Wallets, exchanges and custody

7 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

A wallet stores the private keys that control your coins. "Not your keys, not your coins": if an exchange holds your keys and fails, you may lose everything. FTX's collapse in November 2022 froze billions of customer funds, and its founder was later convicted of fraud.

Hot wallets are connected to the internet (convenient, more exposed). Cold wallets (hardware devices or paper) keep keys offline. Your seed phrase (12 or 24 words) can recreate your wallet: never type it into a website or share it, because anyone with it owns your funds.

In Australia, digital currency exchanges must register with AUSTRAC. Registration is about anti-money-laundering rules, not a guarantee of safety. Bitcoin and ether ETFs listed on the ASX and in the US offer exposure without self-custody.

Key takeaways

Whoever holds the private keys controls the coins.
Never share a seed phrase; nobody legitimate will ask for it.
AUSTRAC registration is not a safety guarantee.

Check your understanding

1. What does "not your keys, not your coins" mean?

Coins need physical keys
If someone else holds your private keys, you depend on them
Keys earn interest
Exchanges cannot fail

Show the answer

If someone else holds your private keys, you depend on them. Custodial exchanges can fail or freeze withdrawals.

2. Someone from "support" asks for your 24-word seed phrase. You should...

Give it so they can help
Refuse: it is a scam
Give half of it
Email it

Show the answer

Refuse: it is a scam. The seed phrase gives full control of your funds.

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General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.