Crypto wallets
A crypto wallet does not hold money; it holds the key that signs a transfer, and the asset itself always sits on the network. That is why the first choice is not between hot and cold: it is whether that key is in your hands or in the hands of a company that gave you an account.
- Lesson 4 of 8
- Beginner
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The first question, because hot and cold come after it
Do you need anyone permission to move this money?
A company holds the key; you have an account
- a forgotten password is recoverable and support exists
- converting to local currency happens in the same place
- a withdrawal can be halted or limited
- that company trouble is your balance trouble too
The key is yours; there is no undo
- nobody can close or restrict your account
- a few words, for years, are your responsibility
- a wrong address means the money is gone, with nobody to appeal to
- rehearse the restore before you move any amount
Neither branch is the safe one. Each swaps one risk for another, and the choice turns on which of the two you handle better.
Last checked: Facts and tool names in this lesson are re-checked against their sources on this date.
What a wallet actually holds
The name is misleading. A crypto wallet is an app or a device that keeps your private key and signs transfers with it; the asset itself is never inside that app and is recorded on the shared ledger of the network. A wallet is closer to a keyring than to a wallet.
Keep three things apart, because almost every misunderstanding in this field comes from merging them. The address is the account number you hand to anyone who wants to send to you, and hiding it means nothing. The private key is what lets somebody spend from that address, and nobody but you should ever see it. The recovery phrase is the set of words from which every key in that wallet is derived, which puts it above the key itself.
The practical consequences of that structure look strange on day one and make sense afterwards. Deleting the wallet app does not delete the money; while you hold the recovery phrase you can rebuild the same wallet on any other device. Changing phones is not a problem. And on the other side, losing those words means losing access, permanently, with no form to fill in and no support desk that can help.
The first fork: who holds the key
When you open an account at an exchange and buy crypto, what you get is a number in that company database. The key to that asset is held by the exchange, and you have an account rather than a wallet. This is called custodial holding, and it is not a bad thing; you only need to know what you traded for what.
What you gain is real: a forgotten password can be recovered, a mistake at login is not the end of the world, two-factor and a support desk exist, and converting to rials happens in the same place. What you give up is equally real: that same company can halt a withdrawal, restrict an account, ask for more documents, and if the company itself gets into trouble your holding is inside its trouble.
In the second case, self-custody, the key is yours. Nobody can close your account and nobody can rescue you either. Here you have taken on a new job: keeping a few words safe, for years, in a world where a phone breaks, a house floods, or you simply forget where you put them.
Our position, deliberately against what most videos in this field say: self-custody is not safer in itself. Whether it is safer depends on whether you are better at keeping those words than that company is at keeping its keys, and for somebody just starting out the answer is not always obvious. What self-custody definitely gives you is the removal of a counterparty; what it definitely takes away is every way of undoing a mistake.
Hot and cold, which comes after that fork
A hot wallet is one whose key sits on a device connected to the internet: a phone app, a browser extension, a desktop program. A cold wallet is one where the key never leaves an offline device, usually a small piece of hardware that returns only the signature.
The real difference between the two lies in what each of them stops. A cold wallet stops malware on your computer, because the key is not there to be stolen. It does not stop you from approving a bad transaction yourself; if you do not read the text on the device screen, the hardware signs exactly what you handed it. And neither of them stops a recovery phrase from being lost.
So these two categories should not be read as though one replaces the other. Most people whose whole use is receiving money and converting it the same week are served by a hot wallet on a phone kept for that job alone. A cold wallet enters the conversation when an amount stays put, and stays put for a long time.
Hot and cold, by what each one actually does
Hot wallet
- the key sits on an internet-connected device
- fast for everyday paying and receiving
- malware on that device is close to the key
- enough for an amount that moves this week
Cold wallet
- the key never leaves an offline device
- only the signature comes back, not the key
- every payment carries one extra physical step
- worth it for an amount that stays put
Neither stops a recovery phrase from being lost, and neither stops you from approving a bad transaction yourself.
The twelve words that are the money
When you create a new wallet, a handful of English words is shown to you with an instruction to write them down somewhere safe. That screen is the most important screen in this entire field, and most people move past it with a screenshot.
The structure of those words is standardised and the standard is public. The BIP-39 specification says a random number of 128 to 256 bits is generated, a checksum is appended, and the result is cut into eleven-bit pieces, each of which picks a word from a fixed list. The table in that same document says 128 bits comes out as 12 words and 256 bits as 24. The English list holds exactly 2048 words; the file is public and we counted its lines on the same day. One small detail from the specification that helps when writing on paper: the words are chosen so that their first four letters identify them uniquely.
Now what that structure means. Anyone holding those words holds every key in that wallet and can rebuild it on any device anywhere in the world and empty it, with no need for your phone, your password or your two-factor. These words are not a password; they are the money. And unlike a password there is no button to change them and nobody to reset them.
Out of this comes one recognition rule worth more than any list of tips. A wallet asks you for these words exactly once, and that is when you have decided to restore an existing wallet yourself. No website, no support agent, no update form and no chat bot ever needs them. If somewhere asks for them, it ends there, no matter how right the rest of the page looks. The shapes that request comes in are covered separately in the security track.
What counts as keeping it, and what only looks like it
This counts as kept
- written by hand on paper or metal, off every device
- two copies in two separate physical places
- restored once on an empty wallet
- the order of the words recorded too, not only the words
This only looks like keeping
- a screenshot in the phone gallery
- a note in cloud storage or an email to yourself
- a message to yourself in a messenger
- one copy, in one place, never tested
This sheet is about the words only. The phone, the exchange account and the recovery email each have a sheet of their own.
The path we suggest to a beginner, and where that suggestion stops
Our suggestion is an order rather than a choice. First, keep the amount you are moving or converting this week where the work happens; for most people that means the account at the exchange they already use. Second, before anything moves into self-custody, create an empty wallet, write its words on paper, delete the app and restore it from that paper. The drill takes twenty minutes and it is the only way to learn that the paper actually works.
Third, once an amount settles in and losing it would hurt, move to a hardware device. We deliberately write no number for where that begins; that number is different for everyone, and anybody who writes one is guessing.
And the boundary of this suggestion, which matters more than the suggestion: for somebody whose entire activity is receiving money from a foreign client and converting it the same week, self-custody adds little and adds a custody job. If that is your path, the honest advice is to spend your time elsewhere, on the security of the exchange account and of the email address recovery hangs on, both of which have their own lessons in the security track.
The fast path, with AI
Almost nobody has rehearsed restoring their wallet, and everybody assumes the paper works. Rehearsing it takes twenty minutes and on an empty wallet it risks nothing. What a language model does here is not write the words, and it never should; what it does is build a recovery card out of your own description: which devices, which copies, where, and who needs to know what if you are not reachable. That is precisely the thing people never sit down and write. A fast, cheap model of the Flash class is enough for it.
- Create a completely empty wallet and send nothing to it. The whole drill runs on that one.
- Write its words by hand on paper, numbered in order. Take no screenshot and type them into no file.
- Delete the app, install it again, choose restore this time and work only from the paper.
- If the same address comes back, your paper works. Now hand the prompt below a description of your own setup so it writes the recovery card and the drill list.
- Throw the test wallet away and destroy its paper. Any wallet whose words have been typed once is no longer fit to hold money.
Copy-ready recipe
The prompt. No word of the recovery phrase goes into this text:
I want to write a recovery card for a crypto wallet. Fixed rules:
never ask me for a recovery phrase or a private key, and if your answer
needs one anywhere, write "write this on paper yourself" instead.
My setup: the {app name} wallet on {device}, paper copies in {number}
places, converting to local currency through {route}, and if I am not
reachable {relationship} has to be able to deal with this.
Give the output in three parts:
1) The recovery card: what is where, containing no secret, such that
finding it does not reach the money.
2) The drill list: the steps to test a restore on an empty wallet.
3) Five situations that would break my card, ordered by likelihood.
Give no advice about buying, selling or holding any currency.Before you trust the output: Three limits, and the first outranks the rest: no word of a recovery phrase goes into any chat, under any circumstances. The moment you type those words they have left your device and are no longer yours. Second, never ask a model to generate a recovery phrase for you; the output of a language model is produced from patterns of language, while the security of these words rests on their being genuinely random, which is the job of the generator inside the wallet itself. Third, do not take a download link from a model. Ask it for the name of an app and open the download address yourself from the official site or the app store, because a wrong link in this field means a fake app, and a fake app means those same words.
AI in this kind of work
Here AI is good at one job and must never touch another. The good job is explanation: what the screen your wallet just put in front of you says, how this option differs from that one, what permission this English text is actually asking for. The job it must not touch is anything that comes near your secret, and in this topic the secret is smaller and more dangerous than anywhere else: a few words.
Tools that actually help
- Claude For when you want a settings screen or a long English wallet text opened up sentence by sentence. Iran is on neither of Anthropic two supported-countries lists, and we read that on their own page.
- Gemini For building the recovery card and the drill list out of your own description, on its fast model. Google own page says the Gemini web app runs in over 230 countries and territories, and Iran is not on that list.
- ChatGPT The same two jobs. We make no claim about access from Iran: OpenAI supported-countries page returns 403 to this server.
Where it backfires
The first risk has to be written without softening, because in this topic one mistake is enough: a recovery phrase and a private key never go into any chat, not even for just check that I wrote it correctly. Those words have left your device the instant they are typed, and whether content is retained or feeds training depends on the plan and settings of that service, which the companies write down, including on Google privacy page for the Gemini apps. The second risk is links. Ask a model where to download a given wallet and you get an address that may not exist or may belong to somebody else; a fake wallet app is one of the most common ways money disappears in this field, and it carries no mark on it. Take the name from the model and find the address yourself. The third risk is subtler: never ask a model to generate a recovery phrase or to suggest a secure one. The security of these words is their randomness, and text produced by a language model, however strange it looks, comes from patterns and not from chance.
Sources: Google: Gemini Apps privacy Where you can use the Gemini web app Anthropic supported countries
Where this advice stops
This lesson is about choosing and keeping, and says nothing about which app or which exchange to use; we name no wallet and no exchange as safe, because whether a product is safe changes over time and we have not tested them all. Second boundary: the restore drill proves that your paper works, not that you will still find it in five years; that is a question of where it lives and it matters just as much. Third, for the Iranian user: some wallets and app stores do not open or do not update from Iran, and that situation is not stable either, so what worked for your neighbour today may not work for you tomorrow. And the last one, worth repeating: nowhere on this page is there advice about buying or holding any asset.
From our own work
We wrote the crypto top-up layer of this site wallet ourselves, and its design rests on exactly the first sentence of this lesson. Nowhere in includes/wallet/crypto.php or assets/js/51-crypto.js is a private key or a recovery phrase asked for, and there is no field to type one into; what the site takes is an address, and what it asks the wallet for is a signature. The pay from a connected wallet path rides on the provider that the wallet extension injects into the browser, following the EIP-6963 standard, plus a Trust Wallet deep link that only prefills the address and the amount. So even the site receiving the money never comes near your key, and that is what makes any request for a recovery phrase on behalf of a website false by construction. The other side of that same design is a lesson we live with too: when a payment lands on a network we do not read, or the amount does not match an invoice, we have no button to send it back. All the code holds is a manual transaction-hash claim window of seventy two hours and a twenty four hour grace period for a late payment, and both of those find money rather than recall it.
Real follow-up questions
If I lose my phone, what happens to my money?
It depends which branch you are on. If your account is at an exchange, the usual account recovery works and the phone was only a device. If you hold a personal wallet, the recovery phrase is what brings the wallet back on the next device; without those words the money does not come back.
Does my exchange account count as a wallet?
In practice you have an account rather than a wallet: the key belongs to that company and you hold a permission to withdraw. That is not necessarily bad and for many people it is the right choice, but it means that company policies and its condition bear directly on your access.
Is a hardware wallet really necessary?
For an amount that moves and converts within the week, usually not. Where it earns its place is when an amount stays and stays a long time, because your window of exposure is then years rather than a week. The number at which it becomes necessary is not something anyone can set for you.