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Custodial Vs Non Custodial Wallet

Custodial Vs Non Custodial Wallet: Know The Best Option

Buying a digital currency is a rage and once you have bought digital currency, you should plan and ensure what to select, a custodial or a non custodial wallet. To begin with, you will first need to know what they are and how they are different from each other. So in this article, we will do a comparison of custodial vs non custodial wallet. 

The business model that has developed as an ideal one are the digital currency wallets. But the confusion of the entrepreneurs does not end at evaluating the “ideal” business structure which blends both crypto and blockchain ideally. 

While various individuals are debating on blockchain beyond digital currencies, how to formulate a blockchain wallet, and which digital currency will become the single currency across the globe, many others are aiming at selecting the ideal wallet as each custody of private key: custodial vs non custodial wallet comparison. But before we start, here are some custodial vs non custodial wallet examples that include Freewallet in case of custodial wallet and Ledger Nano X in case of non custodial wallet. 

Custodial Vs Non Custodial Wallet: An Overview

Before we start with the comparison of custodial vs non custodial wallets, let us understand about these wallets in a bit more detail. 

Custodial Wallet

The custodial wallet is a crypto wallet where the private keys are held by any third party. This implies that the third party has complete access to your crypto funds while you only have to provide access to receive or send payments. The best non custodial wallet is Coinomi. 

Advantages Of Custodial Wallets

Here are some of the benefits to consider custodial wallets for keeping your crypto funds. 

  • Free transactions

One of the biggest advantages of using a custodial wallet is that, unlike other crypto wallets, this wallet does not charge any transaction fee. It allows its users to perform transactions for free. An ideal example is the Freewallet

  • No Big Effects Of Lost Private Keys

Since in a custodial wallet, a third party holds your private keys and gives you the access to avail your wallet for transactions, even if you lose your private keys, that won’t be a big deal as you can get the keys from the intermediaries that hold your keys. 

  • Higher Possibility Of Backup

Another benefit of a custodial wallet is the ease at which backup can be taken. The custodial wallets keep the private key with themselves. So, even if the user loses the access to their data, they can regain the access by requesting the third party involved. 

Disadvantages Of Custodial Wallets

Now let us have a look at some of the drawbacks of a custodial wallet. 

  • Custodian’s Control Over Your Money

The biggest drawback of choosing Custodial digital currency services is that the user does not have autonomy over their wallet.

The intermediary, i.e, the custodian, has full control over the funds of the user and associated processes. They have the liberty to take action on the funds that involve freezing the stored amount.

  • Need For KYC

Another disadvantage of introducing a Custodial wallet for catering to your services is that this wallet type highly suggests users to opt for KYC (Know Your Customer, ID Verification). You cannot get access to your crypto funds or any of the associated services without proving your identity. This foundation of identifying verification obstructs the basic principle of digital currency, and that is anonymity. 

  • Threat To Data Breach

The first time you buy crypto, it is likely that it will buy a custodial exchange online crypto wallet.

In the scenario of Custodial crypto exchanges, a big amount of users’ funds is kept in hot and cold wallets. While these wallets may not be a convenient target for hackers because of the association of several conformations, they are still exposed to security breaches.

Non Custodial Wallet

On the other hand, non custodial wallets are a form of blockchain wallet that allows you to be your own bank. This indicates that the user has complete control over their cryptos and in the related private keys. Some examples of non-custodial wallets include Ledger, Exodus, etc. Among them Ledger and tops in the best non custodial wallet list.

Advantages Of Non Custodial Wallet

Here are some of the benefits to consider non custodial wallets for keeping your crypto funds. 

  • Control Of Users Over Their 

The main reason why you should choose non custodial over custodial wallet is that you will get complete access to your funds and there will be no involvement of any third party. So it is always a better and safer option for your cryptos. 

  • Safety In Funding

Since all the credentials related to your online cryptocurrency wallet and its funds depend on you, the chance of a data breach is much lower. This is among the primary reasons why 66.5 percent of crypto holders are depending on non-custodial and mobile storage solutions these days.

  • Instant Withdrawal

Unlike the Custodial wallets, the non custodial wallets do not require a confirmation from any third party for doing each transaction. This streamlines the complete process and makes it more convenient to enjoy instant withdrawals.

Disadvantages Of Non Custodial Wallets

Now let us have a look at some of the drawbacks of non custodial wallet. 

  • Trade Delay

It will be difficult to trade the currency fast, as in the case of noncustodial it will basically be sent to an exchange.

  • More Responsibility

Being accountable for your own security implies a lot of responsibility. Even the smallest of mistakes could lead to deletion, robbery, or unplanned results.

  • Keys Lost Equals Money Lost

On the off chance that your key is lost and seed phrase, there will not be anyone to assist you in restoring your data or wallet. Losing a mnemonic seed or private key can make the user lose the access to their wallet, with no recovery and backup possibility.

Custodial Vs Non Custodial Wallet: The Comparison

Now that you have known what exactly a custodial and a non custodial wallet is, let us start with the comparison of custodial vs non custodial wallets in detail. 

Custodian of the private key

The primary factor to take into account when doing a comparison on custodial vs non custodial wallet is who has the access to the private keys. In the case of custodial wallets, the intermediary or third party handles your private keys. On the contrary, in the case of a non custodial wallet, you have complete access to your private keys. So in case, you wish to bring in a wallet where customers can be their own bank, proceed with the concept of formulating non custodial blockchain wallets that are also known as self custodial wallets. 

Type Of Transaction

Another factor to take into account during the comparison of custodial vs non custodial wallet is the type of transaction. The transaction is portrayed on the blockchain in real time in non custodial mode. But that is not the case in custodial wallets. This again proves that the former led the path. 

Security

This is one of the most important features to consider when you are choosing any wallet and that is its security. In the case of custodial wallets, all the sensitive data of the user is kept in cold and hot storage. Because of this, there is a low level of security, unless strong security measures are implemented by the authoritative party. 

On the contrary, in the case of non custodial wallet comparison, the whole data stays with the users. This decreases the risk of data getting hacked or stolen unless the data are shared by the user itself. So again, the non-custodial wallet wins the battle. 

Possibility Of Recovery And Backup

When we talk about recovery and backup, non custodial wallets or self custodial wallets stay behind the custodial wallets. The custodial wallets keep the private key with themselves. So, even if the user loses the access to their data, they can regain the access by requesting the third party involved. However, this cannot be done in the case of non custodial wallets, where the user is the sole authority. 

Offline Accessibility

To avail the funding of the users and corresponding information, it is mandatory to login into your Custodial wallet and creates a request to a centralized authority. This enables it to have internet connectivity.

But, there is no such need in the case of Non-Custodial wallets. This, in return, illustrates that Non-Custodial wallets are a better choice to enjoy complete blockchain development services in real-time.

Future Scope

According to the crypto marketing trends, non custodial wallets will prevail to receive an edge over the custodial wallet because of the evolving cases of data breaches and consumers turning more aware of their data security and privacy. 

Final Thoughts

The providers of custodial wallets are famous as they have effective UI, but their numbers are still low as users demand more authority over their own crypto wallets and funds.

The ideal non-custodial wallet 2021 is accepted by more people as the users have complete control over the funds, but with having complete control also comes great responsibility. The basic distinction between a custodial vs non custodial wallet is that in a custodial wallet the private key is kept by an intermediary or a third party and in non-custodial, consumers are themselves accountable and in complete control of their assets. There are many who wonder is ledger a non custodial wallet, to them, yes, Ledger is very much a non custodial wallet that is completely decentralized. But still, before you plan to invest in any of these wallets, it is always advised to do your own research and then get into it.


Frequently Asked Questions On Custodial Vs Non Custodial Wallet

1.  What is difference between custodial and non custodial wallet?

The basic variation between a Custodial Vs Non-custodial wallet is that in case of custodial the private key is kept by a third party and in non-custodial, users are themselves accountable and in complete control of their assets.

2. Is Coinbase a custodial or non custodial wallet?

Coinbase Wallet is a non-custodial, user-controlled item. The app develops a 12 word recovery phrase which is what offers you, and only you, access to your account to move received resources.

3. Are non custodial wallets safe?

Since all the credentials related to your online cryptocurrency wallet and its funds depend on you, the chance of a data breach is much lower. This is among the primary reasons why 66.5 percent of crypto holders are depending on non-custodial and mobile storage solutions these days.

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