Custodial Wallet
Web3 Infrastructure • Tools • Interfaces
third-party managed wallet
A custodial wallet is a cryptocurrency wallet managed by a third party—such as an exchange or financial service—that holds and secures the private keys on behalf of the user. While custodial wallets offer ease of use, especially for beginners, they require users to trust the provider with their funds and access. This contrasts with self-custody, where the user controls their own keys and assets directly.
Use Case: A beginner buys Bitcoin on Coinbase and stores it in their Coinbase wallet. Coinbase holds the private keys and manages security, allowing the user to buy, sell, and transfer crypto without worrying about seed phrases or key management—but requiring trust in the exchange.
Key Concepts:
- Self-Custody — The alternative approach where users control their own private keys
- Private Keys — The cryptographic credentials held by the custodian, not the user
- Trust Requirement — Users must rely on the custodian’s security and honesty
- Hot Wallet — Most custodial wallets are internet-connected for convenience
Summary: Custodial wallets prioritize convenience over sovereignty, making them popular for beginners and casual users. However, the phrase “not your keys, not your coins” reminds users that custodial solutions require trusting a third party with asset control—a trade-off that may not suit everyone’s security preferences.