What Are Custodial Wallets - Know More About It
Several project ideas are emerging in the blockchain domain, proving that blockchain has a much-extended scope than merely being a technology behind cryptocurrencies. One such popular business model is "Cryptocurrency Wallets" or "Blockchain Wallets". Precisely, Custodial or Non–Custodial Wallets are the major wallet categories in Blockchain. However, Custodial Wallets are making a big buzz in the cryptocurrency and blockchain ecosystem.
What Are Custodial Wallets?
A custodial wallet is a type of blockchain wallet where a third party also has access to the private keys. The private key provides full access and control to third parties over the funds. As a result, it facilitates sending or receiving payments. In custodial wallets, the private keys are responsible for safeguarding the users' funds as only the private key holders are solely responsible for protecting the holdings.
Features of Custodial Wallets
Custodial Wallets are usually web-based applications that are designed so that users do not have to directly interact with their wallets. Thus, the platform provides user –friendliness which acts as the convenience factor by not having to manage their respective private keys on their own. With custodial wallets, users can have peace of mind and stay less worried about the key.
This type of wallet allows users to reset passwords with few security questions or this makes funds recoverable even if the key gets lost. Alongside this, the user can initiate the transaction through their platform of choice and further select the wallet address for sending funds. As a result, the custodian of the private key in the given case is tasked to "sign "the transactions using the private key for completing the transactions. Moreover, custodial wallets are generally easier to connect with DApps. Hence, create better financial opportunities for staking or yield farming.
Furthermore, connecting an external wallet with an application is not always simpler and also affects the User Experience. However, this concern can be addressed with the help of a custodial wallet. Moreover, the less educated target customer can find comfort in using custodial wallets as they are less complex and easy to adopt. The custodial wallet's owners have control over the usage/deposit/withdrawal of funds.
Functionalities For Developing Custodial Wallets
Developing the custodial wallets requires following the below steps:
● Authenticating the user credentials
● Creating wallet addresses
● Fulfilling KYC norms
● Facilitating Multifactor Authentication (MFA)
● Prepare the Coin list
● Data querying
● Obtaining Deposit Address
● Option for transacting cryptocurrency
Are Custodial Wallets Safe?
Custodial wallets are considered less secure than the non – custodial wallets. However, many people prefer custodial wallets as they require lesser formalities and are more convenient. Theft is becoming a major concern for custodian wallets as private key holders are the contagious targets of hackers.
As a result, using a custodial wallet requires a great deal of trust in the associated institution. This part of the process requires inquiring about the institution and ensuring that they are trusted and reliable regulators.
The increasing hype for blockchain, metaverse, cryptocurrencies, and NFT has created the demand for Web 3.0 projects. As a result, unique and interesting projects are gaining the attention of crypto enthusiasts. The custodian wallet is one such category of business that business owners are looking forward to due to its simplicity for the end users.