Non-custodial wallets and custodial wallets are two types of digital wallets that are used to store and manage cryptocurrencies. The main difference between the two is who has control over the private keys associated with the wallet.
Non-custodial wallets are digital wallets in which the user holds their own private keys. This means that the user has full control over their cryptocurrencies and no third party has access to them. Non-custodial wallets are considered to be more secure than custodial wallets because the user is the only one with access to their private keys, which are needed to access and manage the cryptocurrencies stored in the wallet. Examples of non-custodial wallets include hardware wallets and software wallets that are installed on a user's device.
On the other hand, custodial wallets are digital wallets in which a third party, such as an exchange or a bank, holds the user's private keys. This means that the user does not have full control over their cryptocurrencies, as the third party has access to them and can potentially block or freeze the user's access to their assets. While custodial wallets may be more convenient for some users, they are generally considered to be less secure than non-custodial wallets, as the user is relying on the security practices of the third party to protect their assets. Examples of custodial wallets include online exchanges and web wallets.
It's important for users to carefully consider the security and control implications of different types of wallets when choosing a wallet to store and manage their cryptocurrencies.