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Home » Blog » Custodial vs. Non-custodial Wallets: What is the Difference?
Guide & Crypto Education

Custodial vs. Non-custodial Wallets: What is the Difference?

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Last updated: 12/05/2024 2:09 PM
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Custodial vs. Non-custodial Wallets
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Cryptocurrency wallets come in two forms: custodial and non-custodial. Understanding the difference between the two is key to protecting your digital assets. 

Contents
  • What are Custodial Wallets?
  • Key Aspects of Non-Custodial Wallets
  • Best Non-Custodial Wallets

With the growing popularity of calculators –like BitKong’s BTC convertor–, exchanges, and wallets, it’s essential to understand the benefits and drawbacks of each type of wallet. 

In this blog post, we’ll cover the differences between custodial and non-custodial wallets, as well as the best non-custodial wallets available for those looking to store their digital assets securely.

What are Custodial Wallets?

Custodial wallets are cryptocurrency wallets controlled by a third-party company. These companies store the private keys of the wallet on behalf of the user and are responsible for the security and management of the held funds.

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Custodial wallets offer users convenience, as the third-party company is responsible for managing and securing funds, as well as facilitating transactions. They also often provide additional features and services, such as the ability to buy and sell cryptocurrencies and access to customer support.

The main disadvantage of custodial wallets is that users have less control over their funds than they would with a non-custodial wallet, where they hold the private keys themselves. There is also a greater risk of user data being compromised or stolen if the company is not taking the necessary security measures.

Key Aspects of Non-Custodial Wallets

Unlike custodial wallets, non-custodial wallets provide users with complete control over their funds and the responsibility of protecting their own assets. In addition to this benefit, non-custodial wallets also offer the following:

Security: The user is responsible for securing private keys and protecting them from loss or theft. This usually involves creating a backup of the private key and storing it in a safe place.

Privacy: Since the user holds the private keys, their transactions are less visible on the blockchain, and they have more control over their personal information.

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Decentralization: Non-custodial wallets tend to promote decentralization by giving users more control over their own assets.

Sovereignty: Because users are in control of their private keys, they can have full autonomy over their digital assets. They can transact, move and manage as they see fit.

Independence: Non-custodial wallets allows you to transact without needing to trust or rely on third parties. This can be beneficial in terms of security and privacy but also can limit the services and accessibility.

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Some examples of non-custodial wallets include hardware wallets, software wallets, and paper wallets.

Best Non-Custodial Wallets

Coinbase Wallet, Metamask, and Exodus are all popular non-custodial wallets that have distinct characteristics:

Coinbase Wallet:

It is a mobile wallet that allows users to store and manage a variety of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin.

It also allows users to interact with decentralized apps (dApps) on the Ethereum blockchain.

It offers a high level of security by storing the private keys on the device itself, and it also allows users to set up a passphrase and biometric authentication.

It is considered user-friendly, making it a good option for beginners.

Metamask:

It is a browser extension and mobile wallet that allows users to store and manage Ethereum and other ERC-20 tokens.

Allows users to interact with decentralized apps (dApps) on the Ethereum blockchain directly from their browser.

It uses seed phrases for recovery and restoration and allows setting a password for extra security.

It is considered a powerful and versatile option for intermediate and advanced users.

Exodus:

It is a desktop wallet that allows users to store and manage a wide variety of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin.

It has a built-in exchange feature that allows users to trade one cryptocurrency for another directly within the wallet.

It has a user-friendly interface and good design and visualization.

It uses seed phrase for recovery and restoration and allows bitcoin price after each halving set a password for extra security.

Suitable for intermediate and advanced users.

All three of these wallets are considered to be good options for non-custodial storage, with different characteristics and intended audiences.

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