“Custodial” in cryptocurrency terms refers to systems or services where the private keys to a cryptocurrency wallet are held by a third party. This is usually a financial institution like a bank or a cryptocurrency exchange.
When you deposit your cryptocurrencies in a custodial wallet, you essentially trust the custodian to keep your assets secure. This is similar to depositing money in a bank. Just like a bank, the custodian is expected to safeguard your assets and may provide insurance against loss.
Examples of custodial services in the cryptocurrency world include exchanges like Coinbase or Binance, which hold users’ assets on their platforms.
On the flip side, a non-custodial wallet is one where the user maintains control of their private keys and thus, maintains full control over their cryptocurrencies. These types of wallets provide more autonomy and are considered more secure against certain types of attacks, but they also require the user to be responsible for the secure storage of their private keys.
The choice between custodial and non-custodial wallets depends on a user’s needs, their technical proficiency, and the level of control and responsibility they desire over their digital assets.
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