Not all wallets are alike: hot, cold, and custodial
The single most important distinction in wallets is who holds the keys. In self-custody, you hold your own keys (and seed phrase) — nobody can move your funds without them, but nobody can recover them for you if you lose them either. In custodial wallets (like an exchange account), a company holds the keys for you — convenient and easy to recover, but you're trusting that company not to freeze, lose, or mismanage your funds. The table below shows how each wallet type fits that divide.
| Type | Online? | Custody | Best for |
|---|---|---|---|
| Hot (mobile/web/desktop) | Yes | Self-custody | Daily spending, small amounts |
| Cold / hardware | No | Self-custody | Long-term storage, large amounts |
| Paper | No | Self-custody | Legacy cold storage (mostly discouraged now) |
| Custodial (exchange) | Yes | Custodial | Trading; not for holding long-term |
Not your keys, not your coins
When you leave funds on an exchange, the exchange holds the keys. If it fails (see Mt. Gox, FTX in the History unit), you’re an unsecured creditor — you may lose everything. For amounts you can’t afford to lose, take self-custody.