What is a custodial wallet?

What Is a Custodial Wallet?

A custodial wallet is one where a company (e.g. a crypto exchange) holds your private keys. You log in with a password and 2FA; the company stores and secures the keys. This is convenient and you do not need to manage keys or seed phrases. The risk is that you depend on the company: if it is hacked or goes bankrupt, your funds can be at risk. Use custodial wallets for small amounts and trading. For large holdings, consider a non-custodial or hardware wallet.