Wallets — Keys, Not Coins
Kabir's phone is stolen on the bus, and his wallet app goes with it. Are his coins gone too? Not necessarily, because the coins were never on the phone. What the phone held was keys, and how Kabir backed those keys up decides what happens next.
The rule
A wallet holds keys, not coins; the seed phrase is the master key.
Balances live on the blockchain, recorded against addresses. A wallet is software, or a small device, that:
- creates and stores your private keys;
- shows your balances by reading the chain;
- builds and signs transactions for you.
Most wallets derive every key from one seed phrase: usually 12 or 24 ordinary words shown once, at setup. Enter the same words into any compatible wallet and it regenerates the same keys, and therefore the same addresses and funds. That makes the seed phrase both the backup and the master key. Anyone who reads it controls everything it unlocks.
Wallets differ in two ways: who holds the keys, and whether the keys touch the internet.
| Wallet type | Who holds the keys | Strength | Weakness |
|---|---|---|---|
| Non-custodial | You | Full control | Nobody can recover a lost seed phrase for you |
| Custodial | A company, such as an exchange | Password resets are possible | You depend on the company's honesty and security |
| Hot | An app on an online device | Quick and convenient | Exposed to malware and phishing |
| Cold | A hardware device or offline storage | Hard to steal from remotely | Slower to use |
Basic hygiene follows from the rule. Write the seed phrase on paper, or stamp it into metal, and keep it offline. Never type it into a website, a chat or a form. No genuine support team will ever ask for it.
The shortcut
For any wallet question, ask "where are the keys, and who else could use them?"
What was lost
The phone, and the copy of his keys stored on it. His coins are still recorded on the chain against his addresses.
Had he lost the seed phrase as well, with a non-custodial wallet, nobody could rebuild those keys. The coins would still sit on the chain, but no one could ever move them again.
Drills
Answer fast — trust the rule.
While Kabir's phone is missing, where are his coins?
A message from "wallet support" asks for your seed phrase to fix an error. What should you do?
Which kind of wallet lets you reset a forgotten password through a company?
Why is a hardware wallet harder to steal from remotely?
Remember
- A wallet holds keys, not coins; the seed phrase is the master key.
- Shortcut: ask where the keys are and who else could use them.
- Trap: sharing the seed phrase gives everything away, and losing it with a non-custodial wallet locks the funds forever.