How To Build A Custodial Wallet
The increasing hype for blockchain, cryptocurrencies, NFTs, and Metaverse has shifted the focus of tech enthusiasts from Web 2.0 to Web 3.0 projects. Amidst the several blockchain and cryptocurrency projects, “Building Custodial Wallets “ is gaining immense popularity. These are the cryptocurrency wallets where private keys are held by a third party giving them control over funds with some permission.
Why Choose Custodial Wallet?
While building mobile or web applications businesses look to add wallet functionality. However, often get confused about whether to choose a Custodial or Non–Custodial Wallet. In most cases, custodial wallets are selected for building projects because of the following reasons.
● Excellent User Experience:
Usually connecting an external wallet with an application becomes complex for a user. Hence, it affects the overall user experience. As a result, custodial wallets are preferred over non–custodial ones as they allow users to interact with digital coins even without connecting to an external wallet, app, or website. This makes the user experience more appealing and convenient.
● Suitable For All Customers:
Accessing the crypto wallet does not require users to be well–versed in any tech stack. As a result, it removes the hindrance and makes it convenient for less educated target customers to be a part of it too.
● Provides Control Over Funds:
The custodial wallets make it possible for platform owners to have control over the platform functionalities such as managing funds, their usage, deposit, and withdrawal.
How To Build A Custodial Wallet?
Building a custodial wallet require certain backend functionalities. Thus, the development process of a custodial wallet is defined using three logical groups. These logical groups are categorized as – Application Setup, New Users Registration, and User Application Journey.
● Application Set Up
This is the first step for the custodial wallet development and shall be done before launching the final version of the application. Thus, involves creating a blockchain wallet that would support creating system accounts for the wallet providers.
● Facilitating New User Registration
After configuration, the application is live and allows users to register and be a part of the ecosystem. After the users sign up for the application the ledger account gets created with the external ID of the customer. The external ID is the unique identifier for the platform users. Thus, while creating the accounts blockchain addresses shall be created. This process is termed the “ automatic synchronization” of blockchain transactions.
● User Application Journey
After signing up for the application the users shall be able to see the list of their accounts, transactions, and coins. Thus, the custodial wallets shall make navigation easier with all necessary functionalities that ensure a seamless application journey.
Important Functionalities Of The Custodial Wallet
The idea of a custodial wallet is built on some fundamental functionality that ultimately gives it the required framework. Some of the basic functionalities that are an essential part of a custodial wallet’s development process are as follows –
Authentication: The custodial wallet shall have an authentication module that would allow users to have an email and password for signing up for a wallet
Creating User Address: In the custodial wallet every user has a unique address. For every new login /user, the custodial wallet shall be able to create an address comprising –
● Secret Key
● Project Id
● Private Key
Thus, the developer shall ensure that this operation is performed for each blockchain even if the syntax varies for different blockchains.
Building KYC Norms: KYC ( Know Your Customer) is an undeniable feature of a custodial wallet. Although this isn’t a technical requirement but certainly a necessary legal compliance. The developers can create a custom KYC module for collecting data from users and verifying it from the Admin panel.
Facilitating Multifactor Authentication (MFA): The MFA feature enables the users to protect a few critical actions such as sending crypto coins to any address, account deletion, etc. And this can be done using – Google Authenticator and Mobile Number OTP.
Prepare The List Of Coins: Custodial Wallets shall be built on API functionalities and fetch all the currently active coins. For this, to happen the system shall prepare a list of these coins and list them on the admin panel. As a result, shall allow users to choose conveniently from the extended list of coins.
Allow Fund Analysis: After preparing the list of coins and linking it to the admin panel the custodian wallet shall also allow analyzing the quantity and price of the user’s holding. Alongside, while using more than one blockchain for developing a custodial wallet, data querying becomes important.
More transactional features: The custodial wallet shall facilitate depositing cryptocurrency for which a deposit addresses or QR code is the must–have. Alongside this, the API shall also allow fetching the transaction of any account (address). Furthermore, the developers shall create a transaction object and ensure that transactions are signed in the backend using the private key of the wallet.
Custodial Wallets are becoming immensely popular and require certain tech stacks to develop them. As a result, its important to partner with the Web 3.0 tech company and ensure that your vision for the custodial wallet is addressed effectively.