On blockchain networks, access to crypto is determined by who controls the private keys. If you hold the private keys to public addresses, you control the funds.
A self-custody wallet gives you control over its private keys. It's the only way to fully manage and own your crypto.
A custodial wallet or platform, such as an exchange, controls and manages private keys on your behalf.
Do you need a self-custody crypto wallet? You can download Exodus here.
In this article:
What makes Exodus a self-custody wallet?
When you create an Exodus wallet, your 12-word secret recovery phrase and private keys are generated locally on your device, and only you have access to them. This is what makes Exodus a self-custody wallet.
Exodus cannot access your secret recovery phrase, private keys, or the funds in your wallet. Because of this, you are fully responsible for keeping your wallet safe.
To learn more about how to protect your Exodus wallet, visit: How do I keep my money safe?
What is a self-custody wallet?
A self-custody wallet is a type of crypto wallet that gives you full control over your secret recovery phrase and private keys.
This level of control is important because, on the blockchain, crypto ownership is determined by who holds the private keys. If you hold the keys, you control the crypto. That’s what makes a wallet self-custodial.
In most self-custody wallets, all private keys are generated from a secret recovery phrase, so backing up your secret recovery phrase is all you need to secure your wallet.
Self-custody gives you true ownership and freedom. But it also comes with the responsibility to keep your wallet, secret recovery phrase, and private keys secret and secure.
No one else, including the wallet’s developers, has access to your secret recovery phrase or private keys. This means no one else can help you recover it should you lose access to your wallet.
Examples of self-custody wallets include Exodus, MetaMask, Phantom, and Trust Wallet.
Advantages of self-custody wallets
No middleman: The only way to fully control your crypto is to ensure you alone have access to your secret recovery phrase and private keys. This is only possible when using a self-custody wallet.
Enhanced privacy: A self-custody wallet generally does not ask for personal information like your name or address when creating it.
Your wallet is not tied to an account, log-in, username, email, or password: Instead, what gives you access to a self-custody wallet is your secret recovery phrase and private keys.
Advanced features: Many self-custody wallets often provide advanced features such as multiple portfolios, staking, swapping crypto, and DeFi. Because you control the keys, you decide how to use your crypto.
Freedom of choice and long-term access: As long as you have your secret recovery phrase or private keys, you can always access your crypto. Since they give you access to your crypto on the blockchain, you can always import them into any compatible self-custody wallet without relying on specific software, wallets, or third parties.
Disadvantages of self-custody wallets
Full responsibility for wallet security: With a self-custody wallet, you're fully responsible for keeping your wallet, private keys, and backup, such as the secret recovery phase, safe. If someone gets access to them, they can steal your crypto. To learn more, visit: How do I keep my money safe? How to store cryptocurrency safely.
No one can recover your wallet for you: With self-custody wallets, only your private keys or wallet backup, such as your secret recovery phrase, can restore your wallet. If you lose access to them, you cannot restore your wallet or funds. Even the wallet's developers can't restore the wallet for you. This is why it is crucial to back up your self-custody wallet: How do I back up my wallet?
What is a custodial wallet?
A custodial wallet is a type of crypto wallet or platform in which you don't control the private keys or secret recovery phrase. Instead, the custodial platform controls them, meaning only it has direct access to the crypto on the blockchain.
Custodial platforms, such as exchanges, typically allow you to create an account using an email, username, or password. You usually need to provide personal information or complete identity verification to use these services.
After creating an account, you trust the custodial wallet or platform to manage your crypto. To send, withdraw, or otherwise use your funds, you must request permission from the platform since they technically control the crypto.
Exchanges, such as Binance, Coinbase, and crypto banking platforms, are examples of custodial wallets.
Advantages of custodial wallets
Easy access: With a custodial platform, the provider manages your private keys and recovery options. You don't need to write them down or back them up, as you rely on the platform to keep them secure.
Assistance with account recovery: If you lose access to your login details, such as username or password, it's often possible to reset or recover your account by verifying your identity through customer support.
Easy to use: Most custodial wallets offer a streamlined and easy-to-use experience, which may be helpful for people just getting started with crypto.
Disadvantages of custodial wallets
Indirect access: When using the custodial platform, you don't have direct access to your crypto on the blockchain. Instead, the platform holds and manages your funds on your behalf. This means the platform can freeze your funds, delay deposits and withdrawals, or require you to handle your crypto in certain ways due to regulations.
Counterparty risks: Using custodial platforms, such as exchanges, introduces counterparty risk. This is the risk that the platform may fail to keep your crypto safe. You could lose access to your assets if the platform is hacked, insolvent, or mismanages user funds.
KYC verification required: Custodial wallets generally require personal information, such as name, address, and ID, when you create an account. Even if you're comfortable giving them this information, providing it also introduces the risk that it could become compromised if the company is hacked or there is a data breach.
Lack of advanced features: Because you don't have direct access to your crypto on the blockchain, you are limited to the features provided by the custodial platform.
You can't access your private keys or secret recovery phrase: The custodial platform controls these, and you will not have access to them with a custodial wallet.
Honeypot for hackers: Due to the large amount of crypto that custodial platforms can hold, hackers often target them.