Custodial Wallet
An account where a third party holds your private keys for you, like a bank holding deposits.
When you keep coins on Coinbase or Binance, you don't control the keys — the exchange does. You hold a claim on the balance, much like a bank account. The convenience is real: password resets exist, and there's no seed phrase to lose.
The risk is the old crypto warning, 'not your keys, not your coins.' If the custodian is hacked, freezes withdrawals, or collapses, your funds go with it. FTX users learned this in 2022, when billions vanished into a failed exchange.
Related terms
A wallet where you alone hold the private keys, with no company able to freeze or recover your funds.
Self-CustodyHolding your own private keys directly, so no exchange or company stands between you and your crypto.
KYC (Know Your Customer)The identity checks financial firms run to confirm who their customers are before opening accounts.
CeFi (Centralized Finance)Crypto services run by companies that hold your funds and keys, much like a bank or traditional broker.