CVC Hosted vs. Unhosted

Can someone, in layman's terms, explain to me the difference between hosted and non-hosted wallet when it comes to bitcoin and other CVC?? I have read a couple of articles, and while they give you the definitions of these terms (hosted-custodial products and services offered by financial intermediaries; unhosted-software that enables individuals to hold and use crypto assets on their personal devices.) I am not understanding where these apply to the bank. We have customers that purchase/sell bitcoin through websites. Would these transactions be considered hosted wallets? What are the implications of the new proposed rulemaking with reporting of certain transactions involving CVC or digital assets with legal tender status (LTDA). Thank you!

I hosted wallet would be a a wallet that I access through a virtual currency exchange (which FinCEN defines as an MSB). One of the most commonly used virtual currency exchanges is Coinbase.

An unhosted wallet would be an encrypted wallet that I install on my laptop, flash drive, mobile phone, etc. that is not connected to an exchange.

Unless your institution is offering hosted wallets as a service to your customers, this rule won't impact you at all. The OCC issued comments on national banks providing hosted wallets as an option. I don't have any of my clients that do.

https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-125.html

Thank you BrianC! I appreciate your helpful illustrations and link to the news release.