Unhosted Wallet
An unhosted wallet is a wallet whose private keys are held by the user, with no service in a position to move the funds. Regulators use the term mainly to describe the far end of a transfer: a counterparty that is a person and a device rather than a firm.
Also called: self-hosted wallet · private wallet
Unhosted wallet is regulatory vocabulary rather than a product name. Nobody sells an unhosted wallet; the term exists so rules can separate a transfer between two regulated businesses from a transfer where one end is a person holding their own keys. Self-hosted wallet and private wallet are used for the same idea, and the exact wording matters, because each regime defines its own.
The distinction bites in Travel Rule implementations. When both ends are firms, each sends the other the originator and beneficiary information the rule calls for. When one end is unhosted there is no institution to send anything to, so implementations substitute other controls: establishing that the customer controls the destination address, collecting a declaration about who the wallet belongs to, screening the address through blockchain analytics, or setting thresholds above which more is required.
What is required differs by jurisdiction, and so does the evidence a supervisor will accept as proof of address ownership. A firm operating in several markets usually ends up adopting the strictest version as its house rule.
In practice
Transfers to and from unhosted wallets get their own treatment under Travel Rule implementations, because there is no institution on the other side to exchange information with. What that treatment requires differs between regimes, so read the one that applies to the firm.
Example
An exchange sends 5 BTC to another exchange: both are firms, and each passes originator and beneficiary details to the other. The same exchange sends 5 BTC to a customer’s own hardware wallet, and there is no firm at the far end. Its controls shift to proving the customer controls that address and screening it, because there is nobody to exchange data with.
Commonly confused with
| Term | How it differs |
|---|---|
| Hosted Wallet | A hosted wallet has a firm holding the keys and able to sign; an unhosted wallet has nobody on the other side for a regulated firm to deal with. |
| Self-Custody | Self-custody names the arrangement from the holder’s point of view; unhosted wallet is the label a rulebook uses for the wallet at the far end of a transfer. |
See also
- Travel RuleThe travel rule requires the firm sending a transfer to pass identifying information about the originator and the beneficiary to the firm receiving it, so that the data travels with the money. It began as a banking wire rule and now reaches virtual asset transfers as well.
- Hosted WalletA hosted wallet is a wallet where a service holds the private keys on the user’s behalf. The user sees a balance and can instruct a transfer, but the provider is the party that signs, and the provider’s records are what the balance actually rests on.
- Self-CustodySelf-custody is an arrangement in which the user alone holds the private keys and no service can move the assets. A provider may build the wallet, host the interface and broadcast the transaction, but if it cannot produce a signature, the balance is beyond its reach.
- Crypto CustodyCrypto custody is holding someone else’s crypto-assets, or the means of access to them, in a way that lets you move them. The test is control in fact — who could move the balance without the customer’s cooperation — not how the service describes itself in its terms.