Custodial vs Non-Custodial Wallets: Which is Safer?

Jake Aquilina
August 31, 2022

When it comes to cryptocurrency wallets, there are two main types: custodial and non-custodial. But which is the safer option? In this article, we will explore the pros and cons of each type of wallet, so you can make an informed decision about which is right for you.

What is a custodial wallet?

A custodial wallet is one that is held by a third party, such as an exchange or online wallet service. The advantage of this type of wallet is that it is very easy to use and can be accessed from anywhere in the world. However, the downside is that you are not in control of your private keys, and if the company that holds your wallet goes out of business, you could lose access to your funds.

The advantages of a custodial wallet

- Easy to use

- Accessible from anywhere

- Traditional security solutions like 2FA

The disadvantages of a custodial wallet

- Not in control of your private keys

- If the company goes out of business, you could lose access to your funds.

If you would like to make sure you are choosing a safe custodial wallet, make sure that they are backed by big names and have a good source of funding.

What is a non-custodial wallet?

A non-custodial wallet is one that you hold yourself, either on your computer or on a physical storage device, such as a USB drive. The advantage of this type of wallet is that you are in full control of your private keys, and your funds are much more secure. However, the downside is that non-custodial wallets can be tricky to set up and use, and if you lose your private keys, you will lose access to your funds.

The advantages of a non-custodial wallet

- In full control of your private keys

- Can be accessed offline

- More private

The disatvantages of a non-custodial wallet

- Can be tricky to set up and use.

- If you lose your private keys, you will lose access to your funds.

You must be aware, however, that even non-custodial wallets can get hacked. This can be seen with the recent Phantom wallet drains

How to choose the right wallet for you

So, which type of wallet is right for you? The answer depends on your needs and preferences. If security is your main concern, then a non-custodial wallet is the way to go. However, if convenience is more important to you, then a custodial wallet might be the better option. Whichever type of wallet you choose, just make sure that you do your research and only store small amounts of cryptocurrency in online wallets.

Our CEO, Rick Deacon, also had some comments to make on the use of custodial and non-custodial wallets. “Not all wallets are created equal but the most trusted custodial wallets, generally, are on exchanges like Coinbase, Gemini, and others. Many people also use TrustWallet or Metamask too,” he said.

“I would not endorse the use of any of these as secure, as it's always in flux. Use all with caution. Not your keys, not your crypto! When it comes to non-custodial wallets, I like Trezor, Ledger, and Grid,” Rick remarked. 

Deciding between a custodial or non-custodial wallet ultimately comes down to your needs and preferences. If security is your top priority, then a non-custodial wallet is the way to go. However, if convenience is more important, then a custodial wallet might be better suited for you. Ultimately, it’s important to do your research before choosing any type of cryptocurrency wallet.

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