Unhosted wallet

Regulators use unhosted or self-hosted wallet to describe addresses whose keys are held by the user rather than by an exchange or custodian. Because no regulated intermediary sits behind them, there is nobody to collect identity data on the owner. The FATF's travel rule guidance and national rules therefore focus on what licensed providers must do when their customers transact with such wallets.

In the EU, the transfer of funds regulation requires CASPs to collect originator and beneficiary information for transfers to and from self-hosted addresses and, for transfers above 1,000 euros to or from an address owned by their own customer, to verify that the customer controls it, for example by a signed message or a small test transaction. The EU anti-money laundering regulation adds further limits that take effect later.

Privacy advocates argue these rules treat self-custody, a basic feature of crypto, as suspicious by default. Holding coins in an unhosted wallet is legal; the obligations fall on the regulated firms dealing with it.