Custodial vs. Non-Custodial Wallets: Which Is Right for You?

Creating a crypto wallet is the first step to effectively and securely managing your assets. In this article, we discuss custodial vs. non-custodial wallets, their benefits, and the difference between non-custodial wallets vs custodial wallets.

Custodial Wallets

A custodial wallet is a type of cryptocurrency wallet that has its own "keeper"- a third party, such as a cryptocurrency exchange or wallet service provider. This party is fully responsible for protecting your funds in this electronic storage space for crypto. So, your digital assets' essential private keys for access and control are kept by a trustworthy service provider.

While using a custodial vs non-custodial wallet, the user trusts the wallet provider to safeguard and manage cryptocurrency holdings, and facilitate transactions. In addition, on Cryptomus, we have custodial wallets to score and manage your assets. We securely store keys from users' wallets and provide full support when working with our ecosystem.

How does it work?

When you create an account with a custodial wallet on Cryptomus, you effectively establish it to store your cryptocurrencies. You also provide responsibility for retaining the private key, so Cryptomus has the ultimate control and monitoring of your crypto assets.

If you want to make a transaction or receive payment using a custodial wallet, you need to submit the request within the wallet. Subsequently, the wallet executes the transaction on your behalf by utilizing its private keys.

What are the benefits?

• Third-party control.

In custodial wallets vs non-custodial wallets, the third party controls the private keys associated with all the user's crypto assets. Private keys are necessary to access and manage the funds, and they must be protected from potential hacker attacks. Choose the wallet provider carefully in order to fully trust it with the security and management of your funds.

• Convenience and customer support.

Compared to a non-custodial wallet, a custodial one is more user-friendly. It makes it genuinely suitable, especially for crypto beginners or for people who like simplified and easy-to-use interfaces. Typically, the wallet providers that offer setting up a custodial wallet also offer a high level of customer support, which will always help to find solutions if there are any problems.

• Account recovery.

Many custodial vs non-custodial wallets often provide recovery options in case users forget their passwords or lose access to their accounts. These options can include identity verification or other methods. In such cases, you may also contact customer support to resolve the problem and regain access.

• Identity Verification.

If you want to use a custodial crypto wallet, you will likely have to pass identity verification and meet know-your-customer (KYC) requirements.

It's crucial for users of custodial wallets to carefully and attentively choose reputable and trusted providers. Also, pay close attention to the service's terms and conditions regarding any fees and withdrawal limits.

Non-custodial Wallets

A non-custodial cryptocurrency wallet is a wallet in which the user has complete control over their private keys and the security of their cryptocurrency holdings. It's the best option for scoring crypto savings for those who want to have complete control and who are ready to safeguard, monitor, and check all the transactions.

How does it work?

While using the non-custodial wallet, all transaction processing is performed directly through the wallet app, and no one else is involved. You need to use your private keys and confirm transactions by proving wallet asset ownership.

What are the benefits?

• Ownership and full user control.

In non-custodial vs custodial wallets users have full ownership and control over their cryptocurrency holdings, allowing them to send, receive, and manage their assets. With the support of the wallet, there is no third party, and the users manage, check, and secure their private keys and cryptocurrency holdings by themselves.They are particularly suitable for long-term investors and those who value self-reliance in the cryptocurrency space.

• Recovery option.

It's essential to know about recovery options provided by non-custodial wallets. This process typically requires a recovery or seed phrase of 12 or 24 words. In problematic cases, this phrase helps you regain access to your private keys if you lose access to your wallet. It's vital to protect this seed phrase and make regular backups of the wallet in case of loss, theft, or damage to the primary device.

• Offline storage options.

Non-custodial wallets include options for offline or hardware wallets, which provide an additional layer of security by keeping private keys physically disconnected from the internet.

What is the Difference between Custodial vs. Non-Custodial Wallets?

Custodial vs non-custodial crypto wallet: what to choose? Here are the key differences between custodial and non-custodial ones:

• Control and security responsibility.

In custodial wallet vs non-custodial one there is a wallet provider that acts as a third party and takes care of many aspects such as security and control over the private keys, managing and tracking of transactions.

In a non-custodial one, there is no such third-party option. The users have full ownership and control of their assets and decide for themselves how to generate store holdings, what security measures to take, and how to manage and track their savings in the best way.

• Recovery option.

Some custodial wallets offer account recovery options in case you forget your password or lose access to your account. This means you may have to rely on the wallet provider to recover your account.

In non-custodial wallets vs custodial ones, users are responsible for storing and securing private keys and savings. To avoid further complications, you should regularly backup your wallet.

• User privacy and verification.

Initially, to start using a custodial wallet, you will need to pass the identity verification and meet the know-your-customer (KYC) requirements.

Non-custodial wallets typically prioritize user privacy, so they don't require users to pass identity verification or provide personal information to use the wallet.

Custodial vs Non-custodial wallet? We hope that this article will help you to make the right choice. Analyze your priorities and choose the wallet you prefer the most with Cryptomus!