Hosted Wallet Definition
A hosted wallet, also known as a custodial wallet, is a type of cryptocurrency wallet where private keys are kept and managed by a third-party. This is akin to banks holding your money on your behalf, so you don’t have to carry around physical cash.
Hosted Wallet Key Points
- A hosted wallet is offered by a third party that maintains control of your private keys.
- It provides convenience as it handles security, backup, and other technical issues for you.
- However, it also creates a risk because you personally don’t control the private keys to your cryptocurrency assets.
What is a Hosted Wallet?
The hosted wallet, commonly provided by cryptocurrency exchanges or other financial service providers, provides a platform for users to store, send, and receive digital assets. Due to the nature of its service, the user does not have direct control over the private keys of their cryptocurrencies, which are the security codes required to access the owned digital assets.
Why use a Hosted Wallet?
Using a hosted wallet provides convenience and ease of use to users, particularly those who are not technologically savvy or do not want to go through the complexity of handling the secure storage of their private keys. It provides an all-in-one service, including security measures, backup processes, and handling of technical issues. Although, it is essential to remember that due to the nature of its architecture, if a user loses their login credentials to the hosted wallet, they may entirely lose access to their assets.
Where to use a Hosted Wallet?
Hosted wallets can be used anywhere, as long as you have access to the internet. They are primarily used on cryptocurrency exchanges where users trade digital assets. Additionally, they are also used on platforms providing financial services, such as lending and staking.
Who uses a Hosted Wallet?
Hosted wallets are mainly used by beginner cryptocurrency users who appreciate the simplicity and convenience they offer, as well as by those who do not have the time or technical knowledge to handle their private keys securely.
How does a Hosted Wallet work?
In a hosted wallet, the third party controls the private keys, which are the necessary credentials to access and manage your owned digital assets on a blockchain. The provider gives services like seamless transaction processing, backup facilities, recovery services, and security measures to protect your assets. It’s worth noting that because the provider holds the private keys, they theoretically have full control over your stored cryptocurrencies.
