As society transitioned into the digital age, the custodial model was adapted to fit the needs of a rapidly expanding online world. Just as people entrusted banks with their money, they began to trust centralized institutions with their digital identities and personal information. The development of user authentication systems, such as usernames and passwords, further entrenched the custodial model.

These systems were inherently custodial because they placed the responsibility for safeguarding users’ digital identities in the hands of service providers. Users relied on these providers to store their passwords securely, manage their accounts, and protect their data from unauthorized access. This custodial approach to digital identity management mirrored the relationship between banks and their clients, where trust in the institution was paramount.