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What is crypto custody?
Custody is who holds the private keys that control your crypto. With self-custody you hold the keys and are solely responsible for them; with third-party custody an exchange or a dedicated custody provider controls the keys for you.
What it means for you
In the US, the SEC's investor office notes that if a third-party custodian is hacked, shuts down or goes bankrupt, you may lose access, and that some custodians lend deposited assets ('rehypothecation') or pool customers' assets together. With self-custody, a lost, stolen or damaged key or seed phrase can mean permanent loss.
How it works
A crypto wallet does not store coins; it stores the private keys that authorise transactions, and a private key cannot be changed or replaced once created. A seed phrase can restore the wallet if a device or key is lost. Both self-custody and third-party custody can use hot wallets, connected to the internet, or cold wallets, kept offline. Third-party custodians manage and control access to keys in accounts that may mix hot and cold storage; some commingle customers' crypto instead of holding it individually, or use deposited assets as collateral for their own lending.
Source: SEC investor bulletin: 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.