Custodial and non-custodial wallets are two different types of digital wallets that are used to store cryptocurrencies. Both types of wallets have their own distinguishing features and benefits, it's important to understand the difference between them in order to choose the appropriate wallet for use.
Custodial wallet: its benefits, drawbacks and risks
A custodial wallet is a form of wallet that has private keys stored by a third party that takes charge of security and management. Users don't have to concern themselves with the technical aspects of managing their finances, such as private keys or security protocols. Examples of custodial wallets: Coinbase, Binance, Kraken.
Benefits
➕ Custodial wallets are simpler and more practical to utilize.
➕ You don't have to concern yourself with maintaining your personal keys.
➕ Their additional services include customer support and security.
Drawbacks
➖ They must rely on a third party to keep your private keys safe.
➖ They may require a payment for their services.
➖ The complete procedure of KYC / AML is necessary.
➖ You are not in charge of all of your funds.
Risks
⛔ Your money can be lost if the provider is actually a fraud.
⛔ They're more susceptible to hackers, so it's possible that they will not be as safe as intended.
Custodial wallets have multiple benefits, but also involve certain risks. Obviously, these can be decreased by choosing a reputable security provider with extensive experience in safety and dependability. Whether you're a new user or an experienced investor, a custodial wallet is ideal for managing your digital assets.
Non-custodial wallet: its benefits, drawbacks and risks
A non-custodial wallet is a wallet that grants the user full access to their private keys. The user is solely responsible for maintaining their cryptocurrencies and safeguarding their private keys. Non-custodial wallets are often preferred by seasoned users who appreciate security and privacy. Examples of non-custodial wallets: MetaMask, MyEtherWallet, Exodus, Ledger Nano S.
Benefits
➕ They grant you complete control over your finances and personal keys.
➕ The KYC/AML procedures are not necessary.
➕ No fees are necessary for transactions.
Drawbacks
➖ They can be complicated to utilize.
➖ You must take charge of the safekeeping of your personal keys.
➖ They have a limited number of features.
Risks
⛔ The loss of funds if the private key is stolen.
⛔ Refund is not available if a mistake was committed during the transaction.
It's crucial for users to comprehend all the benefits, drawbacks and risks associated with a non-custodial wallet and take steps to safeguard their private keys. With the appropriate security precautions in place, non-custodial wallets can be a dependable and effective way to store and manage digital assets.
Which wallet is more beneficial?
To make an informed decision about which type of wallet to use, you must understand your own preferences and concerns. Those who enjoy having a simple, efficient method of payment can benefit from a custodial wallet. Users who enjoy more control over their finances can utilize a non-custodial wallet.
If you're still in the hunt for a wallet, we suggest beginning with Kolo. It's a multi-currency wallet that will help you manage your assets easily and safely.
Conclusion
It's crucial for users to recognize the distinction between a custodial and a non-custodial wallet in order to choose the one, which is most appropriate for them. Ultimately, the choice of wallet is dependent on factors like security, ease, and user experience.
