- For crypto users, security and ease of access are both quite significant.
- It’s essential to choose an appropriate wallet that could provide befitting solutions.
Cryptocurrency is gaining more exposure and attention from institutional and retail investors. That’s because the world is slowly opening up to the possibilities of decentralization. As a result, people’s interest in digital asset storage solutions is also growing. Custodial and non-custodial wallets have emerged as two major crypto holders and organizers lately. The usage of these terms is quite noticeable in the crypto circles. However, its knowledge remains limited among the new crypto owners.
Custodial vs. Non-Custodial Wallet: Which One to Choose?
To clearly understand both concepts, it’s important to go through them individually. Be
Custodial Wallet
A custodial wallet brings in a third party that safeguards the private keys. So whenever the users want to access the assets, they must ask the custodian. It does seem a bit off in terms of convenience, but it recompenses with security.
Non-Custodial Wallet
This one does not have any third entity in the picture. The wallet owner has total control of their funds and private keys.
The most significant difference between them is the custody of private keys. Still, there are some more aspects that the users must know. The non-custodial wallets display on-chain transactions in real time. On the other hand, the custodial ones keep them undisclosed. It reveals them only at the behest of the users.
The custodial and non-custodial crypto wallets keep the data in hot and cold storage. Due to this, the information remains vulnerable to cyber miscreants. The former implements robust security measures to safeguard the users’ data and charges customers for it. But in the case of the latter, the users must rely on the standard security the blockchain network provides.
Mainly, the custodial wallets provide backup and recovery options. They already keep the private key and rule out any chances of data loss/theft. Despite all that, they have a mechanism for retrieving the data if it happens. Non-custodial wallets don’t offer any such facilities on this front.
Both wallets require online connectivity to provide access to funds. After knowing the distinguished factors, it’s time to learn the pros and cons.
Notable Pros of Custodial Wallet
No Fee: Custodial wallets don’t charge a fee to execute the transactions. As long as users make them within the ecosystem, they’re free.
No Loss of Assets- With a backup system in place, custodial wallets help recover lost assets, too.
Concerning Pros of Custodial Wallets
Third-Party Intervention: This particular factor defies the whole idea of cryptocurrency straightaway.
Mandatory KYC: This means that users will have to share their valuable credentials with a third person.
Noteworthy Pros of Non-Custodial Wallets
Users’ Total Control: Users get total control over the usage and storage of their assets.
Instant Withdrawals: The users of custodial wallets can withdraw their assets instantly without any third-party intervention.
Worrisome Cons of Non-Custodial Wallets
Lack of Backup: Non-custodial wallets deprive their users of any backup facility. So, if their key is lost, they lose access to assets for good.
More Vigilance: Since the users handle everything, they must be extra careful about their assets.
Choosing between could be a hard choice for many crypto holders. However, non-custodial could be better for beginners with a small portfolio. Later on, when they require more safety and back, they can switch to another. Choosing between the two could be confusing for many without proper knowledge. So, hopefully, the potential wallet users will know which one to pick.