Non-custodial wallets are becoming more popular among cryptocurrency enthusiasts. These wallets facilitate complete control over your digital assets without necessitating the assistance of a third party. Below, we'll discuss all the benefits, downsides and risks of a non-custodial wallet.
The distinction between a non-custodial and a custodial wallet.
Let's begin with the primary concern: how does a non-custodial wallet differ from a custodial wallet?
As an example, a non-custodial wallet is a crypto wallet where you keep your private keys yourself. You have full control over your finances, and don't rely on a third party to supervise them. A custodial wallet is a cryptocurrency wallet that is maintained by a third party service provider and stores your private keys on behalf of you. In this instance, the third party has control over your finances, and you must depend on them to preserve your finances.
Why are non-custodial wallets increasing in popularity?
Non-custodial wallets provide greater security and privacy because the user is the single point of access to their funds. Additionally, non-custodial wallets are often less expensive and more transparent than custodial wallets.
However, these aren't all the benefits of a non-custodial wallet.
Benefits of non-custodial wallets
✅ Increased control over the funds by the user.
Earlier, we mentioned that non-custodial wallets grant users full control over their finances and private keys, this means that they do not need to rely on a third party to keep their assets or manage their finances. This facilitates the management of funds as individuals prefer and decreases the probability of having funds lost due to third-party error or hacking.
✅ Increased privacy
Custodial wallets necessitate users to complete a KYC process and provide personal information. Non-custodial wallets don't require this information, which makes them more attractive to utilize, because the lack of personal information makes it difficult for hackers or other third parties to access user assets.
✅ Safety and decreased probability of hacking or theft
Since non-custodial wallets don't have user funds stored on centralized servers, they are less susceptible to hacking or theft. Additionally, hackers need to have access to a user's private keys in order to steal their money. If the user takes the necessary steps to safeguard their keys, the likelihood of being hacked is greatly reduced.
Downsides of non-custodial wallets
Of course, alongside the benefits, there will be drawbacks associated with non-custodial wallets.
❌ Self-regarding management of personal keys
One of the most significant drawbacks of non-custodial wallets is the requirement to manage the private keys. If a user is unable to recall their private key, they may lose access to their funds permanently. Users should take extra precautions to ensure that their private keys are safely stored and not divulged to anyone.
❌ Possible human error
Since users are responsible for managing their finances, any errors they make can have significant results. For instance, if a user funds are sent to the wrong address, it will be difficult to reverse the transaction. If the user forgot his private key or lost access to it, he will not be able to retrieve his funds.
❌ Limited customer support
Non-custodial wallets often have limited customer support compared to other types of wallets. Because there is no central entity responsible for managing user funds, there is no one to go to for assistance if something goes wrong. Some non-custodial wallet providers may have customer support, but this is not entirely helpful.
The most popular non-custodial wallets
MetaMask
MetaMask is a non-custodial wallet that enables users to store, manage, and interact with various cryptocurrencies and decentralized applications (dApps) on the Ethereum blockchain. It's accessible as an extension for browsers (like Chrome and Firefox) as well as a mobile app for iOS and Android devices.
Ledger Nano S
Ledger Nano S is a physical wallet that stores your personal keys offline, which is considered one of the most safeguarded options. It facilitates more than 1,000 different cryptocurrencies, and has a user-friendly interface.
Trezor
Trezor is another leading hardware wallet that provides exceptional security features, including two-factor authentication and support for multiple signatures. It also supports different cryptocurrencies and has a user-friendly interface.
Exodus
Exodus is a desktop wallet that supports over 100 different cryptocurrencies and has a built-in function for exchanging them. It also has a clear and understandable interface, which facilitates the use of beginners.
These are just a few of the most popular non-custodial wallets that have their own distinguishing features and benefits. When selecting a wallet, it's important to consider factors like security, ease of use, and the specific cryptocurrencies you want to utilize.
Conclusion
Despite the fact that non-custodial wallets have a few disadvantages, they still remain popular among people who enjoy having control over their finances. It's crucial for users to research the benefits and drawbacks of each type of wallet before deciding on one.
