A custodial wallet is any wallet where the private key for controlling your coins are kept on servers of a third party company.
- You don’t have to keep your keys on a piece of paper or to spend money for a hardware wallet.
- A responsible custodian may be more responsible for security than a careless individual.
- Good custodians often make it easy to do many of the things you might want to do.
- 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.
- You don’t have direct control over your coins, you just tell the custodian to make a transaction on your behalf.
- The custodian can run away with your money.
- You are not guaranteed that you will receive coins after a coin fork.
- 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.