Keys, seeds and self-custody

Some product links in this guide are affiliate links. How that works.

Holding bitcoin yourself, called self-custody, means you keep the keys instead of trusting a company to keep them for you. It removes the risk of an exchange failing or freezing your account, and replaces it with a new risk: you. This guide explains what you’re protecting and how.

Private keys, public addresses

A private key is a very large random number. From it, wallet software can work out public addresses, which are what you share to receive bitcoin.

• Sharing an address is safe. It’s like giving out an account number.
• Sharing a private key hands over the money.

Modern wallets don’t make you deal with raw keys. They create one master secret and derive every key and address you’ll ever need from it.

The seed phrase

That master secret is shown to you as a seed phrase: 12 or 24 ordinary English words, picked from a standard list of 2,048 words (the BIP39 list).

1. abandon   7. orbit    13. ...
2. lamp      8. tissue   14. ...

(An illustration only. Never use example words.)

The seed phrase is your bitcoin. Anyone who reads those words can rebuild your wallet on any device and spend everything. That’s why every guide on this site comes back to one rule:

Your seed phrase should never touch a phone, a camera, a cloud account, a password manager, or any computer that goes online.

If your wallet device breaks or gets lost, the seed phrase brings everything back on a new one. If the seed phrase is lost and the device fails, nothing brings it back.

Why not just leave it on an exchange?

Exchanges are useful for buying. They’re a poor place to store savings:

• They can fail. Mt. Gox (2014), QuadrigaCX (2019) and FTX (2022) all collapsed with customer funds inside.
• They can freeze withdrawals, during a crisis or over an account review.
• They’re a target. Large exchanges are hacked more often than individual wallets.

A reasonable middle ground for many people: buy on a reputable exchange, then withdraw to a wallet you control. See our gear page for exchanges that allow free or cheap withdrawals.

What a wallet actually does

A wallet doesn’t hold coins. It holds keys, and it does three jobs:

1. Generates and stores your seed.
2. Shows addresses so you can receive.
3. Signs transactions to prove you’re allowed to spend.

The key question for security is where job 3 happens. If signing happens on a phone or computer that’s online, malware on that device could, in theory, steal the keys. If it happens on a device that never goes online, it can’t. That’s the difference between a hot wallet and cold storage, covered in the next guide.

The new risks you take on

Self-custody moves the risk from a company to you. In practice, people lose bitcoin far more often to their own mistakes than to hackers:

• Losing the only copy of the seed phrase
• Storing the seed in a photo or cloud note that gets hacked
• Typing the seed into a fake “wallet support” site
• Forgetting an optional passphrase
• Never testing that the backup actually works
• Dying without telling anyone how to recover it

Every one of these has a simple fix, and the guides on this site walk through each one. Read Common mistakes before you put real money in.

A sensible way to start

1. Practice with free test coins first: Practice on signet.
2. Move a small amount to a wallet you control.
3. Back up the seed on paper, then steel: Seed backups.
4. Test recovery by wiping and restoring before adding more.
5. As the amount grows, move to cold storage: Four ways to build a cold wallet.

Free software like Sparrow Wallet is all you need to begin.