A custodial wallet is a wallet where a third party, usually a crypto exchange, is responsible for managing the user’s private keys. This means your wallet’s key is in someone’s hands.
A custodial wallet is helpful for beginner crypto traders who are unfamiliar with managing their private keys. However, if the crypto exchange goes bankrupt, users may lose access to their private keys and, hence, the crypto wallet.
When considering a custodial wallet, it’s crucial to select a reputable crypto exchange or service provider that can keep the private keys and funds secure.
In contrast, non-custodial wallets give users complete control over their keys and assets. They don’t depend on any third party, like a crypto exchange.
There’s a common phrase in crypto: “Not your keys, not your crypto.” This means, if a crypto trader loses access to the private keys, he/she will lose access to all of the cryptocurrencies stored in the wallet.
In a non-custodial crypto wallet, the trader is responsible for storing and managing their private keys. Since it’s extremely difficult to retrieve a lost private key for non-custodial wallets, users need to be careful to store their keys in a safe place.
