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What is a custodial wallet?
A custodial wallet is an account where a company, such as an exchange, holds the private keys and moves crypto on your instructions. You see a balance and log in with a password, but on the blockchain the coins sit in addresses the company controls.
What it means for you
Your access depends on the company: it can be hacked, fail, or freeze withdrawals, and its terms decide what happens to your balance. Check whether you can withdraw to an address you control, what it costs, and how long it takes before you depend on it.
A common mistake: “My exchange balance sits in my own address on the blockchain.”
In fact: Usually the coins sit in addresses the company controls, often pooled with other customers' coins, and your balance is a line in its books. Until you withdraw to an address you control, you depend on the company processing that withdrawal.
How it works
In a custodial account the company, not you, manages and controls the private keys, and your balance is an entry in its records. Its keys may sit in hot wallets, cold wallets or both. SEC staff note that some custodians commingle customers' crypto instead of holding it separately, and some use deposits as collateral or lend them out, called rehypothecation. A withdrawal is the company signing a transaction from addresses it controls to yours, with its own fees. If the custodian is hacked, shuts down or goes bankrupt, customers may lose access.
Sources: bitcoin.org: Secure your wallet, SEC Office of Investor Education: Crypto asset custody basics for retail investors · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.