A Guide to Moving Your Crypto Off a Custodial Exchange and Becoming Your Own Bank.

Once you’ve bought and are holding some crypto on a custodial or centralized exchange, it’s important to understand the implications of leaving it there. Yes it’s convenient (it’s already there) and you don’t technically have to do anything else. Your  exchange will still let you send and receive crypto to and from your exchange wallets. In some cases they’ll even pay you some interest depending on what you’re holding.

But understand that you give up control (true ownership) and you’ll have to trust your exchange as a custodian. They will manage and store all the crypto on your behalf. That’s the deal.

Not your Keys — not your Coins.

– Everyone says this

In this 101 Guide we’ll go over how storage and ownership works, what you need to consider, and of course the best possible recommendations.

First of all, how does anyone know for sure if they own the crypto in their accounts? It’s just all code right… 

As mentioned in a previous post, there is no crypto stored in a crypto wallet. The exchange where you bought it doesn’t have any either. There’s none anywhere on your phone or laptop or USB drive. Instead it’s all there on its respective blockchain and none of it can ever leave that blockchain.

Ownership is a different concept when it comes to digital currencies. Since no one can actually remove any crypto from its respective blockchain, ownership comes down to permissions.

If you or I owned a Bitcoin, it simply means that we’d have the authorization to move it from our private Bitcoin wallet over to any other Bitcoin wallet (on the blockchain) and thus transfer those rights over to someone else.

 

Ownership and Private Keys

Ownership of cryptocurrencies is determined exclusively by something called Private Keys.

Private Keys are kind of like passwords that authorize or “sign” transactions  and allow people to send their cryptos. Send is the same thing as spend.

You simply need to understand this:
Having ownership of crypto means holding the Private Keys because they are required for signing transactions (authorizing).

A private or “Self Custody” crypto wallet stores your Private Keys, not the actual crypto. This is how it can  provide you with direct access to different blockchains and allow you to send and receive coins without going through a central or “Custodial” exchange.

There are advantages to holding your own private keys once you’ve set everything up correctly – you’ll have security and full control. But greater security often means less convenience.

Comparing Custodial Wallets and Private Wallets.

 

1

Custodial exchanges like the one you likely used earlier (to buy crypto with fiat) will store  crypto on your behalf.

The wallet you’ll have there is usually called a spot wallet or an exchange wallet. This is what exchanges do very well – they let people exchange one crypto for another and/or let them buy –– sell crypto for fiat.

Many of the largest and most popular exchanges like Binance, FTX, Crypto.com, Gemini and Shakepay are custodial.

It’s a very important and useful service.

But again – a Custodial Exchange has full control of all the crypto in their customers’ accounts. What the customers have in essence is “a claim of ownership” for certain amounts of cryptocurrencies. Whenever they want, customers can redeem their claim for the crypto.

Ok fair enough.

The issue is, that in the unlikely worst case scenario, an exchange can freeze your account, get hacked, or skip town. There are all kinds of things that could go wrong. The founder could just fake his own death one day and go off to India or Thailand with a new identity and all of the crypto. The point is that if something bad happens, your crypto and your personal information are exposed to it. You have no real control or recourse.

Key Takeaway:
As long as a central exchange has custody of your crypto, you have to trust them.

In other words:

“Not your keys, not your coins.”

Therefore, it is not advisable, in our opinion, to leave ALL of your holdings on a custodial exchange. The risks will almost always outweigh potential rewards and it’s not necessary.

2

Private or “Self-custody” crypto wallets allow you to hold your Private Keys and to maintain complete control of your crypto assets.

 

This is why we’re here:

Set Up Self-custody of Your Crypto with a Private Wallet.

You should already have an account set up with an exchange if you went through our previous 101 Guide: Buy Your First BTCNow you’ll set up a crypto wallet with a few very important features.

 

Self-custody (private) crypto wallets offer this:

  1. You hold your Private Keys obviously (the wallet or app never has access to them)
  2. You can recover your wallet and funds with a Recovery Seed Phrase (in case you lose your device or drop it in the lake)
  3. Support offered for  most major cryptocurrencies
  4. Offers the ability to exchange cryptos directly within the wallet
  5. Allow you to earn interest and stake certain coins or tokens

Our Top Pick:
Exodus

We’re not the only ones who’ve got it at the top of the list; Exodus is popular for all the reasons listed above and then some. It’s been around since 2015 and has gathered a ton of positive user reviews. Exodus is available as a mobile and/or desktop application and both versions are excellent. The Exodus wallet is frequently updated with improvements and new features and it’s probably the easiest to use and best looking crypto wallet out there.

Originally the Exodus wallet recommendation came our way from Digital Dave at Crazy4Cryptos

 

Exodus

Exodus is our most recommended crypto wallet – perfect for people new to crypto while knowing that they won’t outgrow it either.

It’s non-custodial, secure, easy to set up and use and it’s free.

Exodus lets you do everything that you’re likely to ever need. For most people this wallet is the one they can use for both day to day and for long term HODLing.

Exodus is not a full featured trading platform like Kraken or Binance, but it does allow you to trade over 150 cryptos quickly and easily without ever losing control or custody.

However, they do offer an in-wallet app that partners with FTX. This offers more ways to exchange cryptos by linking Exodus to your FTX account.

 

Key Features of Exodus:

Non-custodial (obviously)
You know what’s going on.

Exodus is Free
They make money by charging transaction fees when you move or trade cryptos. It’s pretty reasonable although not the lowest. 

Quick Setup and Easy to Use
Exodus is one of the best looking and easiest to use crypto wallets. It is fast and painless to download and install. They’ve gone out of their way to make using it easy and minimal.

Because Exodus is non-custodial, there’s no KYC or verification. It’s all completely up to you to manage your funds and report any taxable events.

It’s also up to you to make absolutely sure that you have the Recovery Seed written down and stored safely. 

Desktop and Mobile Versions
The mobile version has a great onboarding process. The first time you open Exodus, the app explains the concepts of sending and receiving crypto and what all the key buttons do. 

The desktop app mirrors the mobile app or vice versa so both wallets and crypto balances are just copies of each other. If you prefer to use your laptop (maybe it doesn’t leave the house) or you prefer having a larger screen in front of you, this is a solid option. Both are great and you don’t need to pick one or the other – we use both.

 

Exchange Cryptos Directly in Your Wallet
Exodus supports over 100+ cryptocurrencies and allows you to exchange between them.

This is important because it allows you to start building your crypto portfolio and diversify. You can trade BTC and ETH for over 100 other cryptocurrencies. Like SOL or ADA or Theta…

Stake and Earn Interest
No problem. You can stake coins like ADA and SOL and earn around 5 – 6.6% APY. This reward gets paid back to you directly in the form of whichever token you have staked. And as the value of the token appreciates you haven’t risked anything by moving them onto a centralized exchange. Not every coin can be staked in Exodus. 

2FA Authentication
Two-factor Authentication means that you need a physical device on hand to enter a specific and often timely authentication code. This means a hacker or thief with your name and password would still not be able to access your funds.

Exodus handles multi-factor authentication as a partnership with Trezor, one of the best cold storage hardware wallets available today. You may not need to store ALL your crypto in cold storage, but if you happen to hold a large amount of it, this is something you should definitely consider.

Think of it like this:

Let’s say that you held a balance of one Bitcoin on a custodial exchange, in a self-custody or private wallet you could know exactly which Bitcoin was yours.

 

Many people will say to never ever leave anything on a custodial exchange. A lot of people in Japan, Canada or Turkey have good reason to agree with this sentiment. It’s almost become conventional wisdom, but we don’t totally 100% agree with it in all cases. In fact if you’re using a reputable exchange, you’re very unlikely to have any major troubles.

And there’s a very good case to be made for HODLing at a crypto bank like Celsius. They have a solid team, great reputation and they offer a number of customer rewards and advantages. More on Crypto Banks in another post.

But, like almost everything else in crypto, it’s going to be up to you to decide how much to leave on the custodial exchange and why. The point of this guide is to learn how to take control of your crypto by moving it off and into self-custody. With Exodus (or any other reputable private crypto wallet) you’ll have a safe place to store your crypto whether you plan to HODL long term and earn interest, or use it to buy something fancy like a Vitamix.

Don’t leave all your eggs in one basket. You can diversify by exchanging cryptos easily within Exodus once you’ve transferred some crypto over into it. Or depending on the exchange you’re using, you can also exchange cryptos there first before sending them to your private wallet.

Ready to diversify and create a crypto portfolio?

Let’s go