A custodial wallet is a third-party platform that someone can use to securely store and manage their cryptocurrency keys. Custodial wallets offer potential benefits for crypto owners, such as convenience and ease of use.
It's important to understand the difference between custodial and non-custodial wallets. Non-custodial wallets are typically set up and managed by a crypto owner. Meanwhile, custodial wallets are normally hosted and controlled by a third-party service, such as an app.
Learn how custodial wallets may work, how they can potentially benefit crypto owners, and possible risks and regulations to consider before getting started.
Custodial wallets are crypto wallets that are managed by a third-party platform. Despite the name, custodial wallets don't actually store cryptocurrency. Instead, the third-party provider is entrusted to safely store those keys on behalf of a crypto owner.
When a crypto owner is ready to access their funds and make a transaction, the custodial wallet provider then oversees and authenticates the transaction to make sure it's completed properly and securely.
Custodial wallets may be a beneficial solution for new crypto users and those who don't want to manage their own private keys.
Some of the potential advantages of custodial wallets include:
Custodial wallets may implement security protocols to help protect people's information and support safe cryptocurrency transactions.
For example, a safe crypto wallet may use the following:
Save cash back offers from top brands. Plus send money, track packages, and more.
It's important to understand the potential drawbacks of using custodial wallets and cryptocurrency. Here are some examples:
Conduct thorough research before selecting a custodial or self-custodial wallet to better understand the potential risks associated with each option.
Unlike self-custodial wallets, custodial wallet providers may be subject to certain legal requirements and regulations in order to safely operate. U.S. crypto owners should understand these regulations when researching reputable crypto wallet platforms.
For example, custodial wallet providers may need to adhere to certain KYC/AML requirements. This stands for “Know Your Customer" and “Anti-Money Laundering." These regulations are generally used to verify someone’s identity and minimize the possible risks of financial crimes. KYC/AML requirements may vary across jurisdictions.
Regulations and compliance requirements for custodial wallets can also change over time. This may affect the user experience, such as by slowing down transactions or leading to increased fees. Given these legal considerations, consider a trusted and reputable provider when selecting a custodial wallet.
Custodial wallets may potentially be a helpful option for those getting started with cryptocurrency or seeking assistance managing their funds. Many custodial wallets provide user-friendly experiences, customized support, and built-in security features for data protection. But as with any financial platform, there are potential risks and regulations to consider before getting started. For those interested in using custodial wallets, it's important to carefully research available options before choosing a solution.
Learn about buying, selling, and holding cryptocurrency with PayPal.
We use cookies to improve your experience on our site. May we use marketing cookies to show you personalized ads? Manage all cookies