Wallets, Keys, and Addresses Explained
A crypto “wallet” does not store your coins. Your coins live on the blockchain. A wallet stores your private keys — the mathematical proof of ownership.
The Key Generation Process
- Generate a private key — 256 random bits (a 64-character hex string). Must be truly random and kept secret
- Derive the public key — using elliptic curve multiplication on secp256k1. Mathematically one-way
- Derive the address — hash the public key (Keccak-256 for Ethereum, double SHA-256 + Base58Check for Bitcoin)
Private key → (ECDSA) → Public key → (Hash) → AddressSeed Phrases (BIP-39)
A seed phrase (mnemonic) is 12 or 24 words that encode your private key in human-readable form. From one seed phrase, a hierarchical deterministic (HD) wallet can derive millions of key pairs — one for each coin and account — all recoverable from that single backup.
Never photograph your seed phrase. Never type it into any website. Never share it with anyone. Treat it like the master key to a bank vault.
Types of Wallets
| Type | Example | Security | Convenience |
|---|---|---|---|
| Hardware wallet | Ledger, Trezor | ★★★★★ | ★★★ |
| Software wallet | MetaMask, Trust Wallet | ★★★ | ★★★★★ |
| Custodial exchange | Binance, Coinbase | ★★ | ★★★★★ |
| Paper wallet | Printed key pair | ★★★★ | ★ |
“Not Your Keys, Not Your Coins”
If you hold crypto on an exchange, the exchange holds the private keys. You have a promise from the exchange, not the asset itself. FTX collapsed in 2022 — users who held funds on the exchange lost access to billions of dollars. Those who held their own keys were unaffected.
Nepal Context
Many Nepalis receive remittances through exchanges. For small, frequent transfers this is practical. For savings of any significance, a self-custodial hardware wallet is strongly recommended — especially given that Nepal’s regulatory environment makes it difficult to recover funds from failed foreign exchanges.