Crypto wallet: what you actually store in it

A crypto wallet does not store coins the way a pocket holds cash. It stores private keys, the secret data that lets you sign transactions and control funds recorded on the blockchain. It can be an app, a browser extension, a separate device or an account with an exchange. A distinction is made between “hot” wallets (connected to the internet) and “cold” wallets (offline), and between self-custody wallets and ones entrusted to a third party.

The key rule is: whoever controls the keys controls the funds. A wallet entrusted to an exchange is convenient, but the exchange holds the keys. A self-custody wallet gives you full control, but all responsibility for securing it falls on you. Losing your recovery phrase usually means permanently losing your funds, and nobody is obliged to restore them.