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Crypto Wallets Explained: Custodial vs. Non-Custodial

· 3 min read

What Is a Crypto Wallet?​

To use cryptocurrency, you’ll need your own wallet.
A crypto wallet is a tool that allows you to store funds and interact with the crypto ecosystem (send, receive, swap, stake, etc.).

All wallets fall into two main categories:

  1. Custodial wallets
  2. Non-custodial wallets

This is the most important classification in crypto.

Custodial Wallets​

What They Are​

Custodial wallets are services offered by centralized platforms (mainly exchanges).
You create an account, link your phone number, provide personal data, and pass verification (KYC).

Essentially, you’re using someone else’s infrastructure to hold your crypto.

How They Work​

  • You deposit funds into the exchange.
  • The platform manages your assets on your behalf.
  • You access them through your login and password.

Key Risks​

  • You don’t fully control your funds.
  • The exchange can:
    • Freeze your account
    • Block transactions
    • Restrict withdrawals due to regulations or sanctions

💡 Best practice:
Use custodial platforms only for buying crypto → then immediately withdraw to your own wallet.

Examples​

  • Binance
  • Bitget
  • Crypto.com
  • Coinbase

Non-Custodial Wallets​

What They Are​

Non-custodial wallets are the best type of wallet in crypto.
They give you full control over your funds without relying on third parties.

  • No one can freeze your account.
  • No one can block your transactions.
  • Sanctions or restrictions on exchanges don’t affect you.

How They Work​

  • When you create a wallet, you receive a mnemonic phrase (12 or 24 words).
  • No email, phone number, or KYC required.
  • This phrase is literally the key to your funds.

📌 Example: A 12-word phrase (e.g., apple road shadow …).

  • Write it down on paper and store it safely offline.
  • Anyone with your phrase can access your funds.
  • If you lose it, your funds are lost forever.

Examples​

  • MetaMask (multi-currency, popular in DeFi)
  • Bitcoin Core (single-currency, BTC only)
  • Trezor (hardware wallet for maximum security)

Wallet Subcategories​

Beyond custodial vs. non-custodial, wallets can be:

  • Single-currency wallets → support only one asset (e.g., Bitcoin Core, Ethereum wallets).
  • Multi-currency wallets → support many assets in one interface (e.g., MetaMask, Trust Wallet, hardware wallets).
  • Hardware wallets → physical devices for cold storage (e.g., Trezor, Ledger).
  • Mobile/Browser wallets → apps or extensions for daily use and DeFi interactions.

💡 For working with the crypto ecosystem, you’ll need a non-custodial wallet — and ideally, more than one (e.g., one for active trading, one for long-term storage).

What’s Next​

In the next post, I’ll show you:

  • How to create your own non-custodial wallet
  • How to use it correctly
  • The essentials of safe storage

After that, we’ll cover how to buy cryptocurrency and withdraw it to your own address.

Disclaimer: These materials are created for educational purposes only and do not constitute financial advice.