Custody
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Custody in cryptocurrency refers to who holds and controls the private keys to a wallet. Whoever controls the keys controls the funds — so custody determines who truly "owns" the cryptocurrency.
Custodial vs self-custody
| Custodial | Self-custody | |
|---|---|---|
| Who holds keys | Third party (exchange, service) | You |
| Recovery if lost | Yes (account recovery) | No |
| Counterparty risk | Exchange hack / insolvency | None |
| Control | Limited | Full |
| Examples | Binance, Coinbase accounts | Ledger, MetaMask, paper wallet |
"Not your keys, not your coins"
This phrase summarizes the core risk of custodial storage. When funds sit on an exchange, the user holds an IOU — not actual cryptocurrency. If the exchange freezes withdrawals, gets hacked, or goes bankrupt, users can lose everything (as happened with FTX, Celsius, and others).
Relevance to miners
Miners typically receive payouts directly to a wallet address they control (self-custody). However, many then send coins to an exchange for trading — moving from self-custody to custodial. Best practice is to keep only trading amounts on exchanges and store the rest in self-custodied cold wallets.
