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Custodial and Non-Custodial Wallet – Comparison

lnhngn 17/11/2021 12:55 372 views

Differences between custodial and non-custodial wallet?

Summary:

With a non-custodial wallet, you have full ownership of your private keys, which manage your cryptocurrency and prove the funds are a hundred percent yours. On the other hand, a custodial wallet, another party has access to your private keys. In addition, the majority of custodial wallets these days are web-based exchange wallets.

The Difference Between Custodial and Noncustodial Cryptocurrency Services –  Wallets Bitcoin News

Let us get into the details of each wallet so that it will be easier to recognise the difference between them both.

Non-custodial wallet: is a type of decentralized wallet where the customer owns the private keys of the wallet. The user receives a file with a passphrase and needs to write down an easy-to-remember phrase with which they will be able to recover their funds. 

Having the private key means you have full control over the funds. Sounds good, doesn’t it? But remember, full control over your money also means you’re solely responsible for your money. The password should be written down and maintained in a secure location only you know about. Furthermore, no one should ever have physical access to your non-custodial crypto wallet. Someone may drain your funds without your knowing if they figured out your PIN or password.

People that store significant amounts of cryptocurrency on exchange accounts may feel more comfortable with a non-custodial wallet, which removes the need for a third-party between you and your assets.

On the other hand, a custodial wallet is a wallet where the exchange keeps the private key of the customer and only gives you the public key (the wallet address – which you often use to transfer coins to each other). They keep the private keys of their users and keep them private from you or anyone else. Why do they do that? Is it to control your money?

In fact, supervision agencies strive to provide users with the most convenient way to store cryptocurrencies. Some wallets look for secure and customer-friendly solutions that can allow them to access their assets at the touch of a button. In addition, there are some custodial-specific features that can give them an edge over non-custodial wallets.

While a custodial wallet is less secure than a non-custodial wallet, many people prefer it because it requires less responsibility and is generally more handy. If you do not take adequate precautions, losing your password to a non-custodial wallet could be a financial disaster. However, It’s easy to restore access to your wallet. You don’t have to bother about an easy phrase to remember. Your account has been backed up by the company and can be retrieved via your email like on any other service. 

You may have heard the story of a guy who lost his hardware wallet with 7,500 Bitcoins before. With custodial services, you won’t have to deal with anything like that, even if you lose your phone or your laptop breaks. Your money can still be recovered if you accidentally damage your phone or forget your password.

These are couple of examples of custodial wallet and non-custodial wallet

Custodial wallet: Binance, Houbi, Bitmoon, Coinbase…

Non-custodial wallet: Metamask, Trustwallet, Myetherwallet, Blockchain.com…

Conclusion:

When it comes to safeguarding your cryptocurrency holdings, choosing between a custodial and non-custodial wallet is crucial. Some people prefer custodial exchange wallets, while others prefer non-custodial wallets, and yet others use both. 

You’ll also need to determine whether you want a hot or cold wallet, as well as whether you want to divide your cryptocurrency assets across many wallets. Whatever option you choose, make sure to follow the best security standards and requirements at all times.

So you decide for yourself which wallet to use for your convenience. Good luck.


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lnhngn

"Don't invest in what you don't know. Learn first then invest"