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The custodial wallets are the crypto wallets where your funds or data are in the possession of a third party. It means that the information submitted by you in the crypto wallet has access to the third party. Banks are a great example of custodial wallets which can access your funds or data. In custodial wallets, the private key of a wallet owner will be in the hands of another party. So, you may think that what are the private keys?
As the name suggests, private keys are the secret keys that are responsible for sending cryptocurrencies to another party. It is just like your ATM pin that should be entered to verify that the specific person is an authorized owner or not. If you lost your private key, you can recover it by requesting it from a third party. This feature makes it unique from the other available wallets. As the demand for custodial wallets increases, it upgrades the functionality by including other services such as staking, investing, etc.
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These wallets reduce the responsibilities of wallet owners as most of the tasks are controlled by the custodian. These services are offered by centralized businesses such as cryptocurrency exchanges. If a user wants to send the cryptocurrencies to a specific wallet holder, the first thing they need to perform is to simply log in to the platform by inputting a username and password. Next, input the public key of the location where they want to send the crypto. To complete the transaction, the specific institution will be responsible for inputting the private key.
Role of blockchain in crypto wallets
Blockchain technology unlocks endless possibilities to bring the crypto world to a peak point. It offers various innovative solutions to renovate the traditional approaches and resolves the issues faced by crypto users. The market of blockchain technology is immense as it defines various standards in the crypto industry. The innovative idea and potential of blockchain technology make it unique from other platforms in such a way that it securely stores information. You can consider it a promising and revolutionary technology preferred by most organizations for their growth. The adoption of blockchain technology offers innovative solutions that rely on the principle of consensus, decentralization, and cryptography. There is no doubt about the benefits of the blockchain and its role in global industries, but blockchain users also faced several issues concerning the privacy of the blockchain.
Types of Custodial Wallets:
Hot Wallets: Hot wallets are one of the best crypto wallets that are always connected to the internet. These wallets provide an efficient platform where a user can store, send, and receive digital assets offering impressive security. It also uses the concept of public and private keys to perform the transaction within the crypto wallet.
As these wallets are online wallets, it stores your private keys on the server which is not considered a safer method because attackers can steal your funds by attacking the server. Therefore, many experts don’t prefer hot wallets to store crypto assets for long-term investment. You can consider it as an interface that provides access to cryptocurrency. There are varieties of hot wallets available in the market but extracting the best ones can be a tedious task for you. Each hot wallet has its specifications, features, and security measures, you need to ensure that the specific wallet fulfills your desired needs.
Security issues of Hot Wallets:
- Security breaches due to ongoing storage of private keys on the internet.
- Online spoofing, message interception, can occur, etc.
- PIN Code Hacking
- Brute force attacks can be performed by attackers to find the PIN of the wallet owner. In this attack, several possible combinations of the PIN are generated to extract the exact one.
- Bad Links: It is also an attack performed by many intruders to steal funds from the crypto wallet. In this attack, intruders send fake links to the crypto owners and when they click on them, they will redirect them to the malicious websites. These websites can directly transfer your funds or data to hackers. This is called a Homoglyph attack. It also becomes the reason to inject various Trojans into your system such as Mekito.
Mobile Wallets: Mobile wallets are virtual wallets that are mainly used to store payment card information on your mobile such as credit card numbers, debit card numbers, etc. Many experts consider it a reliable tool for payment purposes as it provides efficient security to crypto users. Most of the in-store payments are performed by wallets. Some of the top mobile wallets are Google Pay, Apple Pay, and Samsung Pay. The introduction of these wallets renovates the crypto industry by manipulating traditional methodologies.
This innovative wallet uses the encryption algorithm for storing the information of the crypto user. This feature makes the process difficult for hackers to perform any fraudulent activities on your digital assets. It completely changed the traditional scenario used in the crypto wallets where the physical credit and debit cards were used; these are not safe because they can be stolen or duplicated.
The NFC (Near-Field Communication) technology is used in these wallets which makes them capable of communicating between devices. It uses QR codes, keys, or another personal identification format to send the payment to the destination holder.
Author Bio: Stephen Hellwig has established himself as a guiding force in the fast-growing blockchain industry and a powerful advocate of decentralized technology. He has also served as a speaker at several high-profile blockchain events
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