What is Custodial wallet?
A custodial wallet (hosted wallet) can be defined as a crypto wallet in which users’ private keys are stored or held by a third party. Hence, users have a high degree of trust in the third party that controls their private keys and overall access to their crypto funds. Commonly custodial wallets represent web-based exchange wallets that keep the cryptocurrencies on behalf of the owner.
Users may be attracted to using a custodial wallet because it is simpler to understand and use as it is accessed with basic login credentials. The practical aspect of using a custodial wallet is that you can’t be blocked out of your wallet due to forgotten seed phrases or passwords, which is the primary drawback of hardware crypto wallets. Some popular exchanges that are also classified as custodial wallets are Coinbase and Gemini.