What makes Exodus a non-custodial wallet?

Everything you need to know about what makes Exodus a non-custodial wallet. Find out the benefits and risks of non-custodial and custodial wallets.


In this article:


Why does self-custody matter?

Exodus is a non-custodial wallet, also known as a self-custody wallet. What this means is that you, and only you, have full access to and control over your 12-word secret recovery phrase and private keys.

"Who has custody of my funds?" is an important question in cryptocurrency and has everything to do with who controls the 12-word secret recovery phrase and private keys of the funds.

Private keys are important as they allow you to control the crypto in your wallet. 

Whoever holds the private keys to a crypto address has ownership of its funds and can spend and manage those funds however they see fit. If you do not have control over your private keys or if you are not the only one with access to them, then that crypto isn't truly yours.

For example, if your crypto is on a custodial exchange, you need to request a withdrawal of your funds. Then the custodial exchange, who has control of the private key, will decide whether or not to honor your withdrawal request. This works as long as they are a trustworthy platform. 

In short, not your keys, not your crypto. You can read more about the importance of private keys in our article: What are private keys?.

Let's take a look at how this plays out in both non-custodial and custodial wallets.


What is a non-custodial wallet?

A non-custodial wallet is a wallet where only you have access to your private keys. You are solely responsible for the security of your wallet and private keys. With access to your private keys, you have full control over your funds.

The developers of the wallet can't interfere with, block, or access your funds. And if anything goes wrong with the wallet, you can still use your private keys to move to another compatible wallet.

Exodus, MetaMask, Phantom, and Trust wallet are all examples of non-custodial wallets.

How to tell if you're using a non-custodial wallet:

  • If instead of setting up a username and password you're asked to write down a 12-word secret recovery phrase
  • If you can access your private keys
  • If the wallet developer can't help you regain access to your funds 

Benefits

Some benefits of using non-custodial wallets are:

  • Full control of funds: As mentioned above, a non-custodial wallet gives you, and you alone, full control of your crypto.
  • Privacy: A non-custodial wallet does not require any personal information in order to send, receive, and manage your funds. To learn more about what information Exodus has access to, see: What information does Exodus have access to?
  • Advanced features: Non-custodial wallets often provide access to advanced features such as staking, swapping crypto, and DeFi.
  • Multiple wallets/portfolios: Non-custodial wallets allow you to use the same 12-word secret recovery phrase in multiple wallets, or have multiple portfolios in the same wallet. Learn how to do this with Exodus in our article: How do I create multiple portfolios on the same device? 

Risks

Some risks of using non-custodial wallets are:

  • Responsible for security: With a self-custodial wallet, security depends on you keeping your devices and private keys secure. You can find a list of good security practices here: List of security practices.
  • If you lose access to your wallet, no one else can restore access. Always make sure you write down your 12-word secret recovery phrase and store it safely offline. Take a minute to read more about how to keep your 12-word secret recovery phrase safe (which is the only backup of your private keys) and other ways to keep your money safe.
  • Technical know-how : Non-custodial wallets often require a bit more technical knowledge in order to use them. With Exodus, however, we're constantly working to keep the wallet experience easy to use and look to customer feedback to identify areas where this can be improved.

What is a custodial wallet?

A custodial wallet is when an institution or a third party (like an exchange) holds the private keys to your crypto. The custodian takes care of securing the private keys for you, and acts as a gatekeeper to your funds.

You can't obtain private keys from a custodial wallet. 

Custodial wallets are more often referred to as accounts. You usually provide personal information and create a login using an email and a password. Then the platform is able to control your access to their service.

Exchange platforms, such as Coinbase or Binance, and crypto banking platforms, such as Celsius or BlockFi, are examples of custodial wallets.

How to tell if you're using a custodial wallet:

  • If you need to enter a username and password to access your funds
  • If the service is referred to as an account
  • If you are not able to access your private keys
  • If the platform can help you log in if you lose access to your credentials

Benefits

Some benefits of using custodial wallets are:

  • Less user responsibility: Since the institution is the custodian of the funds, the responsibility of keeping the private keys secure falls on the company and not the individual.
  • Account restoration: If a user loses access to their account, regaining access is easy and straightforward. The custodian will reach out to confirm the identity of the account holder and then will restore access.
  • Easy to use: Most custodial wallets offer a streamlined and easy-to-use experience, which may be helpful for people just getting into crypto.

Risks

Some risks of using custodial wallets are:

  • No access to private keys: When a third party controls your private keys, they have control of your crypto. This means, the company can freeze your access to your funds, can be compelled by regulations to handle your crypto in certain ways, or even use your crypto themselves. Again, not your keys, not your crypto.
  • Honeypot for hackers: A company may hold thousands of sets of private keys. This attracts the attention of hackers. The pay-off for the effort needed to hack into a company compared to hacking an individual is much higher.
  • KYC and AML: Companies often require you to provide personal information when you do business with them. Even if you don't mind giving a company your personal information, it could also become compromised if the company is hacked.
  • Lack of advanced features: You can do a lot in crypto, and there are more possibilities all the time. Because of the streamlined experience for custodial wallets and the lack of access to private keys, you won't be able to use these advanced functions.
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