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Self-hosted Wallet

A self-hosted wallet refers to a type of digital wallet that is hosted and controlled by the user, as opposed to being hosted by a third-party service, like a VASP. It provides individuals with direct control over their private keys and, consequently, the security and management of their digital assets. A custodial wallet is the opposite. The wallet owner does not have access to the key; the users’ VASP does.

Self-hosted wallets offer the advantage of increased security because the private keys are stored locally on the user's device rather than on a centralised server. This reduces the risk of a single point of failure or hacking attacks on a centralised service. 

Types of Self-hosted Wallets

A self-hosted wallet can be in the form of software or hardware.  With software applications are installed on users’ computers or mobile devices, for example Electrum.  Hardware wallets are physical devices specifically designed for securely storing private keys offline, like BitBox02. 

Hardware wallets, in particular, are known for providing a secure form of offline storage. Since these devices are not continuously connected to the internet, they are less susceptible to online threats such as hacking or malware.

Users are responsible for securely backing up their private keys or wallet seed phrases. 

Some self-hosted wallets allow users to run a full node for the respective cryptocurrency network. Running a full node means storing a complete copy of the blockchain, contributing to network security, and enhancing privacy.

Depending on the jurisdiction, self-hosted wallets may fall under the scope of the Travel Rule.

The below list of terms all carry similar meanings but are used in different jurisdictions.

  1. Self-custodial Wallet;

  2. Non-custodial Wallet;

  3. Unhosted Wallet;

  4. External Wallet;

  5. Private Wallet;

  6. Crypto Wallet.

Check out these posts to learn more about self-hosted wallets; 

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