a fuller-featured interface than browser extensions.
Hot wallets prioritize convenience and accessibility. You can send transactions, interact with DeFi protocols, and manage your portfolio in seconds. The tradeoff is security: because the private key exists on a device connected to the internet, it is exposed to a range of threats including malware, phishing attacks, browser vulnerabilities, and rogue browser extensions that can read and exfiltrate key data.
Cold wallets store private keys on devices that are never connected to the internet. Hardware wallets from manufacturers like Ledger and Trezor are the most common type. These are small physical devices that generate and store your private key in a secure chip. When you need to sign a transaction, the transaction data is sent to the hardware wallet (typically via USB or Bluetooth), you review and approve it on the device's screen, and the signed transaction is sent back to your computer or phone. The private key never leaves the device.
Cold wallets prioritize security over convenience. Because the key is stored offline, remote attackers cannot access it. You must physically possess the device and approve each transaction on its screen, which prevents unauthorized spending even if your computer is compromised. The tradeoff is usability: hardware wallets cost $50 to $200, require physical access for every transaction, and add an extra step to every interaction with a dapp. Paper wallets and metal backups are the most basic form of cold storage. They are simply the private key or seed phrase written down on paper or stamped into metal. They are immune to digital attacks but vulnerable to physical loss, damage, or theft.
Seed Phrases and Key Recovery
When you create a new wallet, you are given a seed phrase (also called a recovery phrase or mnemonic): a sequence of 12 or 24 common English words. This seed phrase is an encoded representation of the master private key from which all of your wallet's addresses are derived using a hierarchical deterministic (HD) key generation scheme defined by BIP-39 and BIP-44 standards.
The seed phrase is the ultimate backup for your wallet. If your phone is destroyed, your computer crashes, or your hardware wallet is lost, you can recover all of your addresses and funds by entering the seed phrase into any compatible wallet application. Every address your wallet ever generated, across any blockchain network, can be reconstructed from those 12 or 24 words.
This also means the seed phrase is the ultimate vulnerability. Anyone who obtains your seed phrase has complete and irrevocable access to every address and every asset in your wallet. There is no "forgot my password" flow. There is no customer support number to call. If someone else has your seed phrase, they can drain everything, and there is nothing you or anyone else can do to reverse it.
Proper seed phrase storage is the single most important security practice in crypto. Write it down on paper or stamp it into metal. Store it in a secure location (or multiple secure locations). Never store it digitally: not in a notes app, not in a screenshot, not in a cloud document, not in an email draft. Never enter it into any website or application unless you are actively recovering a wallet on a trusted device. Phishing attacks that trick users into entering their seed phrase on fake websites are among the most common causes of crypto theft.
Custodial vs Non-Custodial Wallets
A non-custodial wallet (also called a self-custody wallet) means you control the private keys. MetaMask, Phantom, Ledger, and Trust Wallet are all non-custodial. You generate the keys, you store the keys, and you are solely responsible for their security. No company can freeze your funds, block your transactions, or recover your keys if you lose them.
A custodial wallet means a third party (typically a centralized exchange like Coinbase or Binance) holds the private keys on your behalf. You access your funds through a traditional account with a username and password, and the exchange manages the keys behind the scenes. Custodial wallets offer familiar security features like password recovery, two-factor authentication, and customer support, but they introduce counterparty risk: if the exchange is hacked, goes bankrupt, or freezes accounts, you may lose access to your funds. The collapse of FTX in November 2022 demonstrated this risk, with billions in customer funds lost because the exchange controlled the keys. The crypto community's mantra, "not your keys, not your coins," reflects the strong preference for non-custodial wallets. Self-custody gives you absolute ownership and control, but it also places the full burden of security on you.
How Wallets Connect to the Blockchain
Behind every wallet operation, there is an RPC connection to a blockchain node. When your wallet displays your ETH balance, it is sending an RPC request to a node. When you submit a transaction, the wallet signs it locally with your private key and then broadcasts the signed transaction to the network through an RPC endpoint.
Most wallet applications ship with a default RPC endpoint, and many allow users to configure custom endpoints for better performance, privacy, or reliability. Professional users and teams often point their wallets at dedicated infrastructure like Quicknode endpoints to ensure fast, reliable access without depending on congested public RPC nodes.
How Quicknode Fits In
Quicknode provides the RPC infrastructure that wallets and wallet-integrated applications depend on. When a wallet queries a balance, submits a transaction, or subscribes to new block events, it is communicating with a node through an RPC endpoint. Quicknode's Core API delivers this access across 80+ chains with globally distributed, low-latency endpoints and 99.99% uptime. For wallet developers building custom wallet solutions, Quicknode's enhanced APIs simplify common wallet operations like fetching token balances across multiple assets, retrieving transaction histories, and resolving ENS names, reducing the number of RPC calls required and improving the end-user experience.
