What Is Crypto? Part Three: Wallets

In Part One, we explained that cryptocurrency runs on a shared, public “notebook” that many computers keep copies of. In our guide to buying cryptocurrency, we mentioned that once you own some, you have a choice: leave it on the exchange, or move it to your own wallet.

This article is entirely about that second option: what a wallet actually is, and everything involved in using one. We’re going to explain this the simplest way possible, one small idea at a time.

The Simplest Way to Picture a Wallet

Imagine a giant room filled with millions of mailboxes. Every mailbox has a slot in front that anyone in the world can drop mail into. That slot, the part everyone can see and use, is like your public address. You can hand it out freely. It’s how people send you cryptocurrency.

But only one mailbox has a special key that opens the box and lets you take the mail out, or send new mail from it. That key comes from your seed, the master secret your wallet uses to generate the private keys for your accounts, and many wallets, including Nano wallets, will let you view the seed in two different forms: a seed phrase (usually a list of ordinary words, in a specific order) and a hex seed (that exact same seed written out as a single long string of letters and numbers). These aren’t two different secrets: they’re two ways of writing down the identical seed, the same way “12” and “twelve” are two ways of writing the same number. Your wallet can typically show you either one, or both, and either one by itself is a complete backup, and either one alone can fully restore your wallet. Whoever holds that seed controls what’s inside, not whoever owns the mailbox, not whoever built the room. Just whoever holds the key.

A “wallet” is not actually a container that holds your coins, the way a real wallet holds cash. Your coins always stay recorded on the shared notebook we described in Part One. A wallet is simply the app or device that stores your key and uses it, on your behalf, to prove “this is mine” and to sign off on sending it somewhere.

That’s the entire idea. Everything else in this article is detail on top of that.

Two Big Questions Every Wallet Answers Differently

Before looking at specific types, there are two simple yes-or-no questions that describe any wallet:

Question 1: Who actually holds the key, you, or someone else?

If a company holds it for you (like an exchange), that’s called a custodial wallet. It’s easy, since there’s no key to lose, but you’re trusting that company completely, and unlike a bank deposit, crypto held at an exchange is not covered by FDIC deposit insurance. Customers of collapsed exchanges such as Mt. Gox (2014) and FTX (2022) were locked out of their funds for years, and even well-run exchanges get breached: in February 2025, hackers linked to North Korea stole about $1.5 billion from Bybit.
If you hold it yourself, that’s called non-custodial or self-custody. Nobody can freeze it or take it without your key, but that also means nobody can help you if you lose it.

Question 2: Is the key stored on a device connected to the internet, or kept completely offline?

A hot wallet lives on an internet-connected device, a phone app or a computer program. Convenient for everyday use, but connected devices can potentially be hacked.
A cold wallet keeps your key on a device that’s never connected to the internet, like a small dedicated hardware gadget, or even just written on paper. Much harder to hack remotely, but less convenient for frequent use.

Most beginners start with a custodial wallet on an exchange, move to a non-custodial hot wallet (a phone app) once they want more control, and only look at cold wallets once they’re holding an amount of money they’d genuinely be upset to lose.

Setting Up a Wallet: The General Steps

Regardless of which specific wallet app you choose, setup almost always follows the same basic pattern:

Download the wallet from an official source only: the real app store listing or the project’s actual website, never a link from a random message or ad. Fake wallet apps that steal your funds are one of the most common scams in cryptocurrency.
Choose “create a new wallet.” The app will generate a brand-new key for you automatically. You don’t need to understand the math behind it, since the app handles that.
Write down your seed phrase and/or hex seed. As covered above, these are just two ways of writing the same seed, and either one alone is a complete backup, shown to you once. This is your money: anyone who has it can access your funds from anywhere, and if you lose it with no backup, your funds are gone permanently. Write it down exactly, in the exact order shown, and do not take a digital photo of it or type it into a computer.
Store that paper somewhere safe and private, not somewhere it could burn, flood, or be casually found by someone else in your home.
Find your receive address inside the app (usually shown as a QR code); this is the “mailbox slot” you can now safely share with anyone who wants to send you crypto.

Keeping a Wallet Secure

A few simple habits cover most of what actually matters:

Never type your seed phrase into a website, an email, a chat message, or anyone claiming to be “support.” No legitimate company will ever ask for it. Anyone asking for it is trying to steal from you, no exceptions.
Use your phone or computer’s built-in lock (PIN, fingerprint, face unlock) on top of the wallet app’s own security.
Double-check addresses before sending, ideally by copying and pasting rather than typing, and glancing at the first and last few characters. Cryptocurrency transactions can’t be reversed or canceled once sent.
Keep only what you need for everyday use in a hot wallet, and consider a cold wallet for larger amounts you don’t need to touch often, the same instinct as not carrying your life savings around as cash.
Keep more than one copy of your seed phrase backup, stored in separate safe locations, so a single fire, flood, or misplaced drawer doesn’t wipe out your only copy.

The Risks of Holding Your Own Crypto

Self-custody gives you full control, but full control means full responsibility, with no safety net underneath it. It’s worth understanding these risks clearly before you rely on them:

If you lose your seed phrase, your funds are gone. Permanently. There’s no “forgot password” link, no customer service line, no company that can restore it. The same math that keeps everyone else out also keeps you out if you lose your key.
Scams and phishing are common and can be convincing. Fake apps, fake customer support, and fake websites that look identical to real ones exist specifically to trick people into handing over their seed phrase.
Malware can steal a key straight off a device, particularly if you ever type or paste your seed phrase into a computer that’s connected to the internet.
Mistakes are permanent. Sending to a mistyped address, or sending the wrong cryptocurrency to a wallet that doesn’t support it, generally cannot be undone.
Physical risk exists too, especially for people known to hold significant crypto. This is sometimes referred to informally as the “wrench attack,” referring to the low-tech reality that a determined thief doesn’t need to hack anything if they can simply pressure someone in person. This is a real, if uncommon, consideration for anyone holding large amounts, and part of why discretion matters.
If something happens to you, no one else can access it unless you’ve planned ahead. There’s no automatic inheritance process the way there is with a bank account, so anyone holding meaningful funds long-term should think about how a trusted person could access it if needed.

None of this means self-custody is a bad idea: it’s the entire point of cryptocurrency being decentralized, as we discussed in Part Two. It just means the responsibility genuinely shifts to you, with no institution standing behind you as a backstop.

Try It Yourself, Risk-Free: A Nano Wallet and a Faucet

Reading about wallets only gets you so far. The best way to actually understand one is to use one, and there’s a way to do that without spending or risking a single dollar.

Nano (ticker: XNO) is a good cryptocurrency to practice with for a simple reason: sending it is instant and completely free of network fees, so you can experiment without worrying about losing money to transaction costs while you learn.

Here’s a simple, safe way to try it:

Download Natrium (available for iPhone and Android), a simple, well-known mobile wallet built specifically for Nano. Only download it from the official app store listing.
Open the app and choose “create a new wallet.” Natrium will generate your key automatically.
Back up your seed phrase and/or hex seed by writing it down, exactly as described above, which is good practice for real habits, even with a small test amount. Natrium will let you view it either way; either one by itself is enough to restore this exact wallet.
Copy your receive address from inside the app.
Visit a Nano faucet, a website that gives away small, free amounts of Nano to help people try the network out. (The Nano project maintains a list of these at hub.nano.org/faucets; a couple of well-known examples are NanoDrop and Nanswap’s faucet.) Paste in your receive address and follow the site’s simple claim steps.
Watch it arrive, usually within a second or two, since Nano transactions confirm almost instantly.

From there, the real practice begins: create a second Natrium wallet of your own (or better yet, get a friend or family member to set one up too), and send small amounts of your free Nano back and forth between the two. Do this several times, and mix up how you share the address each time: scan a QR code once, text or message the address to each other another time, and try copying and pasting it directly another time. Repeating it in a few different ways is what actually builds real confidence, rather than reading about it once.

There’s genuine value in doing this more than once and in more than one way. Sending real cryptocurrency for the first time can feel nerve-wracking, precisely because transactions can’t be undone, but that feeling fades quickly once you’ve done it a handful of times with amounts so small that losing them costs you nothing. By the time you’re ready to send an amount that actually matters, the mechanics of copying an address, scanning a QR code, and confirming a send should feel completely routine rather than intimidating.

Not All Wallets Are This Simple

It’s worth being upfront about something: Nano is a particularly easy, forgiving cryptocurrency to learn on, and not every wallet or cryptocurrency works quite this smoothly. Because Nano transactions are feeless and confirm in about a second, the entire back-and-forth practice above happens almost instantly, with nothing to calculate and nothing to wait on.

Many other cryptocurrencies work differently. Depending on the network, a transaction might take anywhere from several minutes to much longer to fully confirm, and you may need to pay a network fee, sometimes a small, predictable one, sometimes one that changes based on how busy the network is at that moment. Some wallets add further layers of complexity on top of that: extra settings for transaction fees, multiple networks that look similar but aren’t compatible with each other, or additional steps for certain types of tokens. None of it is impossible to learn, but it’s genuinely more involved than what you just practiced here.

That’s exactly why Nano is a good place to start. The underlying skills (protecting a seed phrase, sharing an address safely, double-checking before you send) transfer directly to every other wallet and cryptocurrency you’ll encounter. You’re just learning them somewhere the stakes and the friction are both about as low as they get.

Quick Recap

A wallet doesn’t store your coins: it stores the key that proves they’re yours and lets you use them.
Wallets differ along two lines: who holds the key (custodial vs. non-custodial) and whether that key is stored online or offline (hot vs. cold).
Setting one up always comes down to: download from an official source, create a new wallet, back up your seed phrase safely, and find your receive address.
Security is mostly about protecting your seed phrase and double-checking addresses, since most losses come from scams and mistakes, not from the technology itself being broken.
Self-custody means real responsibility: lost keys and mistakes are permanent, so treat your seed phrase with the same seriousness as the money itself.
A Nano wallet like Natrium, paired with a free faucet and a second wallet (yours or a friend’s), is a genuinely safe way to practice sending and receiving, repeatedly, and in a few different ways, before using real money.
Not every wallet or cryptocurrency is this simple. Nano is feeless and nearly instant, which is why it’s a good place to start; other networks can be slower and add extra layers of complexity, though the core skills you practice here transfer directly to all of them.

This article is for general education only and isn’t financial or security advice. Always verify you’re downloading official, reputable wallet software directly from the project’s own website or official app store listing, and never share your seed phrase with anyone or any service, under any circumstances.