David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

What’s the right term for a cryptocurrency wallet? This was barely a discussion a few years ago, when a “wallet” almost always described a piece of local software or hardware that held the cryptographic private keys that control assets on a blockchain (that, or old-fashioned folding leather).

But that clarity has been eroded, largely thanks to rising regulatory pressure. Declarations from bodies like the Financial Crimes Enforcement Network (FinCEN), the U.S. Treasury Department and the Internal Revenue Service have introduced terms like “unhosted wallet” and “non-custodial wallet” to distinguish user-controlled tools from “custodial wallets” – exchange accounts or other third-party services that hold crypto on users’ behalf.

Critics, however, argue that many of these novel, regulator-championed terms are misleading. The issue has been occasionally debated in the industry, but bubbled to the surface with new intensity in recent weeks thanks in part to the resurrection of a U.S. “unhosted wallet rule” first proposed late in the Trump administration. Broadly, the rule would require centralized exchanges to gather information about the users of software wallets before crypto can be sent to them from the exchange.

That’s just one example of a larger regulatory push to erode the intended usability of crypto systems. It’s closely tied, for instance, to attempts to expand the Financial Action Task Force's (FATF) “travel rule” to cover crypto transactions – a measure already adopted in Switzerland.

What you call a crypto wallet may seem trivial in the face of such government attacks. But it has huge stakes for shaping perception of cryptocurrencies – and, in turn, regulation. Some terms for conventional software wallets, such as “unhosted wallet,” are misleading, confusing or have vaguely negative connotations. Others, like “user-controlled wallet,” draw much clearer attention to the core advantages of cryptocurrencies.

Below, I’ve assembled a list of seven different terms for a standard cryptocurrency wallet. Drawing on comments from an array of industry luminaries, I’ve unpacked what each term is really saying – and whether that implicit message benefits or harms public perception of crypto.

Finally, note that the decentralization of wallets isn’t entirely binary. Many standard software wallets rely on some sort of third-party infrastructure, and some crypto advocates argue the only way to truly self-custody is to run a node yourself. Those nuances aren’t central to the regulatory debate (at least not yet), so they won’t be addressed below.

Here, then, are your candidates.

‘Unhosted crypto wallet’

Terrible, at least from an industry perspective. All this tells me is what it’s not: setting up a binary that implicitly suggests that a “hosted wallet” is somehow better. It is also arguably deeply deceptive. Some commentators have even argued there’s no such thing as a “hosted wallet.” Your crypto at an exchange like Coinbase is associated with an account that usually does not connect to an individual on-chain wallet at all. That’s one reason it’s sometimes difficult or costly to send crypto from an exchange account, and for the saying “not your keys, not your crypto.”

Your exchange account balances instead reflect an internal balance sheet maintained solely by the exchange, partly to avoid paying on-chain transaction fees. The actual funds are more or less just in one big pool managed by the exchange. This arrangement goes a long way toward explaining the prevalence of exchange hacks because huge blocks of crypto can be snagged by compromising just one or two big exchange-controlled wallets.

‘Self-hosted wallet’

Much better!

This one’s good because it emphasizes user power and responsibility. This suggestion came in second in an entirely informal and unscientific poll I conducted on Twitter.

If you want to nitpick, you might argue “hosting” isn’t really the right term for what a wallet does. While a software or hardware wallet does store your keys, it otherwise doesn’t store data or make it publicly available, as when a server “hosts” a website.

‘Self-custodied wallet’

Similar to “self-hosted” but more precise.

“Any wallet that enables a user to custody their own keys and is trust-minimized should be classified as ’self-custody’,” argues Gregory Rocco, co-founder of Spruce Systems, “whereas exchange wallets should be ‘exchange-controlled.’ It has the right level of detail … I wouldn't call my bank account with Chase self-custodied, [and that’s] how we should treat exchange wallets.”

The team at Spruce spends a lot of time thinking about wallets and self-custody: It is developing the Sign In With Ethereum (SIWE) standard, which aims to use wallets such as MetaMask to replace centralized identity services like Google.

‘Non-Custodial Wallet’

Though surprisingly widely used, this one’s just confusing because it can be read in two different senses. It’s meant to spell out that a standard crypto wallet doesn’t involve a custodian because a custodian is specifically a third party that protects an asset for you. But, as written, it could be easily misunderstood as suggesting users themselves don’t have custody of their crypto in this kind of wallet, which is exactly the opposite of the case.

In effect, then, this is a phrase that obfuscates the difference between an exchange account and a standard wallet. Using this phrase in public communications is, intentionally or not, undermining self-custody as an important element of crypto culture.

‘Software Wallet/Hardware Wallet’

These were the top vote-getters in my Twitter poll. They have the major advantage of being specific and descriptive without implying a value judgment (though see below on that). Relatively few people, I think, would mistake an exchange account accessed through a web browser for a piece of software or hardware.

These terms also help cast regulatory efforts in a clearer light. The policies regulators are pushing for could result in mandatory surveillance features for all possible versions of a piece of software, which Americans in particular are simply not going to accept. A coordinated campaign to reinforce the distinction between a “software wallet” and an “exchange account” could offer significant long-term benefits in the regulatory debate.

‘True Wallet’

This term is not widely used – in fact I don’t think I’d ever heard it until I saw this from Twitter user @porteaux. But I’m quite fond of it.

This has the advantage, first, of being accurate. I’m not certain exactly when the term “wallet” was coined (it’s not in the Bitcoin white paper), but it was very early in the evolution of crypto. Describing custodial services as “wallets” of any sort came much later.

More importantly, I like that this term has a baked-in value judgment. If software or hardware wallets are “true” crypto wallets, then an exchange or other custodial service is by necessity offering a “false wallet” – and no one wants a fake. “True wallet” highlights that other uses of the term may be employed in bad faith. Which they probably are.

Just plain ‘wallet’

The true alpha terminology, though I fear the window to defend it is closing. Podcaster Stephan Livera floated the suggestion last week, and it was co-signed by cryptography pioneer Adam Back.

In this usage, only a tool that holds keys locally is a crypto “wallet” at all, and any other modifiers or caveats are suspect. In this schema, your crypto on Coinbase or Kraken isn’t in a wallet at all, just an account. Unfortunately, it may be too late to reclaim this rhetorical high ground after years of obfuscation by regulators and (to a lesser extent) exchanges.

In the long term, which of these terms becomes dominant will shape public perception – and while there’s no obvious evidence, it’s safe to assume that regulators chose their terms very carefully to stack the deck in their favor. To counter their efforts, the crypto industry should favor terminology that emphasizes user control and independence – values that Americans in particular would be quite unhappy to see eroded by new rules, perhaps even if they’re not crypto users themselves.

This isn’t necessarily a conscious process. Terms that contain subtle, implicit bias can have a major role in shaping public sentiment, even (perhaps especially) among people who are barely paying attention. As crypto confronts an intensifying fight for its right to exist, it’s vital the broader public understands exactly what regulators are trying to take away.


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David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.