Cryptocurrencies along with their underlying technology, Blockchain gained a lot of momentum in the last few years.
While many are still figuring out ways to create the perfect Blockchain wallet and the cryptocurrency that is going to become the world’s single currency, others are focusing on choosing the right wallet for storing their crypto assets: custodial vs. non-custodial wallets .
But which one is the best among the two? Let’s see.
Custodial Crypto Wallets
A custodial crypto wallet is defined as a wallet in which the private keys are held by a third party. This means that the third party has full control over your funds while you only have their permission to send or receive payments.
Here’s how it works:
X (a third party) asks Y (user) to transfer their funds to a particular address / place, but X does not receive any private key to that storage address. The funding is managed entirely by the 3rd party, binding users with a condition that s/he cannot carry out transactions without their involvement.
- Control of your funds
The biggest problem with custodial wallet services is that you exercise no control over your wallet.
The third party has total control of your funds. They have the right to take actions on your funds, including freezing your wallet.
- Need for KYC
Another drawback of the introduction of the Custodial wallet is that this type of wallet strictly recommends KYC (Know Your Customer) verification. You cannot access your funds or any of the associated services without identify verification.
This completely undermines the fundamental principle of crypto – Anonymity.
- Data hacking
In the case of crypto exchanges, a major amount of funds is stored in hot and cold wallets. While these wallets may not be an easy target for hackers in 2020, they are still vulnerable to security breaches.
The biggest example is the fall of Mt. Gox, the famous Japanese crypto exchange, in 2014.
- No offline functionality
Finally, internet connectivity is essential to connect to Custodial wallets or to carry out any transaction.
Non-custodial Crypto Wallets
A simple explanation to what a non-custodial wallet is that it allows you to be your own bank. This implies that you have full control over your funds and its associated services.
Non-custodial crypto wallets offer many advantages. Here, let’s see:
- The user gets full control over their funds
The main reason why non-custodial wallets are gaining huge momentum is because they offer users total control over their funds. Users do not need to turn to a third party to manage their funding or perform any related activity.
- Funding security
Since the details of your non-custodial crypto wallet along with its funds are in your control, the risk of data breach is much lower.
- Instant withdrawals
Unlike custodial crypto wallet services, these wallets do not require confirmation from a third party to complete each transaction. This streamlines the entire process and facilitates instant withdrawals.
Regarding the drawbacks of non-custodial portfolios, nothing major can be emphasized.
Losing the private key may cause the user to lose access to their wallet, but now certain non-custodial wallets like BlockBanc have come up with features like “wallet backup and restore” which can help a lot in case of a loss in device, private key, or device malfunctioning.
A final word
It’s safe to say that non-custodial wallets are definitely the better option of the two for storing your cryptocurrencies. YOU and ONLY YOU have access to your Assets!
The BlockBanc app is a non-custodial wallet that supports simple backup and restore function along with secured fingerprint recognition and PIN unlocking technology. You can download the app here.
And, as always, DO NOT keep your cryptocurrency on the exchange. Better be safe than sorry!