Custodial Wallet

A custodial wallet is a storage model in which private keys are controlled by a third party, such as a crypto exchange, payment service, or other custodian.

The user normally receives an account and sees a balance but does not necessarily receive direct access to the keys used to sign blockchain transactions. As a result, an internal transfer between users of the same platform may be only an internal ledger operation, while an actual blockchain transaction occurs when assets are deposited, withdrawn, or otherwise moved on-chain.

Characteristics of custodial storage

Custodial systems can simplify account recovery, account management, and access to exchange services. However, the user depends on the security, infrastructure, and policies of the custodian. Withdrawals may be restricted or delayed, and access can be affected by account controls or platform policies.

The alternative model is a non-custodial wallet, where the user controls the keys. The key distinction between the two models is therefore who controls the cryptographic keys rather than the appearance of the wallet application.