Non-Custodial vs Custodial Wallets: What’s the Difference?

Funds drained from a crypto wallet are gone forever — unless the thief decides to return them. Every bitcoin public address is between 26 and 35 alphanumeric characters in length. Generally, a username and password (and an internet-connected device) are all that are required to manage crypto assets in a custodial wallet. Outsourcing your wallet custody means that you are giving away access to your own set https://www.xcritical.com/ of private keys. In short, the user is not responsible for protecting their private key to their wallet, as they already have placed their trust in a business into keeping their assets safe. However, many CEXs also offer non-custodial wallet solutions, such as Binance Chain Wallet, Coinbase Wallet and Crypto.com DeFi Wallet.

XDEFI Wallet – Best non-custodial wallet for NFTs

It’s therefore crucial that you follow what is non custodial wallet best practices to ensure the maximum security of your funds. People may opt to use paper wallets as an alternative to hardware wallets. So, it goes without saying that you should keep your seed phrase safe, as anyone who knows your seed phrase can access your wallet and steal your funds.

What is a Non-Custodial Wallet in Crypto

There are different blockchain networks running various types of cryptocurrencies. We can classify these types by their token standards, but keep in mind that we may have the same tokens running on multiple blockchains under different standards. For example, you can find BNB as a BEP-20 on the BNB Smart Chain, but also as a BEP-2 token on the BNB Beacon Chain.

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I’m a technical author and blockchain enthusiast who has been in love with crypto since 2020. Explore step-by-step instructions on adding and monitoring different cryptocurrencies within your portfolio. Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Jackson Wood is a portfolio manager at Freedom Day Solutions, where he manages the crypto strategy.

Are Hardware Wallets Always Non-Custodial?

Most exchanges’ interfaces are designed so users never even have to directly interact with their wallets. This user-friendliness means custodial wallets are generally preferred by newcomers, to whom the convenience factor of not having to manage their private key themselves is a big benefit. Imagine having a vault that only you hold the key to—this is essentially what a non-custodial wallet offers. Non-custodial wallets are cryptocurrency wallets that give you full control over your private keys, which means you have complete ownership and responsibility for your digital assets. While non-custodial wallets don’t require you to trust a third party, they require you to trust yourself to keep your keys and your wallet secure.

Trust Wallet – Great Self-Custody Wallet for Multiple Networks

Typically, you will have generated a sequential string of 12, 18 or 24 words that is displayed upon setting up your crypto wallet. Custodial wallets are considered a low-entry barrier for those new to the crypto space since they are easy to use and can be accessed from any device with an internet connection. Crypto veterans will tell you that if you don’t have the private keys, the coins inside your wallet are not yours.

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You can use a non-custodial wallet to store crypto assets like coins, tokens, and NFTs. Moreover, most software wallets are available for Windows, macOS, Linux, Android, and iOS devices. You have the option to protect your stored NFTs and cryptocurrencies using a password. In addition, you can use the seed phrase to recover your wallet if your device gets stolen or damaged. With over 60 million users, Trust Wallet is one of the most secure software wallets. In addition, this wallet is owned and managed by the largest crypto exchange, Binance.

• If you are someone who is not good with computers and is simply interested in Bitcoin for its monetary properties (the 21 million cap), then using a custodial wallet won’t be that big of a deal.
• With non-custodial wallets, a crypto user has complete control over their private key, along with their funds.
• Security features like multisig and optional key encryption offer peace of mind that your digital assets are safe.
• Just like you wouldn’t want a stranger having your front door key, you don’t want anyone to possess your private key.
• Most — but not all — web-based crypto wallets are custodial wallets, and it’s very likely that the first time you purchase crypto, it will end up in a custodial exchange crypto wallet.

When FTX abruptly collapsed, users around the globe found they could no longer withdraw assets from the crypto exchange. Bankruptcy filings revealed FTX had up to $50 billion in liabilities and it’s unclear just what assets remain. You’ll need to consider a number of factors like whether you’d like to use a software or hardware wallet as well as which features you’d like your non-custodial wallet to have.

MetaMask – Best Non-Custodial Wallet for Ethereum

People generally understand that crypto wallets are used to store cryptocurrencies and execute transactions on a blockchain network. Choosing between a custodial and non-custodial wallet depends on how you want to secure your cryptocurrency. If you have just started trading crypto, a custodial wallet might be the right fit as it protects your assets while you gain some experience.

Some paper wallets also provide users the option to generate wallet addresses in an offline ecosystem, ensuring that the key pairs are never exposed to any online activity. If you are someone who is not good with computers and is simply interested in Bitcoin for its monetary properties (the 21 million cap), then using a custodial wallet won’t be that big of a deal. It is important to note that the adoption of non-custodial wallets is not a binary choice. With smart regulation, non-custodial wallets can work both independently and as a complement to the existing financial system.

No assets that were staked via Ledger Live — without third-party software — were impacted. The Trezor Model T gets our pick for best hard wallet overall wallet because it’s both secure, dynamic and feature-rich. To get started, simply buy cryptocurrency via MoonPay using your credit card or any other preferred payment method. (You can also download the app for your Android or iOS device and follow the same process from Step 4). Arthur Crowson is an award-winning writer and editor who hails from the Pacific Northwest. His career began in traditional news media but he transitioned to online media in the mid-2000s and has written extensively about the online poker boom and the rise of cryptocurrency.

Our information is based on independent research and may differ from what you see from a financial institution or service provider. When comparing offers or services, verify relevant information with the institution or provider’s site. Coinbase offers both custodial and non-custodial wallets to its customers. No user’s hardware wallet has ever been successfully hacked, but research has proven that there have been hackable flaws in the designs of some earlier iterations of hardware wallets.

Custodial wallets tend to offer convenient solutions for those who are unfamiliar with the technicalities of self-custody. When using a custodial wallet, the loss of private keys resulting in a loss of funds is not an issue. Even if you forget your password, lose your phone, or your computer breaks, you can usually contact somebody at the relevant exchange to recover your account. When purchasing cryptocurrencies from a crypto exchange, you’ll need some sort of crypto wallet for holding your assets. Also, a crypto wallet is essential for interacting with blockchains and executing orders.