What is a custodial wallet?

A custodial wallet is any wallet where the private key for controlling your coins are kept on servers of a third party company.

PROS:

  1. You don’t have to keep your keys on a piece of paper or to spend money for a hardware wallet.
  2. A responsible custodian may be more responsible for security than a careless individual.
  3. Good custodians often make it easy to do many of the things you might want to do.
  4. Sometimes you are forced to use a custodian - for example, if you want to trade on an exchange, you must put your coins in the exchange’s custodial wallets.

CONS:

  1. You don’t have direct control over your coins, you just tell the custodian to make a transaction on your behalf.
  2. The custodian can run away with your money.
  3. You are not guaranteed that you will receive coins after a coin fork.
  4. Many custodians have large sums of coins and therefore are a target for thieves.

In conclusion, you need to trust the custodian with your funds. That’s what it’s all about. And some custodians are not trustworthy.

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