Custodial is one of the most common practices in cryptocurrency exchanges and wallets where private keys are required in order to open customers' funds. Even though the owners hold full control over their cryptocurrencies. Without the owner's key, no other person can open the funds stored in their address.
Many people consider managing their own wallets, this is where custodial wallets come in. Custodial wallets take over the client's management of private keys. Then allows them to access their funds seamlessly via a simple login setup.
A centralized cryptocurrency exchange is yet another type of custodial service which plays a pivotal role. These services allow clients to deposit cryptocurrency funds directly onto their exchange account. Although these services are efficient and promote ease of use, they also come with custodial risks while storing their customers' funds in one place.