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Let's say that I do not trust a lot in myself and my ability to not screw my computer, so also my private keys.

Knowing the concept of wallet HD and having seeds to recover all your private keys linked to the seed, how does this work, from wallets perspective?:

  • Does a wallet provider save my private keys (in a secure way) in order to restore them in the future with my seed, if I require it? (Providing paraphrase or information required)

  • Depends on the wallet provider whether they save a encrypted copy of my private keys to restore them in the future (just in case I remove or lose my local wallet file) or others that they do not save any private data, leaning the entire private keys in my local machine ?

This question is related with some FaQ from.some wallet providers, which they offer the option to restore your private keys providing the seed. This looks like they have a copy of your private keys, otherwise whether you are the only one that have them and you lose your private keys, there is no way to restore it.

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It depends on what wallet you are using.

Most people prefer to use wallets that do not have knowledge of your private key outside of your machine, such as hardware wallets, electrum, Bitcoin Core. This is for safety, since any provider who has your keys could easily decide to move all your coins to an address that only they control, and rob you blind.

That said, there are some services that offer custodial services, usually in conjunction with exchange services. In fact, every exchange is a custodian keyhold for the deposit addresses they assign you on their platform.

A few years ago, perhaps there was some merit in trusting a reputable custodial service who had the infrastructure to always backup keys. In 2018, BIP32/39/44 can make a backup as simple as writing down a handful of words and keeping it very safely, so maintaining control of your keys is the preferred option.

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  • Thanks for the details Rachav :) Do you know some wallets that are kind of hibrid between pure local wallet and web wallets? For example, a local client wallet that stores the privates keys locally but also the wallet provider save them (encrypted with your private key for example, so they don't have access to it).
    – 3Chicken
    Oct 14, 2018 at 18:17
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    @DanielFernandez: A simple way to achieve that is just to encrypt your wallet file (or seed phrase) however you like, and upload the encrypted file to a generic cloud storage service.
    – Nate Eldredge
    Oct 14, 2018 at 18:19
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Your private keys are all derived from the seed so in order to restore your wallet you need your seed and the software used to create your wallet. As for whether your wallet provider holds your private keys or not that depends on what provider you mean. For instance Blockchain.info holds an encrypted copy of your wallet which contains your private keys however only you have the password to decrypt that.

Generally speaking it's better to install a software wallet on your own device instead of using a web wallet. In most cases these can also be backed up by writing down the seed words.

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