Definition
A custodial wallet is a service in which another party controls the private keys or equivalent signing authority for a user's cryptocurrency. The user typically accesses an account through credentials, while the provider manages transfers and recovery procedures. This can simplify some tasks, but an account balance is not the same as independently controlling the corresponding on-chain outputs. Withdrawals may depend on the provider's systems, policies, available assets, and willingness to process requests. Transfers between customers of the same service may be internal bookkeeping entries rather than blockchain transactions. Custody therefore introduces risks involving security breaches, insolvency, account restrictions, and operational failures. A familiar interface or a published wallet address does not eliminate these risks. The central question is who can authorize movement of the assets and what evidence or process gives the user a dependable claim to withdraw them.
Source references
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