As you explore our platform, you might hear terms like "custodial wallet" and "non-custodial wallet." This article explains what these terms mean and how they relate to your experience on Binance.US.
What is a custodial wallet?
When you buy, sell, or store cryptocurrency using your Binance.US account, you are utilizing what's known as a custodial wallet. Think of it this way: just like a traditional bank holds your funds in an account, Binance.US securely holds and manages the digital assets in your Binance.US wallet on your behalf.
What are the benefits of using a custodial wallet like your Binance.US wallet?
Convenience: Our platform is designed to be user-friendly, making it easy to buy, sell, trade, and manage your crypto directly within your account. You don't need to worry about complex setups or managing intricate security measures.
Ease of Transactions: Sending and receiving crypto within the Binance.US ecosystem is easier and often faster than non-custodial wallets.
Account Recovery: If you forget your password or lose access to your two-factor authentication (2FA), our support team has established procedures to help you recover access to your account.
Security Measures: Binance.US invests in security infrastructure and protocols to protect the assets held within our platform.
What does "custodial" mean in this context?
The term "custodial" simply means that Binance.US holds the private keys associated with your cryptocurrency. Private keys are like the secret codes that allow you to access and control your digital assets on the blockchain. By holding these keys for you, we handle the technical complexities of securing them.
Important Note: While we take extensive measures to protect your assets, it's crucial for you to also practice good security habits, such as using strong, unique passwords and enabling two-factor authentication.
Beyond Binance.US: Exploring non-custodial wallets
Outside of Binance.US, you might encounter the term "non-custodial wallet." Non-custodial wallets are different because they give you complete control over your private keys.
Full Control: With a non-custodial wallet, you are the sole custodian of your private keys. This means you have direct and exclusive control over your cryptocurrency.
Increased Responsibility: This full control comes with the responsibility of securing your private keys and recovery phrases (a series of words that can restore your wallet if you lose access). If you lose these, there's typically no way to recover your funds.
Examples: Non-custodial wallets can come in various forms, such as software wallets (mobile or desktop apps like Trust Wallet or MetaMask), hardware wallets (physical devices like Ledger or Trezor), and even paper wallets.
Why might someone use a non-custodial wallet?
Users often choose non-custodial wallets for:
Self-Sovereignty: The principle of having complete control over their assets without relying on a third party.
Direct Interaction with Decentralized Applications (dApps): Some dApps require connecting directly to a non-custodial wallet.
Long-Term Cold Storage: Hardware wallets, a type of non-custodial wallet, are often used for storing large amounts of cryptocurrency offline for enhanced security.
Custodial wallets and deposit memos:
You might notice that when depositing certain tokens like XRP to your Binance.US wallet, we require you to include a memo (sometimes referred to as a Destination Tag). This is a crucial piece of information that ensures your deposit is correctly credited to your specific Binance.US account.
For certain cryptocurrencies like XRP, Binance.US, like many other exchanges, utilizes a limited number of main deposit addresses to manage numerous user accounts efficiently.
The memo acts as a unique identifier that tells our system which specific Binance.US user the incoming transaction belongs to. Think of the main deposit address as a large office building, and the memo is like your apartment number within that building. Without it, the system wouldn't know which account to credit.
Requiring memos for certain cryptocurrencies is a standard practice across many custodial exchanges to accurately manage a high volume of transactions for a large user base.
For more information about deposit memos on Binance.US, see here.
Binance.US and your choices
While your primary interactions on Binance.US will be through your custodial wallet, we believe in empowering our users with knowledge about the broader crypto ecosystem. Understanding the difference between custodial and non-custodial wallets is a key step in your crypto journey.
For activities on our exchange, your Binance.US custodial wallet provides a secure and convenient solution. As you become more familiar with cryptocurrency, you might explore non-custodial options for specific needs like interacting with dApps or long-term storage.