A lot of folks don’t really consider where their crypto is when stacking up on bitcoin. But there’s a major difference to note: if you’re using an exchange (custodial), you’re putting your money in their hands. They hold your assets, and you’re trusting them with everything like access and rewards.
On the flip side, with non-custodial wallets, you’ve got full ownership all the time. No third party can touch or control your coins. That’s the key difference. Ownership isn't just about racking up rewards; it's really about who has control of your keys. We really need to get this straight so we don’t end up just building up bitcoin for someone else. Remember: Your wallet. Your keys. Your control.
For those newbies or investors who might not get the difference between custodial and non-custodial, this example should clear things up. When you create a wallet and don’t get a seed phrase, that’s a sign it’s custodial. In non-custodial wallets, you’ll be prompted to write down your seed phrase before moving forward. You even have to rewrite it to access your wallet later. So yeah, they definitely have different ways of signing up.
Make sure you verify the seed phrase. Anytime I see a new open source noncustodial wallet, I make sure that I tested it generates keys and addresses. I also use the test to know what kind of seed phrase it is because I only prefer BIP39. The second that I like is Electrum seed phrase. I do not recommend others.
You are conveying a good message to those who are newbies in the crypto space. Those who don't have any idea hold their funds in exchanges or centralized platforms, and they don't even have any idea about the nuance of this matter. Like, their funds can be lost if in case the platform on which they are holding funds can be compromised by a hacker, so that is why we need to pay more attention to this matter. And for now, there are many ways to save funds in differnt kind of crypto wallets.
And in this, we also have to be attentive while saving wallets, secret keys, or seed phrases. Because if you forget them or lose them, that means you loss you funds, which are not recoverable until or unless you find the correct seed phrase or security keys. Other than this, you also have to be attentive while saving your seed phrase or security keys in a place where no one can access them.
With custodial wallets on centralized exchanges for example, users like you don't have private keys or mnemonic seed phrase of your account's wallets, so you don't control the wallets and your coins inside. The exchange have it and whether it approves your withdrawal request, it's a future situation. They can scam exit, have hacks, and bankrupt, whatever if it is bad, you will lose your money.
Reminder: do not keep your money in online accounts.
Non-custodial and open-source, a good non custodial wallet must be open sourced. You can check wallet scrutiny with this site
https://walletscrutiny.com/
This is not accurate.
In a non-custodial wallet, you have full control over your funds, but you don't necessarily have a seed phrase. Two examples are Bitcoin Core and Armory. Both are non-custodial wallets, but they don't provide a seed phrase.
Some people are aware that self-custody is the best but still decided to make use of a custodial wallet, as we found in many who are using a centralized exchanges, when some are not well informed to know the difference between why they should use a custodial wallet and it non-con studio wallet for their own privacy and control over their assets, this is why we have to face the consequences either we know or not as long as we failed to take any necessary action against every custodian means that take control over our assets for us.
This is what he is trying to say, to let people know the difference between self-hosted wallet and exchanges.
Yes, self-hosted, open source but it also has to have many servers. I make sure I look for the servers a wallet is using before I use it. If it is just one for bitcoin or two, I do not use it if I am not able to import server manually there.
They are likely not investors, but they're traders and they want to actively trade their bitcoins or exchange bitcoin for shitcoins. It's one of biggest reasons people store bitcoin on centralized exchanges. With people who are investors but still decide using centralized exchanges for storing their bitcoins a long time, it's very dangerous and stupid. As investors, they don't have need of active trading and their priority should be securing their coins safely, and holding it for profit when time flies and Bitcoin rises.
Bitcoin Q&A: Not your keys, not your coins.
Thank you for this timely correction.
Op, was teaching something so basic, but I do not discourage him because here is a forum. There are people who also need the information. But their whole teaching was not correct and you came in.
We continue to learn everyday and I wish Op will see your response and also learn from it.
Some newbies actually misinterpret the meaning of not your keys. Thinking it means giving out your logins to someone else or needing the help of someone to buy bitcoin for you. In reality, the phrase actually means full ownership. Meaning if an investor is investing under a third-party crypto platform, he does not have full ownership of his asset. Provided that someone can access it without his permission, it is no longer their keys.
Not your keys not your coins is a very simple thing that anyone could be able to understand. Where did you see newbies that are misunderstanding it? This is the first time that I am hearing this. I have been reading many posts on this forum, no single newbie that have said something like that. They all understand that not your key not your coin means full ownership and that will be done through having your own private key of your bitcoin address.
You will be surprised that some people still knows all the rules and the difference between crypto wallets buts still choose to use centralised exchanges and custodial wallets to keep their coins.
Why they do that is what I don't know, but custodial wallets and centralised exchanges are good at one thing, making customers feel like they are using the easiest method to keep their coins.
To say the truth, for someone who don't know the difference it's easy to store coins on centralised exchanges than your own hardware wallet, especially those who likes how bank accounts and bank apps works.
They are reluctant because they are skeptical about accepting what is good. I think one of the fastest ways for people to learn when it comes to Bitcoin and wallets is to have personal experience.
When people have personal experience, they take things seriously, but when they are being told about the benefits of using a non-custodial wallet, they ignore it because they feel that with a custodial wallet they can easily convert their assets. However, this shouldn't be the priority or criteria for choosing a wallet. The first thing one should think about when it comes to wallets should be ownership and good security, which you cant find in all custodial wallets. Ignorance is the major problem why people are skeptical about using the right wallet.
Even people who are in this industry and market a long time don't understand "Not your keys, not your coins". That's just fact, and I am not mentioning about people who understand what the saying is about, but only don't take it into their practice.
Centralized exchanges with many trading pairs, many marketing programs, high trading volume, and other things are actually very attractive with many people. They can start with centralized exchanges as newbies, and with their experience they feel good there, see no need to learn, no need to change their practice, until some accidents like Terra or FTX exchange appears.
They will have to learn from their losses, hard lessons, and about Bitcoin non custodial wallets as well as "not your keys, not your coins". It's only matter of time when they have to learn it, and change their storage practice.
Cryptocurrency security checklist.
Securing your wallets.
While this has being on my mind for a while now I think its just the best time I ask now, since you just noted that bitcoin core is a non-custodial wallet, I am not a technical person but i Know that most wallet that are considered to be the non custodian wallet do actually use a seed phrase just like the blue wallet, and the trust wallet I have used to access the wallet but thats is not in the case of bitcoin core why is it also considered a non-custodial wallet even though it has no seed phrase? You swift response will be appreciated!
Difference between custodial wallets & non-custodial wallets simply lies in the seed phrase they share when creating or registering. If they don't provide it, we can be sure that it is not a non-custodial wallet. Another thing to note, as one user who already replied, is that there are both open-source & closed-source wallets. Beginners often know about Trust Wallet without realizing that the software isn't entirely open-source.
Many people use these platforms because they fear losing their money due to losing their seed phrase or being hacked. In short, they prefer to sacrifice their privacy for the convenience of feeling more secure. And while this may sound strange, it's the reality. They think, "If I lose my exchange password, I can recover it in a few simple steps." There are also other groups who use them for profit, whether for trading or simply for the ease of exchanging cryptocurrencies for fiat currency.
You should have read the posts above you for more clarity on what it means, Not your keys.
@PostQuantumBTC, now you see a newbie who don't know what it means.
A simple interpretation of the phrase, exchanges controls your seed phrase/private keys, that means they can freeze your coin for some reason, restrict or delay based on their policy or suspicion while non custodial wallet gives you full custody of your private keys, with custody to spend your coin without needing approval from any side party.
Knowing the security implications of where you keep your Bitcoin is very important for every investor who intends to hold their asset for both either short and long term. But sometimes, what I have noticed about most investors is that they usually prefer to keep their Bitcoin in custodial wallets, simply because it overs more features where they can easily swap to other cryptos or stable coins when they noticed it's price value is falling, convert it into fiat through the use of it's p2p almost immediately and e.t.c. While forgetting the fact that non custodial wallets are more safer and offers you full control over everything, unlike custodial wallet. And I'm happy you O.P were able to point out the key difference between these two types of Bitcoin wallets.
This is quite important for those who are new to accumulating Bitcoin, where they store their Bitcoin, because even though the exchange offers convenience, the security of the assets is still not guaranteed there, that if the platform experiences problems then all the user's assets will also be affected because they cannot be accessed. Self custody wallets are recommended for storing assets in the long term, because users have full control over their assets. It is not difficult to differentiate between custodial wallets and self-custody wallets, as explained by other users. So there is no reason not to use a self-custody wallet.