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

You should not construe any such information or other material as legal, tax, investment, financial, cyber-security, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation. Not sure whether to keep your own crypto key or let someone else hold it for you? Let’s explore their differences so you can learn when to use one type or the other.

Remember that the same tokens may be available on multiple blockchains under different networks. However, you’re solely responsible for your seed phrase and private keys’ security when using these wallets. When researching custodial wallet providers, ensure they’re regulated, and learn how your private keys are stored and whether there is insurance coverage. Furthermore, certain governments have completely banned the use of custodial wallets for completing transactions for users in certain areas. In times of political unrest, this means that governments have more power to restrict movement of funds in custodial wallets. For example, during the Canadian trucker protest in early 2022, the government ordered a freeze on the crypto assets of the protestors held in custodial wallets.

Conclusion — Custodial or Non-Custodial Wallet: Which to Choose

These service providers will almost always require identity verification (KYC). You will also have to worry about losing your funds if this third-party provider is hacked. With custodial wallets, users have to completely rely on a third party custodian for storing their private key. If the third party does not have strong security measures, the user is at risk of losing their funds.

A self-custodial wallet is a type of cryptocurrency wallet where the user has complete control over their private keys and the storage of their digital assets. It’s considered the most secure type of wallet because the user does not rely on any third-party service. Non-custodial crypto wallet holders have sovereign control over their private keys, and therefore control their funds completely. They don’t need to trust a third party exchange to properly manage their assets. A non-custodial wallet is a wallet in which you are responsible for storing and managing your private keys. Instead of third parties like crypto exchanges having custodial access, you have full control over your digital assets.

Public and Private Crypto Wallet Keys

How you safeguard and access that vault depends on the type of wallet you choose. While it may be a simpler option, users need to note that they are exposed to the risk of exploitation or hacks that the wallet provider might suffer. There have been several hacking cases, including loss of funds held in custody. You do not need to worry how does one go about becoming an introducing broker about forgetting your key, and even if you misplace your password, you can always request that the CEX or wallet provider recovers your account.

Customer Support

These wallets often offer seamless integration with dApps, expanding your opportunities in the crypto space. That means you can directly interact with various blockchain applications from your wallet. MoonPay also makes it easy to sell crypto when you decide it’s time to cash out. Simply enter the amount of the token you’d like to sell and enter the details where you want to receive your funds.

Examples of non-custodial wallets include Metamask, what is etherium BitPay, Trust Wallet, Ledger Nano X, Trezor One, Zengo, Edge, Electrum, Exodus, Wasabi, and Phantom. Some examples of custodial wallets are Binance, Free Wallet, BitMex, and Bitgo. 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. Some wallets also offer the option of storing and transferring NFTs, which are non-fungible tokens issued on a blockchain. Remember that whether you use a custodial or non-custodial wallet, you should always be cautious and follow best practices to protect your funds. Some wallets also allow you to store and transfer non-fungible tokens (NFTs) issued on a blockchain.

But this phrase should be guarded just as carefully as your private key, because anyone with the seed phrase will be able to access the account. What this all boils down to is the biggest downside of non-custodial wallets. If you somehow lose your private key, your wallet and your seed phrase, there will be no way to recover your funds. For custodial crypto wallets, the wallet provider is tasked with securely storing the user’s private key. Instead, the custodian directly handles the funds, and in some cases may misuse them.

As the name suggests, a custodial crypto wallet is one where your assets are held in custody for you. This means a third party will hold and manage your private keys on your behalf. In other words, you won’t have full control over your funds – nor the ability to sign transactions. If you’ve ever used Bitcoin or other cryptocurrencies, you know that having a digital wallet is essential. You will need one if you want to make transactions, trade on a crypto exchange, or use blockchain applications.

Custodial wallets are nearly always web-based, and are usually provided by centralized crypto exchanges like Coinbase. 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 how to buy ufo gaming coin having to manage their private key themselves is a big benefit.

Please note that the availability of the products and services on the Crypto.com App is subject to jurisdictional limitations. Crypto.com may not offer certain products, features and/or services on the Crypto.com App in certain jurisdictions due to potential or actual regulatory restrictions. The purpose of this website is solely to display information regarding the products and services available on the Crypto.com App.

A liquidity crisis like the one at Celsius could also jeopardize investor funds. And since custodial wallets cannot operate offline, they are more prone to hacks and online theft. Users need to complete Know Your Customer (KYC) and Anti Money Laundering (AML) forms for security and regulatory compliance. With a custodial wallet, every transaction requires approval from the central exchange. The transaction history is also not recorded on the underlying blockchain in real-time, and transaction costs are typically higher due to the involvement of custodians and other intermediaries. We answer your questions around custodial and non-custodial wallet types and how to choose the one that’s best for your crypto needs.

1. But regardless of the wallet type, you will always have either a custodial or a non-custodial crypto wallet.
2. A beautiful feature of cryptocurrency is that each user is free to decide how to hold crypto for themselves.
3. Without a third-party guardian, non-custodial wallets offer full control over your keys and funds.
4. Non-custodial wallets, also known as self-custody wallets, are digital wallets that allow individuals to store and manage their digital assets securely.

This is a public-facing data point like your home address and is used to receive inbound cryptocurrencies and encrypt outbound transaction data. When depositing crypto into a wallet, you simply input the public key as the deposit address. This is similar to using your handle in a service such as Venmo or CashApp. MetaMask, Trust Wallet, and MathWallet are non-custodial wallets that accept the most common and popular crypto assets.

For crypto users seeking the freedom offered by a non-custodial wallet there are a number of trusted providers in addition to BitPay Wallet. Some of these include Trust Wallet, Electrum, Exodus, Edge Wallet, Blockchain.com and MetaMask. In the event that you do lose access to your non-custodial wallet, the first thing you should do is reach out to the wallet’s support team. If the wallet’s support team is unable to help you, you can try reaching out to the blockchain’s support team. And if all else fails, you can try contacting the exchanges where you purchased your cryptocurrency. Non-custodial wallet users directly authenticate transactions without involving centralized entities, so they’re usually faster.