The difference is who controls the private key. In custodial walletsIn custodial wallets the private key is held a third party (... More the private key is held a third party (i.e. an exchange), while in non-custodial walletsIn a non-custodial wallets the private key is held by the ow... More the private key is held by the owner of the wallet. Whoever controls the private key, also controls the funds. Losing the private key, usually leads to losing the funds.