Unit 2 · Level 1 · Wallets & keys
Custodial vs self-custody
Buy crypto on an exchange and the exchange holds the keys. Your "balance" is really an IOU, a promise that they'll pay you the coins when you ask. Move the coins to a wallet whose seed phrase only you know, and you own them outright. Traders sum it up in six words: not your keys, not your coins.
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What you get asked
You hold 1 BTC "in" your exchange account. What do you actually own?
On-chain, the coins sit in the exchange's wallets, not yours. Your account is a database row saying they owe you, solid until the day it isn't.
Match the term to what it means
Two custody models, and the two most famous reminders of why the difference matters.
Mt. Gox and FTX were huge, trusted exchanges. What's the shared lesson from their collapses?
Mt. Gox handled most of the world's Bitcoin trading before losing ~850,000 BTC; FTX was a top exchange weeks before bankruptcy. Size and fame protect nothing. Custody does.
The old traders' rule: not your ___, not your coins.
Whoever holds the keys holds the coins; everything else is a promise.
Honest question: what's the real downside of self-custody?
There's no password reset and no support hotline; full ownership means full responsibility. That's the trade, and it's worth knowing before you choose. 🐜
The rest of this unit
Keys, seed phrases, and custody: how to truly own your coins.