What is a custodial wallet?


#1

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.


Security of Different Types of Wallets