Custodial vs. Non-Custodial Wallets

Last Modified:
February 28, 2024

One of the most common sayings in the crypto space is “not your keys, not your crypto.” It’s a warning that if you don’t fully control how and where you store your crypto, you can lose it at any time.

There are two main ways to manage your crypto. The first is to store it in a non-custodial wallet that gives you full custody, or control over your funds. You alone have access to the private key to your wallet, so you are free to use your funds as you wish. However, with much freedom comes much responsibility, and it is completely up to you to keep your crypto assets safe. If your account gets hacked or you forget your seedphrase, no one else can recover it for you.

Metamask and Trust Wallet are examples of non-custodial wallets.

The second way is to keep your crypto in a custodial wallet managed by a third-party wallet service provider that controls your private key. You can set a password to protect your account, but because you are not the one managing your private key, wallet service providers can impose limits on your account. Custodial wallets require users to verify their identity by sharing personal information when they sign up for an account. 

A custodial wallet is usually easier to use than a non-custodial wallet. Compared to a non-custodial wallet, a custodial wallet can usually be connected to more apps, platforms, and services. It also allows you to easily recover forgotten passwords. However, it comes with the risk of losing your funds if the wallet service provider misuses them or goes bankrupt.

Gemini and BitMEX are examples of custodial wallets.

Understanding how custody works in the crypto ecosystem will help you choose the wallet that suits you best. Choose wisely, Ka-Bit!