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Self Custody Web3 Wallet: Keys, Signatures and Drainer Risk

How BIP-39 words become a seed and BIP-32 turns it into keys, and why ERC-20 approvals and gasless permits still let a drainer in after you sign.

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A silver combination padlock resting on the corner of a white computer keyboard.
Photo: Sasun Bughdaryan on Unsplash

A self custody web3 wallet controls one thing: the private keys, which it derives from a seed phrase and uses to sign whatever you approve. It does not judge whether what you sign is safe. Token approvals and signed permits can hand a contract the right to move your funds, and no seed backup undoes that.

That split matters most when you fund a no-KYC casino from your own wallet. For who can freeze funds and how custody differs across setups, see our self custody crypto explainer. This dispatch stays on the wallet itself.

What a self-custody wallet actually holds

A self-custody wallet holds a secret, not coins. Under the BIP-39 mnemonic code standard, the word list encodes 128 to 256 bits of entropy plus a checksum, and those words are turned into a seed. Every address and balance the wallet shows is computed from that seed.

How the seed phrase becomes a seed

The step from words to seed is a deliberate key stretch, and a modest one. BIP-39 runs PBKDF2 with 2048 iterations of HMAC-SHA512 to produce a 512-bit seed. The work factor is fixed by the standard, so the strength of the words comes from their entropy, not from slow hashing.

The optional passphrase is the other input. It is part of the salt, and with no passphrase an empty string is used, so the same words with a different passphrase open a different wallet. Beyond the words, that passphrase is the only thing separating one wallet from another. It works as a second secret: someone who finds the words alone reaches the no-passphrase wallet. It also cuts the other way, because nothing recovers a forgotten passphrase.

How keys derive from the seed

From the seed, BIP-32 hierarchical deterministic wallets build a tree of child keys. Each child is computed with HMAC-SHA512 keyed by the parent's chain code, and hardened children, those at index 2^31 and above, also hash in the parent private key. Because the tree is recomputed rather than stored, one backup of the words restores every address in it.

What signing approves, and what the wallet cannot check

The wallet's job ends at the signature. A signature proves you authorized a message or transaction; it says nothing about the contract on the other end. Two Ethereum token standards show where that gap opens.

ERC-20 approvals persist

The ERC-20 approve function lets a spender withdraw from your account multiple times, up to the amount you set. The allowance stays until a new approve call overwrites it. A permission you granted a site long ago is still live unless you replaced it.

ERC-2612 permits need only a signature

The ERC-2612 permit extension lets a signed message, instead of a transaction, set that same allowance. The owner sends nothing on-chain and pays no gas to grant it. A drainer page therefore needs one signature prompt, not an approve transaction you might recognize in your history.

LayerDefined byWhat self-custody gives youWhat it does not stop
Seed wordsBIP-39 entropy and checksumNo third party holds the secretAnyone who reads the words
PassphraseBIP-39 saltA second secret apart from the wordsLoss, since nothing recovers it
Derived keysBIP-32 key treeEvery address from one backupSigning a harmful request
ApprovalsERC-20 approveYou pick the spender and the capRepeated withdrawals up to that cap
PermitsERC-2612 signed messageApprovals without gasA drain that starts from a signature

Funding a no-KYC casino from your own wallet

Self-custody changes who holds the keys, not who you trust at the moment you sign. A deposit is a transfer you send once; an approval or permit is a standing permission. Before you confirm any prompt, know which of the two it is.

  • Keep deposit funds in a separate address from long-term holdings, so a bad signature reaches only what sits there.
  • Read every signature request that names a spender or an allowance, and refuse ones you did not expect.
  • Treat a page that asks for a permit signature when you meant to send a plain transfer as a warning sign.
  • Replace allowances you no longer need with a new approve call set to zero.

None of this makes the casino side private or lawful by itself. It only keeps the wallet doing what you meant it to do.

Privacy questions

What are custodial crypto wallets?

They are the reverse of the setup described here: a provider holds the keys and signs on your behalf. In a self-custody wallet the seed words, and any passphrase, stay with you, and so does the responsibility for every signature.

Can a self-custody wallet be drained without sending a transaction?

Yes, for tokens that support the permit extension. A signed message can set an allowance, so a malicious page needs only your signature. The spender then moves the tokens in a transaction of its own.

Does a passphrase make a seed phrase safer?

It adds a second secret. The passphrase is part of the salt, so the same words with a different passphrase open a different wallet. Someone holding only the words reaches the wallet without it, and if you forget it, nothing recovers the wallet behind it.

Do old token approvals expire?

Not under the base token standard. An allowance stays in place until a new approve call overwrites it, so a permission granted to a site long ago can still be spent today.

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