You purchased cryptocurrency?! Great! Now, you need to focus on properly storing it. Storing your digital assets is an essential part of your crypto journey. To choose the best crypto wallet, you first need to understand the difference between them. There are two types of crypto wallets: custodial and non-custodial. This article will take a deeper look at what a non-custodial crypto wallet is, how it works, and the pros and cons of owning it. If you are interested in learning about a custodial wallet, please refer to the article called “What is a custodial crypto wallet?”.
A non-custodial wallet means that as a user you have full responsibility and control over the private key. As a reminder, a private key is a set of lengthy, randomly generated alphanumeric characters that consists of public address and private keys which are used as a way to give the ownership solely to you. To manage a non-custodial wallet the user needs to know the private key and seed phrase. A seed phrase is a unique set of words that can be used to restore your assets. Anyone can send funds but only the user who holds the corresponding private key and seed phrase can access. There are special devices that can be used to store your seed phrase such as Coinplate, CryptoSteel, or KeyStone Tablet. The biggest downside of using a non-custodial wallet is that if private keys and seed phrase (often called recovery phrase) are lost, it’s impossible to recover the digital assets. These wallets also offer more advanced features and are geared toward more tech-savvy users so if you are a beginner you may find yourself searching for answers.
The difference between custodial and non-custodial wallets
Before discussing the difference between a custodial and a non-custodial wallet, let’s take a look at the word “custodial” - it means in charge of or responsible for. This doesn’t mean someone is in charge of your funds or your account, it simply means that the user takes the sole responsibility for access to their funds. Custodial wallets are simple-to-use for newcomers and they provide a peace of mind that their access to their digital assets can be restored in case of loss. However, account verification or KYC is required to open an account, and they can be more vulnerable to hackers.
On the contrary, non-custodial wallets have more advanced features that can be difficult to decipher for beginners and if the private keys and/or seed phrase is lost and there is no way to recover assets. Yet, with a non-custodial private keys are not controlled by a third party.
Here’s an outline of the major advantages of owning a non-custodial crypto wallet:
Custodian of private keys - The user has sole ownership and access to own funds.
Safe storage of cryptocurrency - It is almost impossible to hack a standalone or hardware wallet. However, phishing attempts from scammers are always relevant so be vigilant and never share your passwords or seed phrases with anyone.
Offline accessibility - Users have the flexibility to make transactions without access to the internet. The transactions are completed once connection to the internet is established.
Transaction time - Users authenticate the translation in real-time, without having the need to wait for the approval of a centralised entity. This dramatically speeds up the process. As a bonus the cost of transactions is lower since there are no intermediaries to share a commission with.
Outline of the disadvantages of owning a non-custodial wallet.
Possible loss of access - You as a user are responsible for the fate of your funds. That is a big responsibility. If the recovery phrase is misplaced or misused, your digital assets could be lost forever.
Less than friendly interface - Depending on your technical background, you may find the wallet difficult to understand and not user friendly.
Finally, there is no right or wrong way to store your digital assets. Do your research and make a decision based on your needs. The best part is that the user has both to choose from.