Custodial vs. Non-Custodial Wallet: All You Need to Know

The number of crypto users continues to surge big time. Once you buy, you have to choose a suitable wallet to secure your crypto holding. While both custodial and non-custodial wallets serve a similar purpose of storage, they have different functionalities.

In this article, we highlight a few basics about custodial and non-custodial wallets that you need to know.

A Custodial Wallet

Custodial wallets are mostly used by crypto exchanges where you may not have control over your private keys. In this case, the platform has full control of your funds and the only actions you can understand is sending and receiving payments.

The main undoing about this type of wallet is that your account can easily be suspended where you can lose your entire investment. However, you can choose this type of wallet if it suits your investment needs.

 Non-Custodial   Wallet

Noncustodial wallets give you total control over your crypto portfolio. The blockchain wallet lets you manage your private key and funds. Unlike custodial wallets where your funds are in the hands of a third party, a non-custodial wallet gives you ownership of your crypto wallet.

Difference between custodial and non-custodial wallets

Custodian of the Private Key

A key factor that distinguishes custodial wallets from non-custodial is the custodian of the private key.

As such, if you choose to use a custodial wallet, you won’t have control over your wallet since that will be under the full control of a third party. This is contrary to non-custodial wallets that let users manage their private keys.

Depending on your investment needs, you can leverage non-custodial wallets to not only secure your investment but also manage your crypto portfolio.

Type of Transaction

Another element that distinguishes custodial from a non-custodial wallet is the type of transaction. While transactions done on non-custodial wallets are reflected on the chain in real-time, the same doesn’t apply in custodial wallets.

Security custodial wallets money is stored online which exposes your investment to hacking. As such, custodial wallets can easily be compromised which may lead to loss of your investment. Unless the owners of the platform implement better security features, the security of custodial wallets cannot be reliable.

On the contrary, non-custodial wallets are less risky since users have total control over their crypto holdings. This reduces the chances of being hacked unless the owner exposes private data to third parties.

Back up and Recovery Capabilities

As far as data recovery is concerned, custodial wallets rank better than non-custodial since. Unlike in custodial where a third party can help you recover your private keys, non-custodial users may not be able to recover their crypto holdings should they lose their private keys.

Accessibility offline.

Offline accessibility is another key element that differentiates the two types of crypto wallets. Unlike in a custodial wallet where you have to request permission to access your funds, such requirements do not apply in non-custodial wallets.

Therefore, non-custodial wallets are a perfect option if you need total control over your crypto holdings. Another key undoing about custodial wallets is that you must have an internet connection to access your funds. This makes it challenging for users in places where a stable internet connection is a problem.

Future Prospects

In terms of ranking non-custodial wallets will always have an edge over custodial due to an array of shortcomings associated with using the wallet. Other factors that are pushing people away from custodial wallets are data breach challenges associated with custodial wallets. 

Despite being used by the majority of exchanges; custodial wallets pose a serious risk to crypto investors since all your investment is controlled by a central authority. Should they opt to suspend your account under the pretence of suspected suspicious then you may never have an option but bid good bey to your entire crypto holdings. It is against this backdrop that many investors now prefer non-custodial wallets to secure their investment. To invest in bitcoins, you can try Auto-trading software

Conclusion

If you need a highly secure crypto wallet then non-custodial is a perfect option. Even though it may be challenging to recover your investment should you lose your private keys, non-custodial wallets are way better than custodial.

Whether you are planning to invest in crypto or store your crypto holdings on crypto exchanges, it’s high time you consider using a non-custodial wallet to secure your investment.

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