The comparisons between custodian and non custodian wallets have come to be one that brings new light on which wallet type is more efficient to be used. Though as a cryptocurrency investor you can not dwell only on one, but it is good to know when and how to use them, the pro and cons in the market as well as their security.

helloinvestors,
Today we are going to be looking at the comparisons of the custodian and non custodian wallets in the crypto world. To know which to use and how safe there are. But first lets know what crypto wallet is.

What is a crypto wallet?

A crypto wallet allows users to transfer and store cryptocurrencies, including Bitcoin. They come in many forms, from hardware wallets like Ledger (which looks like a USB stick) to mobile apps like Coinbase Wallet, which makes using crypto as easy as shopping with a credit card online.
Every wallet has a private key. Crypto users who hold their own private keys and make transactions using their wallets have for all intents and purposes become their own bank..

Public vs private key
A crypto wallet consists of both private and public keys. The private key is kept secret by the wallet owner (and holder of the cryptocurreny). A public key is gleaned from the private key and is the address used to send crypto to the wallet.

Custodial Wallets

According to infostride, a custodial wallet is a type of cryptocurrency wallet that is managed by a third party. In this case, the third party takes custody of the user’s cryptocurrency, and the user does not have control over their private keys. This means that the third party is responsible for securing the user’s cryptocurrency and ensuring that it is safe. It’s worth noting that the essence of cryptocurrency lies in having complete control and ownership of your money. However, custodial crypto wallets undermine this fundamental aspect, as they involve relinquishing control of your funds to a third party. This goes against the decentralized nature of digital currencies and can diminish the investment appeal.

When using a custodial wallet, you essentially entrust the security of your funds to another individual or entity. While reputable custodial wallet providers are unlikely to steal users’ funds, there have been instances where users were locked out of their wallets without prior notice, preventing them from accessing their cryptocurrency. Such occurrences, like those experienced by users, raise concerns about the reliability of custodial wallets.

The main advantage of a custodial wallet is that it’s easy to use. The user does not need to worry about the technical details of storing their cryptocurrency, as the third party manages it for them. This makes it an ideal option for beginners who are new to cryptocurrency and may not be familiar with the technical aspects of managing their wallets.

However, there are also some disadvantages to using a custodial wallet. Firstly, the user has to trust the third party to manage their cryptocurrency properly. This means that if the third party is hacked, the user’s cryptocurrency may be lost. Secondly, the user does not have complete control over their cryptocurrency, and they may not be able to access it if the third party goes out of business.

Non-Custodial Wallets

On the other hand, a non-custodial wallet is a type of cryptocurrency wallet where the user has complete control over their private keys. This means that the user is responsible for securing their cryptocurrency and ensuring that it is safe.

Non-custodial crypto wallets offer several advantages, but they come with an important requirement: users must have a basic understanding of wallet backup and restoration. Additionally, users bear the responsibility for the security of their cryptocurrency when using non-custodial wallets. This implies the need for knowledge on securely backing up a wallet.

Typically, the private key is represented by a 12 to 24-word recovery phrase. Users must store this recovery phrase in a secure location. For example, it can be written down on paper and kept in a safe place or typed into a document on a computer and stored securely on a hard drive in a protected location.

The main advantage of a non-custodial wallet is that the user has complete control over their cryptocurrency. This means that they can access their cryptocurrency at any time, and they do not have to worry about a third party managing their funds.

Additionally, non-custodial wallets tend to be more secure, as the user is in control of their private keys. However, there are also some disadvantages to using a non-custodial wallet. Firstly, they can be more difficult to use, as the user is responsible for managing their cryptocurrency. Secondly, if the user loses their private key, they may lose access to their cryptocurrency forever.

Comparison between custodian and non custodian

Now that we have discussed the differences between custodial and non-custodial wallets let’s compare them side by side:

1. Security: Non-custodial wallets are generally more secure than custodial wallets as the user has complete control over their private keys.

2. Ease of use: Custodial wallets are generally easier to use than non-custodial wallets, as the user does not need to worry about the technical aspects of managing their wallet.

3. Control: Non-custodial wallets give the user complete control over their cryptocurrency, whereas custodial wallets give control to a third party.

4. Trust: Custodial wallets require the user to trust a third party to manage their cryptocurrency, whereas non-custodial wallets do not require any trust in a third party.

5. Cost: Custodial wallets may have additional fees associated with them, whereas non-custodial wallets are often free to use.

Conclusion

Both types of wallet might have their advantages and disadvantages, but also have their uses in the crypto market. While on is an exchange wallet the other helps store the cryptocurrency.

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