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Custodial vs. Non-Custodial Wallets: Understanding the Difference Points

  • December 6, 2021
  • By MobileCoderz Technologies

The trend of buying cryptocurrency is on the rise! The popularity of cryptocurrency is growing and it’s becoming increasingly important to develop solutions that boost Blockchain technology use. The wallet is, of course, the most used application for every cryptocurrency owner. There are multiple wallets like mobile, web, paper wallets, and hardware. To make things easier they can be categorized into two major categories: Custodial Wallets as well as Non Custodial Wallets.

When you purchase cryptocurrency, you must choose and be sure of what you will pick, a custodial or non-custodial account to store money? Without understanding the distinctions between the two wallets you won’t be able to fully benefit from cryptocurrency technology.

Custodial vs Non Custodial Wallets

Now, let’s compare crypto wallets thoroughly. If you have a non custodial crypto wallet, you have sole possession of your keys which control your cryptocurrency to prove that the funds are yours.  Although there is no reason to trust a third party with a non-custodial account however this also means you are accountable for the safety of your keys.

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When you use a custodial wallet another person controls access to your personal keys. This means that you’re relying on a third party to protect your money and return it in the event that you need to trade or transfer it to another. A custodial wallet reduces the personal responsibility of the user. However, it also requires faith in the custodian who is responsible for your money and is typically an exchange for cryptocurrency.

The majority of custodial wallets today are online crypto wallets. The information here will aid you in choosing which is best for you.

Custodial Wallets: The Pros

  1. Cheaper Fees
  2. Dependability
  3. There’s no key to lose!
  4. Customer Support

Dependability: It’s the major reason why hot wallets exist. Custodial wallets have tokens that are readily accessible for trade and use.

Cheaper: Custodial wallets can be described as digital wallets that are provided by central third parties similar to exchanges. This is why they are typically powered by services and do not require other expenses.

There are no keys to lose: In the Custodial vs Non Custodial Wallets security is a big concern. For the majority of them, you are able to reset your passwords or verify your identity in order to access your account if you lose it.

Customer Service: Custodial wallets also offer additional customer support to resolve any issue users face. 

Non-Custodial Wallets: Pros

  1. Lower Chance of Data Hacks/Breach
  2. Instant Withdrawals
  3. Full Control – Special Keys/Seed Phrase
  4. Always Accessible
  • Special Keys/Seed Phrase: Nobody else can access your passwords. Nobody else can use your cash without your personal keys. Not the wallet service, not the authorities, and certainly not the banks. You simply have to authorize each transaction and charge you incur.
  • Lower Probability of Data Hacks/Breach: Everybody is a possible victim of hackers as every person is a possible victim of theft. However, having a single wallet that has a small number of coins decreases the chance that you will be targeted by hackers. Since security is a must, so here in the Custodial vs Non Custodial Wallets Comparison, the first one wins.
  • Instant Withdrawals: Being in complete control means that you’re able to move your tokens anytime without any pre-set delay period set by third-party companies.
  • Non-Internet Reliant

You can access local cold wallets without an internet connection, although you might not be able to transact. However, you will be able to see the number of tokens you have and be assured that they are secure.

Difference Between Custodial and Non Custodial Wallets

Now let’s outline some major differences between the two wallets for the technology.

1. Custodians of Private Keys

The first most important thing to think about when comparing Custodial vs Non Custodial Wallets is who has keys to the private key.

In Custodial wallets, a third party handles its private keys. In the case of wallet non custodial all the blockchain app development services are managed by customers. 

In case you’re planning to create the possibility of a wallet that lets users have their own bank account taken then go for non-custodial blockchain wallets. You can hire the best Blockchain app developers from reputed companies.

2. Type of Transaction

Another aspect to be considered when making a Custodial vs Non Custodial Wallets evaluation is “Transaction Type”.

The transaction is recorded onto the blockchain app development apps in real-time non-custodial wallets. However, the case is not the same in Custodial wallets.

3. Security

For cryptocurrency wallets that are custodial, all sensitive data of users is stored in both cold and hot storage. And this is often hacked by data thieves. Due to this, the security level is not high for custodial accounts, unless the authority implements robust security measures.

However, in the non-custodial comparison of crypto wallets, all information is with the user. This decreases the chance of theft of information unless the user shares their information with someone else or their device is stolen. So, choose the best crypto wallets companies as per your preference.

And we believe, this time Non-Custodial takes the victory.

4. Recovery and Backup Options

With regards to the possibility of backup and recovery, the Non Custodial crypto wallet actually lags behind. 

The Custodial wallets store the private key on their own. Hence, if you lose data cess, you can still regain access by asking from a third party.

But, this isn’t feasible in the case of non-custodial accounts where your authority is solely with you.

5. Offline Access

To see your account balance and the associated information, it is essential to log into the Custodial wallet. Then users need to request an application to a central authority. This is why it is essential that you have internet access to enjoy the best wallet for cryptocurrency.

However, there isn’t a need for non-custodial wallets. 

6. Future Scope

According to the market trends, non custodial crypto wallets will continue to gain an advantage over Custodial. This is because of the rising instances of data breaches and users becoming more conscious of their privacy and security of data. 

7. Examples

A few of the most popular examples of the top Custodial wallets include Binance, Free Wallet, Bitgo, BitMex And the best part? You get the best Blockchain app developers globally. 

Custodial vs Non Custodial Wallets – Which is Better

The choice between a custodial and non-custodial wallet relies on the goals you want with your funds and the level of desired security and comfort.

If you’re someone who’s not comfortable in the computer world and is only curious about financial properties, then a custodial account won’t be any big deal. It’s probably best to entrust an outside company to ensure that you don’t wind up losing all of your investment. As you choose an authorized, reliable company to store your funds, you’re not likely to have any problems.

If you’re intrigued by the cypherpunk ethos that recognizes the need to be accountable for your own cryptocurrency assets, choose a Non-Custodial wallets. This will let you conduct transactions in a permissive way and give you full charge of the transactions you make with your cryptocurrency.

Are Custodial Wallets Considered Unsafe?

Custodial wallets have an awful reputation however they’ve gained more respect over the past couple of years. In the beginning, there was less regulation regarding cryptocurrency or Bitcoin custodians. It resulted in the loss of many customers’ funds to hackers, or simply taking the cash away.

Nowadays, there are many regulated, reliable, trustworthy, and insured companies who will hold your Bitcoin on behalf of you. You might even get an income from the value of your Bitcoin in a way similar to traditional banking.

However, if you’re proficient enough in computers, then managing yourself and your personal cryptocurrency accounts is the best option.

The Crypto industry is on the rise and so is the competition. For the best Blockchain app development & crypto exchange platform, you must look for the best web and mobile app development companies. An established Android and Blockchain app development company MobileCoderz is a fine pick for anyone. The services range from app development to deployment in the market. All in all, crypto, Blockchain & the rise of the app industry all are intertwined with one another.

Ending Thoughts

The choice between Custodial vs Non Custodial Wallets is a crucial choice in safeguarding your cryptocurrency accounts. Some prefer a custodial account for exchange and others prefer non-custodial accounts, and some opt for a mix of both. It is also important to determine whether you’d prefer a hot or cold wallet and if you want to distribute your cryptocurrency assets across different crypto wallets.

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MobileCoderz Technologies

MobileCoderz has established itself as the first choice of small and medium-sized businesses in the mobility space within a short span of time. We have a young & talented team of mobile strategists, UX/UI designers, and App Developers.We have a client base that spreads across emerging startups to small & medium size Business across the globe. MobileCoderz has helped in the development of World Class mobile apps for 500+ clients, collaborating with its team of 120+ nerds.

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2 responses to “Custodial vs. Non-Custodial Wallets: Understanding the Difference Points”

  1. Naveen says:

    Thank you so much for sharing the information. It’s really very helpful. keep it up Rowthautos

  2. Naveen says:

    Wow, Such a great Blog. Thanks for the information keep it up.

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