A Bitcoin wallet does not store coins as files. It holds or watches keys and spending conditions and reads chain state. Its name alone does not reveal who signs, where data comes from or what a backup covers.
Self-custody lets users hold their signing secrets; a custodial service withdraws from its own custody and displays a user claim. Watch-only tracks outputs without signing. Identical balance screens can therefore conceal fundamentally different authority. [Bitcoin Developer Guide: Wallets]
The wallet selects UTXOs, creates recipient and change outputs and proposes a fee. PSBT can hand an unfinished transaction to a separate signer. A hardware wallet cannot infer human intent: check destination and amount on a trusted display before the completed transaction is broadcast. [BIP 174: PSBT]
A seed may recover derived keys, but recovery also depends on passphrase, derivation and script type. Multisig needs the complete policy and cosigner public information; one secret backup may not suffice. An app password cannot replace a lost passphrase. Test restoration using the wallet’s safe procedure. [BIP 32: wallet derivation] [BIP 39: passphrase] [BIP 174: PSBT]
A wallet may read its own Full Node or an operator’s server. The server can learn address relationships and influence unconfirmed-payment displays; an own node helps only when actually connected. Convenience, usage metadata and signing control are separate properties, not one safety score. [Bitcoin Developer Guide: Wallets]
For the clearest picture, read this entry together with Private Key, UTXO, Transaction, Full Node, Lightning Network. The reverse links also lead from UTXO, Private Key, Lightning Network, Bitcoin address.
01Does a Bitcoin wallet store bitcoin?+
It stores or coordinates keys and tracks relevant UTXOs. The spendable outputs themselves are part of the distributed ledger, not files held inside the wallet.
02What is the difference between custodial and self-custodial wallets?+
With custody, a provider controls the spending keys and owes you a balance. With self-custody, you control the keys and must secure backups and signing yourself.