Diving into the world of tech and finance today, you will discover that experts are already accepting crypto as means of transaction even as it continues to gain dominance.
Cryptocurrency popularity is fueled by people's needs and institutions accepting it for their day-to-day transactions. This is more reason why having a reliable and trustworthy wallet to store crypto assets is important.
In the course of searching for the best wallet to use to store crypto assets, you may have come across custodial and non-custodial wallets. What exactly are their differences and which one is better?
In this article, we will examine what they are, their differences, advantages, and disadvantages of both.
Before we take that dive -
What is a Custodial Wallet & Non-custodial wallet?
A custodial wallet is a wallet that allows users to entrust their private keys to a third party, and in turn, the third party gains absolute control over those assets and private keys by providing security and backup for them. Custodial wallets are a customer-friendly solution, which can be used to send and receive crypto.
A non-custodial wallet is a decentralized wallet that gives total control and ownership to users hence, users have access to their private keys and seed phrases.
With the non-custodial wallet, users gain full custody of their funds and there's a need to write down their mnemonic phrases in case anything happens which may require retrieving the wallet.
It is important to also note that it comes with a responsibility because if you lose your seed phrase, all your funds will be lost and it can't be restored.
Types of Non-custodial wallets
0Non-custodial wallets come in different forms: hardware wallets, web extensions, or mobile and desktop apps. Let’s take a look at what they do
Hardware wallets are also called cold wallets. It is a physical device built to store private keys. They are the safest non-custodial wallet because they are offline and it requires a level of tech knowledge to effectively use them.
Hardware wallets are like flash drives that can be plugged into a computer or mobile phone before users can assess their crypto assets and carry out transactions.
They work efficiently and effectively with apps that are connected to the internet and these wallets, have small screens and limited user controls.
Examples of hardware wallets are Ledger Nano S, Trezor Model One, SafePal S1, Steel Bitcoin Wallet for Hardware Wallet Backup, SecureX V20 Most Secure, Model T-Next Generation, SecureX W20 Most Secure, and D'CENT Biometric Wallet among many others.
Mobile wallets are applications that users download, install and operate using an internet connection. They can be used to store private keys, trade, and manage crypto assets with its user-friendly interface.
Examples of mobile wallets include Safepal, Trust wallet, MetaMask JulWallet, MEW wallet, etc
Browser-based wallets are like a browser extension built directly on the browser. It is easy to connect to Dapps and store private keys. It requires less CPU for its operation.
Examples of browser extensions include Metamask, brave, Teleport wallet, etc
Just as both wallets are used for storing crypto assets and carrying out transactions, they have their benefits and drawbacks
What are the benefits & disadvantages of Custodial Wallets?
If you are just starting your crypto journey then, Custodial online crypto wallets are more suitable for you. As a platform will help you manage your funds hence, take away the responsibility of looking out for your crypto assets.
It is very easy to sign up for an account and all that is required is an email address and password, no mnemonic phrases involved.
No transaction fee is required on some transactions
On a custodial wallet, users are allowed to use different products on the platform and pay zero when they stake assets to earn extra rewards. For example, the Free wallet is one of those custodial wallets that users carry out transactions for free within its platform all thanks to the sidechain technology.
Although transactions that have to do with sending funds out of the platform, payment of fees is less and convenient.
Loss private keys or mnemonic phrase is not a problem
History has it that someone lost his hardware wallet with 7,500 Bitcoins on it, sad right? If it were to be a custodial wallet, it can easily be restored through an email address. It doesn't matter if the user loses their phone or laptop, or forgot their password.
Private keys are saved on your behalf
Custodial wallets are designed to help manage users' assets. As a user, you don't have to worry about how you will save your private keys. All Passwords can easily be restored by resetting and requesting a new one.
Provision of Backup for your assets
The responsibility of managing users' assets is transferred to the centralized exchange hence, they always offer backup facilities. With custodial wallets, it becomes easy to undo a transaction or restore a previous version.
Despite the numerous benefits using a Custodial wallet offers, there are some drawbacks associated with it.
Custodial wallet controls your funds
There's a need to agree to the platform's terms and conditions since they are managing your assets. They can also decide to close withdrawals and receiving of funds by freezing the account or due to platform maintenance hence, there's nothing you can do except the account is restored to normalcy.
Need for KYC
All users must undergo the KYC (Know Your Customer) exercise and this undermines the essence of decentralization. Your national identity, driver's license, or utility bill may be required during this exercise and if you don't comply, you wouldn't be able to perform any financial transaction.
You cannot keep your identity hidden hence if the policy of your country does not support the use of any crypto-related platform, your account will be deactivated.
Without a doubt, centralized platforms control billions of dollars worth of crypto on their platform and this makes them a target for hackers. An example is an incident that happened with the Japanese exchange Mt. Gox in 2014, over 70% of the bitcoin transactions were hacked, and the loss recorded amounted to over $450M.
So, as a newbie or an existing crypto user, ensure to check if the custodial wallet you are putting your funds in has passed any security audits, so you can be assured of reimbursement in case the wallet gets hacked.
Internet connection requirement
You cannot use a custodial wallet without having an Internet connection. Any transaction you want to carry out will be paused until your internet connection is restored
Benefits of Non-custodial Wallets?
Non-custodial wallets as described earlier the third-party control hence places asset control and ownership in the hands of its users. Unlike a custodial wallet, you need the basic knowledge of how cryptocurrency works to set up a non-custodial wallet. These are some of its benefits.
Control over your crypto assets
Users are given access to operate their wallets the way they wish to. Using a non-custodial wallet is ideal for investors or users, in general,l to store a large number of funds in crypto.
Safekeeping of funds
Breaching your wallet becomes hard since you are in charge of it because all information related to your private keys and seed phrases is kept privately by you. Due to this factor, the majority of crypto wallet users prefer non-custodial wallets over custodial wallets.
The use of hardware wallets proves that the wallet cannot be exploited by hackers since it's not always available online.
Access to DeFi and NFTs platforms
There are a lot of DeFi protocols integrated into non-custodial wallets which makes it easier to interact with and earn crypto as well. You can also create, list, and sell your NFTs and interact with play-to-earn games on the non-custodial wallet. The features of this kind of wallet are numerous and users are actively utilizing it.
Transactions are faster
On a non-custodial wallet, the transaction speed can be determined by users. You can decide to make it as instant as possible which will cost some gas fees.
Disadvantages of Non-custodial Wallets
There's no customer support available
Signing up for a non-custodial wallet means full ownership. When you are faced with some challenges, you cannot ask for help because there's no customer service support available. You will be forced to answer from an experienced user and if you make any mistakes, your funds will not be restored.
Responsibility is transferred to users
Having to write down your seed phrase and private keys seems like a lot of work. The responsibility of keeping them safe is entirely dependent on you because the platform will not do that on your behalf.
Any mistake made may result in robbery, unplanned consequences, or deletion of wallet. Losing your private keys and seed phrase means total loss of your wallet and your funds.
Complicated for beginners
It is not easy to set up a non-custodial wallet especially if you do not have any basic knowledge of cryptocurrencies.
The user interface is designed in such a way that it is difficult to comprehend and users are responsible for the management of their account hence, it may be tasking for a first-time user.
With all that has been said, we've got good news for you. We have a non-custodial browser-based wallet that is safe and very secure for users.
About Teleport wallet extension
Teleport Wallet is a browser extension wallet for crypto transfer, enabling distributed applications(dApps) on Ethereum and other blockchains.
The Teleport Wallet extension (beta version) is now available for Chrome Web Store, enabling early users and testers to store, manage, and grow their crypto portfolio. Users will be able to send, swap, store, and receive multi-chain digital assets.
Teleport Wallet beta enables users to connect with the EVM compatible network support.
The EVM networks that are available on the Teleport beta wallet are the Ethereum mainnet, BNB smart chain, Arbitrum one, Polygon manner, Fantom opera, and Avalanche network. You can also add another customized network.
In the future, Teleport Wallet will provide Crypto users with a wide range of products/services while delivering superior smart experiences as those products/services are being utilized.
Users will also integrate with other Teleport products for signing transactions without providing private keys which are stored securely in the extension locally and encrypted with your password.
Teleport Wallet beta release on browser extension users will be able to:
Create new account
Send and receive assets
Easily import their wallet from other non-custodial wallets
Add more than one account
Connect with the EVM compatible network support
To secure your funds, it is entirely your decision to choose what wallet works best for you. You can also decide to combine both the custodial and non-custodial wallets as they both have their benefits and drawbacks hence, we recommend the Teleport wallet beta.
Ensure to carry out proper research before depositing your funds in a custodial wallet. Also, keep the required details (private keys and seed phrase) safe when using a non-custodial wallet.