Keys, wallets and what practice money means
How public and private keys work, what a crypto wallet really stores, custodial vs. self-custody, and why practicing with virtual money comes first.
To use crypto you need a wallet. The name is a little misleading. A wallet does not hold coins inside it. The coins stay on the blockchain. A wallet holds the keys that prove you are allowed to move them.
Public key and private key
- Public address (made from your public key): like an account number. You can share it so people can send you crypto.
- Private key: like a master password that signs your transactions. Anyone who has it can move your coins. It must never be shared.
Many wallets show the private key as a seed phrase (also called a recovery phrase), usually 12 or 24 ordinary words. Those words can rebuild your whole wallet on any device.
Custodial vs. self-custody
With a custodial account, such as an account on a trading exchange, the company holds the keys for you. It is convenient, and you can reset a forgotten password. But you depend on that company staying honest and solvent. When exchanges such as Mt. Gox (2014) and FTX (November 2022) collapsed, many customers lost access to their funds.
With self-custody, you hold the keys yourself, using an app wallet or a hardware wallet such as Ledger or Trezor. Nobody can freeze your coins, but if you lose your seed phrase there is no one to call.
Tom writes his 12-word seed phrase on paper and stores it at home. His phone breaks. He installs the wallet app on a new phone, types the 12 words, and his balance appears again, because the coins never left the blockchain. If Tom had lost the paper and the phone, the coins would be gone forever.
What "practice money" means
Practice money, also called paper trading or a demo account, is virtual money with no real value. You trade with real market prices, but no real money is gained or lost. It lets you learn how orders, stop-losses and fees work, and see how you react to swings, without paying for your mistakes.
Practice has limits. It feels easier than real trading because there is no fear of real loss. A good result in practice does not promise a good result with real money. Treat it as a training ground, not proof that you are ready.
A free account tracks lessons, unlocks the quizzes and gives you 10,000 virtual USD (no real value) to practise with.