An unhosted wallet, also known as a self-custodial or non-custodial wallet, is a software application or hardware device that grants the user sole control over their cryptographic private keys and, consequently, their digital assets. Unlike hosted wallets managed by third-party services, users bear full responsibility for the security and recovery of their funds. This provides direct ownership and autonomy over assets.
Context
Unhosted wallets are central to the ethos of decentralization in the digital asset world, offering users direct sovereignty over their funds without reliance on intermediaries. However, they also place the burden of security entirely on the user, with lost private keys leading to permanent asset loss. Regulatory discussions often focus on how to apply anti-money laundering rules to transactions involving unhosted wallets, presenting ongoing challenges for policymakers and industry participants.
The Treasury's withdrawal of the unhosted wallet NPRM eliminates a significant, technically infeasible KYC burden, de-risking the self-custody sector and affirming a path for decentralized finance.
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