For any crypto trader or HODLER knowing the difference between custodial and non-custodial wallets is of utmost importance. In layman terms, in a non-custodial wallet, an investor will have his own private keys, which is basically the password to his wallet. So, the custody of your holdings lies with him.
While in the case of a custodial wallet, the keys of the wallet lie with the company. For example, if your coins are held in your Binance wallet, the keys to the wallet are with the exchange. And to be honest, they can do anything they want, and you can’t do jack about it. So, trust plays a very important role in this case.
Benefits of non-custodial wallets
If you have a huge amount of crypto holdings, then a non-custodial wallet is the best option. Having a very large number of coins in an exchange can be dangerous, and a mishap can result in you losing all your funds. Do note that even if you trust the exchange, a hack, malware or some other 3rd party issue can result in you losing access. There are a lot of recent cases where owners of exchanges have run away with the funds of the users on their platform.
Just yesterday, I wrote about two South African brothers who are nowhere to be found. They used to run an exchange in Africa, which is now shut down after investors lost $3.6 billion worth of bitcoin. The brothers have allegedly run away with the amount.
A non-custodial wallet can be in the form of a software and hardware wallet. In both cases, you need to keep the private keys of your wallet safe. But I would say it is best to go for a hardware wallet if you have a huge amount of funds. In such wallets, you need to sign in while offline and connect to a smartphone or computer for the transaction. This is why even while connected, your holdings are safe.
What is the best option for you?
Do you remember the incident when a person lost access to over $200 million of Bitcoin as he lost his password? This is the risk associated with non-custodial wallets. If you lose things easily or forget passwords, this is probably not for you. You can also go for custodial wallets that are very popular. For example, Binance & Coinbase are some apps that we often associate with crypto.
Another way to keep your holdings a little more secure while in custodial wallets is to distribute them over different platforms. If you choose 3-5 platforms and distribute your holdings, you don’t lose everything even if a platform is compromised.
What are your thoughts on custodial and non-custodial wallets? And which one do you use to store your holdings? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.