What Is Custodial?
A custodial service in cryptocurrency refers to a third-party company or service that holds and manages the private keys associated with a user’s cryptocurrency assets. The private keys are used to access and control the user’s cryptocurrency holdings, so entrusting them to a custodial service offers increased security and convenience compared to holding them on an individual’s own device or exchange.
In a custodial setup, the user’s cryptocurrency assets are stored on the custodian’s servers and the user can access and manage their assets through the custodian’s platform. This can be useful for individuals or institutions who are concerned about the security of their assets or who do not have the technical expertise to manage their own private keys.
Custodial services typically offer a variety of features such as multi-signature authorization, offline storage, and insurance for the assets in their care. However, it is important to note that custodial services also come with some risks, as the user is relying on the security and reliability of the custodian to protect their assets. Additionally, users must trust the custodian to act in their best interests and to follow the appropriate procedures and regulations in the event of a security breach or other issue.
As such, it is important for users to carefully consider the reputation and track record of a custodial service before entrusting their assets to them, and to ensure that they understand the risks and benefits associated with this type of service.
See also non-custodial.