Crypto is spreading like wildfire, with an exponential increase in people who are excited to embrace this digital currency. However, this technology is still in its infancy. Are you aware that crypto wallets can be kept by yourself or can be entrusted to someone else to hold them for you? There are various digital wallets available in the market, but things can be challenging if you don't know which one to select. In this article, discover two possible ways to keep your cryptocurrency secure and safe.
Custodial Wallets
Custodial Wallets-what exactly is it all about? Before leaping into custodial wallets, it is important to be acquainted with the crypto wallet. As a layman, you must assume it is a wallet containing funds. On the contrary, you must know it includes a private key instead of the user's funds. This key allows them to set up the transactions that are authorized.
Custodial Wallets refer to the authorization of the third party or a custodian to hold the custody of the crypto assets. They are viable for managing, controlling, and protecting user transactions.
Certainly, this type of wallet is made available by crypto exchanges or custodial wallet providers in the form of an app. After the user's login to their wallet account, the wallet provider interface is leveraged to operate their funds and transactions.
This is only possible when the user trusts the service provider to store their tokens securely. Before choosing this wallet, ensure they implement robust security measures to prevent unauthorized threats. It must include two-factor authentication, email confirmation, and biometric authentication.
Examples of custodial wallets:
The top 5 custodial crypto wallets you must know in 2023 are as follows:-
- Cobo wallet
- Freewallet
- Bakkt
- BitGo
- Venly Wallet
Non-custodial wallets
Non-custodial, also known as self-custody wallets, defines the power of the crypto owner to solely have the control of managing their funds. This means the user needs to handle their private keys independently.
Non-custodial wallets are in multiple forms: browser-based, mobile, and hardware.
This wallet offers a backup recovery mechanism with a seed phrase. As and when the user creates the wallet, he/she will be asked to pen down or keep the set of 12 random words. Any user with these key phrases will gain access to the funds available in the wallet. For instance, seed, recovery, and mnemonic phrases.
The user is solely responsible for sending or completing the transactions. Users must use their private keys to perform the transactions.
Examples of Non-custodial wallets:
The top 5 Non-custodial crypto wallets you must know in 2023 are as follows:-
- MetaMask
- Exodus
- Coinbase Wallet
- Trust Wallet
- Ledger Nano S Plus
The key difference between:- Custodial vs. Non-Custodial Wallets
Custodial wallets
Control & access of the private key is with the third party or the custodian.
In custodial wallets, the funds are securely stored online. Moreover, it depends upon the mechanism of the custodian.
Recovery access is possible in the case of the user losing the password of their wallet.
It is user-friendly, and using a custodial wallet does not require profound knowledge about blockchain.
Private keys are accessible only online
Non-custodial wallets
Users solely have access & control of their private key.
Users have the power to secure their private keys.
In the case of a custodial wallet, if the user forgets the password, there is no chance of recovering the funds.
On the other hand, it is less user-friendly and is suitable for experienced crypto users.
Private keys are available both offline as well as online
Conclusion— Which one to choose? Custodial wallet or Non-custodial wallet
Both wallets have their advantages and disadvantages. A custodial wallet is the right choice for those looking for ease of use and a reliable backup recovery option. In contrast, Non-custodial wallets are suitable for one seeking complete control and ownership over their private keys. Ultimately, it depends on the users to choose the one which is best for their use.
