Bitcoin for Savers Wallets and keys

Self-custody vs custodial vs Fedimint ecash

Who holds the keys? Compare holding them yourself, letting a company hold them, and a community federation that holds them together.

15 minBeginner4 / 8

Draft: this lesson is still waiting for review.

What you'll learn

Describe custodial wallets, self-custody and Fedimint federations
Name one strength and one risk of each
Ask the right question of any Bitcoin service: who holds the keys?

Key terms

custodial wallet (pochi ya mtunzaji): A wallet where a company or another person holds the keys for you.
self-custody (kujitunzia): Holding your own keys, without relying on anyone else to keep them.
Fedimint: Open-source software that lets a community run a federation that holds bitcoin together and issues ecash.
federation (shirikisho): A group of guardians who hold bitcoin together; most of them must agree before money moves.
guardian (mlinzi): A member of a federation who runs a server and holds part of the keys.
ecash: Digital notes that stand for bitcoin held by a federation. Payments with them are private.
multisig: A setup where several signatures are needed to spend bitcoin, for example 2 of 3.

Every way of holding bitcoin answers one question: who holds the keys? The answer decides who can spend the money, who can freeze it, and what happens if something goes wrong.

1. Someone else holds them: custodial

With a custodial wallet, a company such as an exchange holds the keys for you. You log in with a password, like a bank. It is easy, and if you forget your password they can help.

But the company can freeze your account, be hacked, or close down. Bitcoiners say: "Not your keys, not your coins."

2. You hold them: self-custody

With self-custody, your own wallet holds the keys and you keep the seed phrase. Nobody can freeze your money or spend it without you.

But nobody can rescue you either. Lose the seed phrase, or let a thief see it, and the money is gone.

3. Your community holds them: Fedimint

Fedimint sits between the two. A group of trusted people, called guardians, run a federation together. The bitcoin is locked with multisig, so most guardians must agree before any of it can move; no single guardian can run away with it.

Members hold ecash, digital notes backed by the federation's bitcoin. Ecash is easy to use and private: the guardians can't see who paid whom. It works a lot like a chama, where members already trust their officials, but with the rules enforced by software.

The risk: if most guardians collude, are hacked or go offline together, members can lose access.

	Custodial	Self-custody	Fedimint
Who holds keys	A company	You	Several guardians together
Can be frozen	Yes	No	Only if most guardians agree
If you lose your phone	Company restores access	Your seed phrase restores it	You need a safely backed-up wallet recovery key or seed and a supported recovery process. The federation's bitcoin alone is insufficient; recovery is not guaranteed.
Main risk	The company fails or freezes you	You lose your seed phrase	Most guardians fail together

Try it

Make a list of every place you keep money: M-Pesa, a bank, a SACCO, a chama box, any Bitcoin app. For each one, write who holds the keys and what would happen if they shut down tomorrow.

Reflect

Write your answer down, or talk it over with a friend or your chama.

For the money you hold today, who holds the keys, and what happens if they disappear?
Which people in your community would you trust as guardians, and why?