Wallets, seed phrases & self-custody
12 words can be worth more than a house. Treat them like it.
Explorer · 9 min · Updated 2026-11-08
💡 A safe-deposit box with no bank manager
A seed phrase is the master key to a safe-deposit box — but there's no bank manager, no ID check and no "forgot password" button. Anyone holding the 12 or 24 words can open the box from anywhere in the world. Lose the words and the box stays locked forever.
Wallet types
| Type | Who holds keys | Good for | Main risk |
|---|---|---|---|
| Custodial (exchange account) | The platform | Beginners, trading, fiat on/off-ramp | Platform failure, freezes, hacks |
| Hot wallet (mobile/browser app) | You, on an internet device | Small amounts, daily use, DeFi | Malware, phishing, malicious approvals |
| Cold wallet (hardware device) | You, offline device | Long-term savings | Losing the device and the backup |
| Multisig (e.g. 2-of-3) | Several keys, any 2 sign | Large amounts, families, companies | Complexity, coordination |
The seed phrase (recovery phrase)
Most modern wallets generate a 12- or 24-word phrase from a standard list of 2,048 words (BIP-39). Every key and address in the wallet is derived from it. Restore the phrase into any compatible wallet and all your funds reappear.
Backup rules that save fortunes
- Write it on paper or stamp it in metal. Never photograph it, email it, store it in cloud notes or type it into a website.
- Keep two copies in separate secure places (fire, flood, theft).
- No legitimate support agent, exchange or wallet company will ever ask for your seed phrase.
- Test recovery with a tiny amount before trusting a wallet with savings.
- Plan inheritance: someone you trust should know how to access funds if something happens to you.
🧮 Practical example: the lost phone
Key takeaways
- Custodial = convenience + counterparty risk.
- Hot for small amounts, cold for savings.
- Seed phrase = full control: offline, two copies, never share.
- Test recovery with small amounts first.
Education only — not financial advice.