What Is Custody?
Custody refers to the storage and management of assets or the keys that control them.
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What does custody mean?
Custody is a storage arrangement that describes who manages the keys enabling the spending of crypto assets. When you hold a balance on an exchange, the platform usually manages the keys. In a wallet where you manage your own keys, the spending authority lies with you. The latter method is called self-custody.
The difference between the two methods is not just whether the app is on a phone. A mobile app can provide custodial services; in another mobile app, the keys may belong entirely to the user. To understand this, one should examine the wallet’s recovery method and withdrawal authorization.
What do you trust in an exchange account?
You trust the platform’s security, how it manages assets, and its ability to fulfill withdrawal requests. If you forget your password, there may be an option to recover the account through identity verification. Conversely, withdrawals can be halted, or service issues can affect your access to assets. The balance on the screen does not necessarily mean you are directly controlling an independent on-chain address.
The responsibility of self-custody
When you manage your own keys, you can sign transactions without needing a platform’s withdrawal approval. However, if you lose your recovery backup, there may be no centralized password reset path. Theft of the backup can also grant an attacker spending authority.
For example, if a phone breaks, you can open the wallet on another device using the correct recovery words. If someone else gets hold of those same words, they can do the same. Both the accessibility and confidentiality of the backup must be protected together.
When choosing, consider your frequency of use, the amount, and your ability to store backups securely. Self-custody does not eliminate all technical risks; custodial services do not eliminate all responsibility. What is important is knowing who can perform transactions in which situation and what recovery path exists in case of loss of access.