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What is the Difference Between Custodial and Non Custodial Wallets?

Today in the phase of Crypto Currency, many users wonder where they store their crypto currency. There are basically two types of wallets, where they can store their crypto currency i.e. custodial and non-custodial wallets. Custodial wallet is a wallet which has the private key to your wallet and it also holds your assets in custody like Binance custody. But, if you use non-custodial wallet, then you have the complete control to your assets like MetaMask and Binance Chain Wallet. The user must have the crypto wallet, if they want to make transaction or trade on the online exchange. In this blog, you will read the difference between custodial and non-custodial wallet.

How Crypto Wallets Works?

Crypto wallet allows the user to interact with blockchain network. With this, they can send and receive cryptocurrencies and can access decentralized applications (DApps). Crypto wallet has two main components, one is public key and other is private key. If the user wants to send crypto to your address or wants to make transaction to your addresses, then they will have your wallet’s public key. And the user can share their wallet addresses and public key with others. Keep in mind you should keep your private key as confidential password, as it gives access to your funds. You should keep your private key safe, so that you can access your crypto from any device. The keys are printed on a piece of paper and can access through desktop wallet software or the user can store it offline in hardware wallet devices.

What is Custodial Crypto Wallet?

Custodial crypto wallet is the one where third-party held your assets in custody for you and also manages your private keys on your behalf. This means you don’t have full control over your funds and you can only give permission to send and receive payments.

What is Non-Custodial Crypto Wallets?

In Non-custodial crypto wallet, holder or users have the full control over the private keys. In this, there are no intermediaries and the user can trade crypto directly from their wallets. It is best for experienced traders and investors, as they can manage and protect their private keys.

Difference Between Custodial and Non-Custodial Wallets:

  1. Custody of Private Key: In both, the Custodial and non-custodial wallets who have the custody of private key. In Custodial wallets, third party manages your private key. And in Non-Custodial wallets, the users have the custody of their own private key and they also manage the blockchain custodian services. In short, in Non-Custodial blockchain wallets users become their own bank.
  2. Security: In custodial crypto wallets, the sensitive user data is stored in hot and cold storage but it can be hacked by hackers. So, the security level is low in custodial wallets. But in Non-Custodial crypto wallet, the user has the access to their sensitive information and this reduces the risk of data gets stolen. There is a risk, if the user shares their details with anybody or if their device gets stolen.
  3. Recovery of Funds: In case, of Custodial wallets third party keeps the private key with themselves. Hence, if you lose the data, then you can again regain the access to data by requesting to third party. But in Non-Custodial wallets, if you lose your private keys then you cannot access the data.
  4. Offline Accessibility: If you want to access your funds or data, then in custodial wallet it is necessary to login into your Custodial wallet or you can make a request to centralized authority. For this, you should have internet connectivity. But, in Non-Custodial wallets there is no requirement of Internet. Hence, a Non-Custodial wallet is the best option if you want to enjoy blockchain development services in real-time.
  5. User Friendliness: Experienced traders use custodial wallets like Binance, Coinbase etc. Web-based custodial wallets provide user-friendly interfaces. In Custodial wallets, the users can trade on different online exchanges without any issues. In non-custodial wallets, users themselves have to move their assets between different exchanges. Non-custodial wallets do not provide an internet connection. Hence, you will face issues while carrying out transactions in non-custodial wallets.

This is the difference between custodial and non-custodial wallet. To know more about Crypto Currency wallets, subscribe to our site.



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