Custodial or self-custody: who holds your bitcoin?

Every bitcoin, and every digital dollar, moves only with a private key. So the first question about anywhere you keep them is who holds that key: a company, or you.

Each fails in its own way. A company can go bankrupt and leave you waiting for a court, freeze your account, or leak what it knows about you. A key of your own can be lost or stolen, and then there’s no one to call.

On an exchange, you hold a promise

When you buy bitcoin on an exchange, or in an app that keeps it for you, the coins usually sit in the company’s own wallets, pooled with everyone else’s. What’s yours is an entry on the company’s books: a promise to hand them over when you ask.

That has real advantages. A forgotten password can be reset, someone answers when something goes wrong, and buying or selling takes seconds. It works for as long as the company can keep its promise, and wants to. The chance that it can’t or won’t is called counterparty risk.

The fine print decides whose coins they are

What the promise is worth when a company fails depends on the terms you accepted to open the account.

In January 2023, the judge in Celsius’s bankruptcy ruled that the crypto in its “Earn” accounts, which paid interest, belonged to the company, not to the customers who had deposited it: about 4.2 billion dollars, in some 600,000 accounts. The terms they had accepted gave Celsius “all right and title” to the coins, “including ownership rights”, and the right to sell, lend or pledge them. So those customers weren’t owners waiting for their coins. They were unsecured creditors, waiting for a share of whatever was left.

In May 2023, the judge in BlockFi’s bankruptcy drew a line between two kinds of account. The crypto in its custodial wallets, which paid nothing, was the customers’ property, and nearly 300 million dollars of it could be returned. The crypto in its interest accounts wasn’t. Customers had asked to move 375 million dollars from interest accounts into their wallets after withdrawals froze, and the judge ruled that none of those transfers had gone through.

At both companies, the coins that earned interest had stopped being the customers’. Before you deposit anywhere, read what the terms let the company do with your coins. If it may lend, pledge or sell them, you’re lending to it.

When the promise breaks

• February 2014. Mt. Gox, an exchange in Tokyo, sought bankruptcy protection, saying about 750,000 of its users’ bitcoin and 100,000 of its own had disappeared. A month later it found 200,000 in an old wallet. Repayments began in July 2024, more than ten years later, and in October 2026 the deadline to finish them was pushed back to October 2027.
• June 2022. Celsius froze withdrawals, citing “extreme market conditions”, and filed for bankruptcy a month later. In January 2024 its creditors began to receive about 3 billion dollars in crypto and cash, and shares in a new bitcoin mining company. Its founder, who according to US prosecutors had promised to keep customers’ assets “safer than a bank”, pleaded guilty to fraud and was sentenced to 12 years in May 2025.
• July 2022. Voyager, a crypto broker in the United States, stopped withdrawals, saying a hedge fund had failed to repay a loan of 650 million dollars, and filed for bankruptcy days later. It had suggested to customers that their money was insured by the FDIC, the US deposit insurer. The FDIC and the Federal Reserve called that “false and misleading”: the insurance covered the failure of the bank where Voyager kept its customers’ dollars, not the failure of Voyager. Two payments, the second from July 2024, returned 70% of what customers were owed, according to the administrator winding it down.
• November 2022. FTX stopped withdrawals on November 8 and filed for bankruptcy three days later: its customers’ deposits had been used for other purposes. Its founder was convicted of fraud. Customers began to be repaid in February 2025, in cash, at the value their coins had on the day of the bankruptcy. The plan pays most of them more than that value, but in dollars: someone who was owed one bitcoin was paid for a bitcoin at its November 2022 price, not a bitcoin.

In each case the customers became creditors. They waited for courts, and what came back was late, smaller, or in a different form.

A company doesn’t have to fail to freeze you

What an exchange holds for you can also be frozen while the company is fine: by a government, a court or the company itself.

In February 2022, during the trucker protests known as the Freedom Convoy, Canada’s government invoked its Emergencies Act for nine days. Under it, banks and other financial companies, crypto platforms included, had to stop serving any account they suspected was being used for the blockades, and could freeze it at once, without a court order. The police sent regulated firms 34 crypto addresses to stop dealing with. In January 2026, Canada’s Federal Court of Appeal upheld a ruling that invoking the act had been unreasonable, and that the searches it required of financial companies breached the Charter of Rights; in October 2026, the Supreme Court agreed to hear the government’s appeal.

A court can do it too. That same week, a court in Ontario froze more than 100 crypto addresses in a class action over the protests, and its order bound anyone who knew of it, exchanges included. As one law firm noted, a crypto company may be unable to freeze coins whose keys only their owner holds.

And a company can close an account itself, or stop serving a country, with no order at all.

What an exchange knows about you

A company that holds your money keeps a file on you, and files leak.

In May 2025, a large US exchange disclosed that criminals had paid contractors and employees in its support teams outside the United States to copy customer records, and then demanded 20 million dollars not to publish them. According to its filing with the SEC, the records held customers’ names, addresses, phone numbers and email addresses; the last four digits of their US Social Security numbers; partly masked bank account numbers; images of their passports and driver’s licenses; and their balances and transaction histories. According to a filing with the attorney general of Maine, 69,461 customers were affected.

The exchange refused to pay. It said the criminals wanted a list of customers they could contact while pretending to be the exchange, to trick them into handing over their crypto, and that it would pay back customers who had been tricked. It estimated the cost at 180 million to 400 million dollars.

A password can be changed; a home address and an identity can’t. When hardware wallet makers leaked lists like this one, some of their customers received threats to come to their homes: the guide on hardware wallets, multisig and collaborative custody has the cases.

In self-custody, there’s no one in between

Self-custody means the key is yours: on your phone, on a hardware device, or split across several places. No one can freeze your bitcoin, lend it out or lose it in a bankruptcy, because no one else has it. Digital dollars are different: their issuer can freeze them in any wallet, as the guide on digital dollars explains.

There’s also no one to call. The key, and the seed phrase that backs it up, are a single point of failure. Lose both and the money stays where it is, out of everyone’s reach. Let someone copy either and they can move it as easily as you, and no one can reverse it.

What a lost or stolen key costs

In March 2020, Chainalysis counted about 3.75 million bitcoin as lost, about a fifth of the 18.27 million mined by then. It’s an estimate, since a lost coin looks just like one that’s never moved, but behind a count like that are stories like these:

• In 2013, a man in Wales threw away a hard drive holding the keys to what he says were 8,000 bitcoin, and it went to the city’s landfill. In January 2025, the High Court dismissed his claim against the council to dig it up, finding that under a 1974 law the drive had become the council’s once it was delivered there, and in March the Court of Appeal refused to hear it.
• A programmer in San Francisco was paid 7,002 bitcoin in 2011 for an animated video explaining bitcoin. The keys are on an encrypted drive that erases itself after ten wrong passwords. In January 2021, he had two guesses left.

Theft is the other half. Chainalysis counted 158,000 thefts from personal wallets in 2025, from at least 80,000 people, and 713 million dollars taken, and it says the true number is likely far greater.

Splitting the keys: collaborative custody

Between the two are wallets that need more than one key. A multisig wallet has several keys, kept in different places, and a rule about how many must sign. In collaborative custody, a company holds one of the keys and you hold the others; a common setup has three, any two of which move the money: your everyday key, the company’s and a backup. The company can help you recover a lost key, but it can’t move, lend or pledge the money on its own, and if it fails, your keys move the money without it, with no court and no line of creditors.

The name is used loosely, and not every service works that way. The guide on hardware wallets, multisig and collaborative custody sets out the test, and what it costs.

Side by side

	Exchange	Single-key wallet	Collaborative custody
Who can move it	The company, or whoever breaks into it or into your account	Whoever has the key or its words: you, or a thief	Any two of the three keys, never the company alone
Who can freeze it	The company, on its own or under an order	No one, for bitcoin	No one alone: your two keys move it without the company
What loses it	The company failing, being robbed or misusing it	The key and its backup, lost or stolen	Losing two of the three keys
If the company fails	You become a creditor and wait	Nothing happens to the coins	Your two keys move it without the company
What the company knows about you	Your identity, address, bank account, balance and every transaction	Only what the app asks for	Usually your balance and transactions, and what it asks for when you sign up

Digital dollars add one risk to every column: their issuer can freeze them in any wallet.

Four questions that settle it

Whatever you use, four questions tell you who really holds your money:

1. Who can move it without asking you?
2. If you lose your phone, how do you get back in, and who decides?
3. If the company behind it disappears tomorrow, what would you need to move your money without it?
4. If you die, who can reach it, and how?

The guides on losing your phone and on inheritance take the second and the fourth further.

How to choose

• Use an exchange to buy and sell, not to keep savings. Move out what you’re not about to trade. While it’s there, you hold a promise, and the cases above show what a broken one pays: years later, often less, sometimes in another form.
• Don’t lend out coins you mean to keep. At Celsius and BlockFi, the coins that earned interest were the ones that stopped being the customers’.
• For money you spend, a wallet you control. One key, on your phone, holding about what you’d carry in cash: if it’s lost or stolen, so is what’s in it.
• For savings, collaborative custody, if it passes the test in the guide on hardware wallets, multisig and collaborative custody.