Custodial Wallets

Custodial Wallets are personal or business wallets controlled by a company or cryptocurrency exchange (like Coinbase or Binance), which stores your private keys for you.

Non-custodial wallets, on the other hand, put the responsibility of storing your wallet keys in your hands.

Custodial wallets are considered less safe than noncustodial wallets because if hackers were able to access an exchange’s network, they could potentially access your private keys and ultimately have complete control of your account balance, allowing them to steal your digital assets.

Bear in mind that while most large centralized cryptocurrency exchanges have enterprise-level security systems in place to keep hackers away, there are many examples of crypto exchanges getting hacked and user’s losing their account balances.

Custodial wallets tend to be preferred by many because they’re more convenient to use and don’t require as much responsibility to store and use them.

Most web-based crypto wallets are custodial wallets.

Related Terms

Desktop Wallet

A common type of crypto wallet used to securely store and manage your private keys on a computer hard drive. They’re considered more secure than web-based wallets, since you can only access them from wherever your computer is located, and again, you control your private keys.

Wallet

Made up of a unique public address called your public key (similar to your bank account number) that you can share with the world, your friends, family, and other businesses and companies that you trust, to send and receive digital assets. A wallet also stores a private key (much like the PIN that you use to access your bank account at the ATM), which, when combined with the public key, confirms ownership of the wallet, and allows you as the wallet owner to view the digital record of your wallet transactions, and allows you to perform actions such as buying, selling, withdrawing, and swapping funds.

Non-Custodial Wallet

Also referred to as a self-custodial wallet, puts the responsibility of storing your wallet keys in your hands. Non-custodial wallets come in different variations, including web-based, software installed on a smartphone or computer, a hardware device like a USB thumb drive, or even paper.

Software Wallet

A form of cryptocurrency wallet that’s based on software, so installed as a mobile app or accessed via a website, or installed as software on a desktop or laptop computer. The software itself stores your private keys that are used to access your cryptocurrency funds.

Web 3.0

Web 3.0 is described as a phase of evolution that includes more user interaction, data sharing and ownership, decentralized connectivity, and blockchain technology at its core. Machine learning and artificial intelligence will play a larger part in the apps and services that we’re already using. Everything that can be connected to the Internet will be connected to the Internet, and there will be a huge focus on decentralization, enhanced connectivity, and more user control over personal data ownership. Centralized authorities, like governments and gigantic, multinational companies will take a backseat to self-governing and self-ownership of various parts of this new Web 3.0 world, and the individual will take a larger role in operating on a blockchain network, while also making decisions about the blockchain’s future evolution