Wallets & custody
A bitcoin wallet does not hold bitcoin. It holds keys. Every term in this section comes back to one question: who can sign a transaction that moves your coins.
Custodial is where most people start, because an exchange account is a custodial wallet whether or not it is labelled one. The company holds the keys, so it can freeze the balance, lose it, or be ordered to hand it over, and what you own is a claim against that company rather than the coins. Non custodial flips it. You hold the keys, nobody can freeze you, and nobody can help you if the backup burns.
Hot and cold describe exposure, not brand. A hot wallet's keys touch an internet connected device; a cold one's do not, which is what a hardware wallet is really selling. Air gapped goes further and never lets the signing device connect at all.
Multisig and passphrases are for holdings that have outgrown one seed phrase in a drawer. Multisig needs several keys to sign, so a single stolen key is not a loss. A passphrase adds a word only you know on top of the seed, which makes the seed alone worthless to a thief and useless to your heirs if you never tell them it exists.
24 terms. Last reviewed 2026-09-24.
Terms in Wallets & custody
- Air-gappedalso Air gapAir-gapped describes a signing device that has never been connected to a network or a computer: transactions reach it only as files on a card or as scanned QR codes.
- BIP39also BIP-39, Mnemonic codeBIP39 is the 2013 specification that encodes wallet entropy as words from a fixed 2,048-word list and stretches them into a 512-bit seed.
- Bitcoin inheritance planningalso Bitcoin estate planningBitcoin inheritance planning is the work of making sure someone you choose can find, unlock, and legally claim your coins after you die, without being able to touch them now.
- Brain walletBrain wallets turn a memorized phrase straight into a private key by hashing it, a design that researchers emptied at scale and that no maintained wallet still offers.
- Cold storagealso Cold walletCold storage means the private keys never touch an internet-connected device: they are generated, stored and used to sign on hardware that stays offline.
- Custodial walletalso Custodial, CustodianA custodial wallet is an account at a company that holds the keys for you, so your balance is a claim on that company rather than coins you control.
- Hardware walletalso Signing deviceA hardware wallet is a small dedicated device that generates and holds your private keys, signs transactions internally, and shows you on its own screen what you are agreeing to.
- HD wallet seedalso Root seedThe HD wallet seed is the raw binary number, 128 to 512 bits of it, that BIP-32 feeds into one hash to produce a wallet's master key and chain code.
- Hot walletA hot wallet keeps its private keys on a device that is connected to the internet, so it can sign a payment in seconds and can be robbed by software.
- Metal seed backupalso Steel backupA metal seed backup records your recovery words by stamping, punching, or engraving them into steel, so the words survive the house fire and the flood that paper does not.
- Mnemonic word listA mnemonic word list is the fixed dictionary a wallet indexes to turn random bits into writable words, and BIP-39 publishes ten of them, one per supported language and script.
- Multisigalso Multisignature, Bare multisigMultisig locks bitcoin behind several keys at once and requires a set number of signatures to spend, so losing or leaking any one key does not lose the coins.
- Multisig vaultalso Collaborative custodyA multisig vault is a long-term storage arrangement secured by several keys, typically with a service provider holding one of them, so no single party can move the coins.
- Non-custodial walletalso Noncustodial walletNon-custodial wallets hold your keys on your own device, which means no company can freeze your bitcoin, reverse a payment, or restore access when you lose the backup.
- Paper walletA paper wallet is a printed private key and address from the pre-hardware era, and spending from one safely is harder than the format ever admitted.
- Passphrasealso 25th word, Hidden walletA passphrase is an extra secret added to your recovery words that produces a completely different wallet, with no way to check whether the one you typed was right.
- PSBT version 2also PSBTv2PSBT version 2 is the partially signed transaction format that drops the fixed unsigned transaction, so a participant can still add inputs and outputs after the file has been created.
- Seed derivationSeed derivation is the one-way function that converts a mnemonic sentence plus an optional passphrase into the 512-bit seed a wallet actually builds keys from.
- Seed phrasealso Recovery phrase, Mnemonic seed, Backup phrase, Secret recovery phraseA seed phrase is the ordered list of 12 or 24 ordinary words that can regenerate every key in a wallet, which makes it the one thing worth guarding physically.
- Self-custodyalso Self custody, Holding your own keysSelf-custody is holding the keys to your own bitcoin, which makes you the only party who can spend it and the only party responsible for not losing it.
- Shamir backupalso SLIP39, Shamir secret sharingShamir backup splits one wallet secret into several word lists and requires any chosen number of them to rebuild it, so no single sheet of paper is enough.
- Software walletalso Mobile wallet, Desktop walletA software wallet is an app on a phone or computer that holds your keys in that machine's storage and signs transactions with the same processor that runs your browser.
- Third-party custodianA third-party custodian is an outside firm your exchange appoints to hold the private keys to your bitcoin, so the platform you signed up with is not the one storing your coins.
- Walletalso Bitcoin walletA wallet is the software or device that stores your keys, watches the blockchain for outputs those keys control, and signs the transactions that spend them.
The other 13 sections
- BasicsWhat bitcoin is, what a satoshi is, and the handful of ideas the rest of the glossary is built on.
- Addresses & keysWhere coins get sent, what a private key actually controls, and how one seed produces thousands of addresses.
- Privacy & securityThe attacks that take people's bitcoin, and the habits and tools that stop them.
- Transactions & feesWhat a bitcoin transaction is made of, why it costs what it costs, and how to unstick one.
- Buying & exchangesOrder types, spreads and fee schedules: the vocabulary an exchange uses while it is charging you.
- Markets & investingMarket cap, volatility and spot ETFs. The language of price, without the price predictions.
- Mining & consensusHow new blocks get made, what difficulty adjusts, and why the rules hold with nobody in charge.
- Protocol & upgradesSegWit, Taproot, soft forks and BIPs: how bitcoin changes and who gets to decide.
- Lightning & layer 2Payment channels, invoices and routing, for moving bitcoin without paying for space in a block.
- Regulation & taxKYC, the Travel Rule, MiCA and capital gains: the rules that reach your account and your tax return.
- Culture & historyMt. Gox, the genesis block, HODL, and the events and slang that shaped how people talk about bitcoin.
- Nodes & softwareBitcoin Core, full nodes, pruning and RPC: the software that enforces the rules.
- Developer referenceP2P message types, opcodes and script terms: the field names you meet reading bitcoin code.
Frequently asked questions
What is the difference between a wallet and an exchange account?
An exchange holds your coins and can freeze, lose or misreport them. A wallet holds the keys, and nobody else can move what it controls. The exchange failures that wiped out customers, from Mt. Gox to FTX, all sat on the wrong side of that line.
When is a hardware wallet worth buying?
When the amount you hold would hurt to lose. A device costs between fifty and a few hundred dollars and moves signing off an internet-connected machine entirely. Below that threshold, a reputable phone wallet is a reasonable place to keep money you actually spend.
What does self-custody actually require of me?
One backup, kept offline, that you can find again. That is most of it. The rest is habit: check addresses on the device screen, never type your phrase into anything, and buy hardware from the maker rather than a marketplace listing.
Is multisig worth the extra complexity?
For large holdings and for inheritance planning, often yes, because it removes the single point of failure that one seed phrase creates. For everyday amounts it usually adds more ways to lock yourself out than it removes ways to be robbed.