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Custodial vs. Non-Custodial Wallets: What's the Difference?
TL;DR
Ever wondered how and where your crypto is stored? There are many different types ofĀ crypto walletsĀ that token holders can use to store crypto. But, they can generally be split into two broad categories: custodial andĀ non-custodial wallets.Ā
A custodial wallet, likeĀ Ceffu (formerly Binance Custody), is a service that owns theĀ private keyĀ to your wallet and holds your assets in custody. Your regularĀ BinanceĀ account is also a custodial wallet. In contrast, if you use aĀ non-custodial wallet, you alone haveĀ complete controlĀ over your assets.Ā MetaMaskĀ andĀ BinanceĀ Chain Wallet are examples ofĀ non-custodial wallets.
Both custodial andĀ non-custodial walletsĀ have their pros and cons. Let's explore their differences so you can learn when to use one type or the other.
Ā
Introduction
If you've ever usedĀ BitcoinĀ or otherĀ cryptocurrencies, you know that having aĀ digital walletĀ is essential. You will need one if you want to make transactions, trade on aĀ crypto exchange, or useĀ blockchainĀ applications. As such, it's important to understand howĀ cryptocurrency walletsĀ work and the main difference between non-custodial andĀ custodial wallet providers.
HowĀ crypto walletsĀ work
AĀ crypto walletĀ is a tool that allows you to interact with aĀ blockchainĀ network. Among other things, you can use it to send and receiveĀ cryptocurrenciesĀ or access decentralized applications (DApps).
Technically speaking,Ā crypto walletsĀ don't reallyĀ storeĀ yourĀ digital assets. Instead, they generate the information you need to use crypto. Still, most users adopt the verb to make it easier forĀ beginners, so we will use the term throughout this article.Ā
Among other things, aĀ crypto walletĀ is made up of two main components ā aĀ public keyĀ and aĀ private key.
If people want to send you crypto, they can make a transaction to one of your addresses, generated by your wallet'sĀ public key. Your wallet addresses and yourĀ public keyĀ can be shared with others (hence the term public).Ā
YourĀ private key, however, should be treated as a confidential password because it signs transactions and provides access to your funds. As long as you keep yourĀ private keyĀ safe, you will be able to access your crypto from any device.
WhileĀ cryptocurrenciesĀ are digital,Ā crypto walletsĀ that hold private andĀ public keysĀ can come in various options ā the keys can be printed on a piece of paper, accessed via desktop wallet software, or storedĀ offlineĀ inĀ hardware walletĀ devices.
Some wallets also offer the option of storing and transferringĀ NFTs, which are non-fungible tokens issued on aĀ blockchain.
But regardless of theĀ wallet type, you will always have either a custodial or aĀ non-custodial crypto wallet.
Ā
What is a custodialĀ crypto wallet?
As the name suggests, a custodialĀ crypto walletĀ is one where your assets are held in custody for you. This means a third party will hold and manage yourĀ private keysĀ on your behalf. In other words, you won't haveĀ full controlĀ over your funds - nor the ability to sign transactions. But using a custodialĀ crypto wallet serviceĀ isn't necessarily a bad thing.
In the early days ofĀ Bitcoin, all users had to create and manage their own wallets andĀ private keys. While "being your own bank" brings a lot of benefits, it can be inconvenient and even risky for less experienced users. If yourĀ private keysĀ get compromised or lost, you will lose access to yourĀ crypto assetsĀ permanently.Ā BlockchainĀ analysis reports suggest that over 3 millionĀ BTCĀ might be lost forever.
There have also been instances of crypto inheritance being unretrievable because theĀ private keysĀ were held by the original crypto owner alone. You can prevent such incidents from happening by sharing access to your assets with a custodian.Ā
Even if you happen to forget yourĀ cryptocurrency exchangeĀ password, you should still be able to access your account and assets by contacting customer support. However, if you're using aĀ non-custodial wallet, you are responsible for keeping your crypto safe.
So, in many cases, it makes sense to rely on a custodialĀ wallet service. But, this also means that you are entrusting yourĀ private keysĀ to a third party. That's why it's important to choose a reliable exchange or service provider.
Some information to look out for when exploring custody service providers would be whether it is regulated, what types of services you get, how yourĀ private keysĀ are stored, and whether there is insurance coverage.
For instance,Ā Ceffu, which is both regulated and compliant, offers standard insurance for corporateĀ BinanceĀ accounts. It also offers crime insurance coverage and other bespoke insurance coverage requirements available upon request.Ā Ceffu also uses multi-signature wallets (multisig), a protocol that removes centralized risks by requiring multiple parties to approve crypto transactions before they can be carried out.
Ā
What is aĀ non-custodial crypto wallet?
A non-custodial crypto wallet is a wallet where only the holder possesses and controls the private keys. For users who want full control over their funds, non-custodial wallets are the best option. Since there are no intermediaries, you can trade crypto directly from your wallets. It's a good option for experienced traders and investors, who know how to manage and protect their private keys and seed phrases.
You will need aĀ non-custodial walletĀ when interacting with a decentralized exchange (DEX) or decentralized application (DApp). Uniswap, SushiSwap, PancakeSwap, and QuickSwa are popular examples of decentralized exchanges that require a non-custodial wallet.
Trust Wallet andĀ MetaMask are great examples ofĀ non-custodial wallet serviceĀ providers. But remember that with these wallets, you are fully responsible for keeping yourĀ seed phraseĀ andĀ private keysĀ safe.
Ā
Custodial vs non-custodial wallets
Custodial service
Non-custodial service
Private Key
Third-party ownership
Wallet holder ownership
Accessibility
Registered accounts
Accessible to anyone
Transaction Costs
Typically higher
Typically lower
Security
Typically lower
Typically higher
Support
Typically higher
Typically lower
KYC requirements
Yes
No
Ā
Pros and cons of custodial wallets
As discussed, the major downside of custodial wallets is that you have to trust your funds andĀ private keysĀ to a third party. In most cases, these service providers will also require identity verification (KYC). The advantage, however, is the peace of mind and convenience. You won't have to worry about losing yourĀ private keyĀ and you can contact customer support when you run into trouble.
When using custodial services, make sure you choose a reliable company that offers high security and insurance coverage. Look out for custodians that are regulated and compliant.
Some crypto custodians also have other requirements that you may not qualify for. For instance,Ā Ceffu is a custodial service provider that only onboards corporate users at the moment. You can check theĀ Ceffu FAQ for more information.
Ā
Pros and cons ofĀ non-custodial wallets
Without a third-party guardian,Ā non-custodial walletsĀ offerĀ full controlĀ over your keys and funds. In other words, your assets are truly yours and you can be your own bank. In addition, non-custodial transactions tend to be faster as you donāt have to wait forĀ withdrawalĀ approval. Finally, without a custodian, you don't incur extra custodial fees, which may be costly depending on the service provider you choose.
As weāve seen, one disadvantage of usingĀ non-custodial walletsĀ relates to accessibility and ease-of-use. They are usually lessĀ user-friendlyĀ and tend to pose a problem to first-time crypto holders. As non-custodial service providers evolve, this should be resolved in the future.
Of course, you also bear the sole responsibility of your keys and have to take your own precautions when managing them. This means that instead of trusting someone else to take care of your funds, you have to trust yourself.
ToĀ secure your crypto and protect yourself againstĀ hackers, you should consider the followingĀ security measures:Ā
Using a strong password.
Enabling two-factor authentication (2FA) as an added layer of protection.Ā
Staying alert toĀ scams andĀ phishing attacks.
Being cautious when clicking links and downloading new software.
Ā
WhichĀ wallet typeĀ should I use with my crypto?
BothĀ wallet typesĀ are good to store yourĀ crypto assets, includingĀ NFTs. Most traders and investors use both in different situations. However, you should make sure that the wallet you use supports the type of crypto you wish to store. They can't all be stored in the same way.
There are different blockchain networks running various types of cryptocurrencies. We can classify these types by their token standards, but keep in mind that we may have the same tokens running on multiple blockchains under different standards. For example, you can find BNB as a BEP-20 on the BNB Smart Chain, but also as a BEP-2 token on the BNB Beacon Chain.
Ā Here are some of the most common token standards:
BNB Smart Chain: BEP-20, BEP-721, BEP-1155
BNB Beacon Chain: BEP-2
Ethereum: ERC-20, ERC-721, ERC-1155
Solana: SPL
MetaMask, Trust Wallet, andĀ MathWallet areĀ non-custodial walletsĀ that accept the most common and popularĀ crypto assets. If you are unsure of what tokens your wallet supports, check their official FAQ or documentation for more information.
Sometimes, wallets that are constantly upgrading to meet the demands of their users might support more tokens as time goes by. For instance,Ā Ceffu currently supportsĀ BTC, ETH, BCH, LTC, BUSD, BNB, CAKE, and many other ERC-20 tokens.Ā Ceffu will gradually include more token types to support user demand.
Closing thoughts
Custodial wallet orĀ non-custodial wallet? Most crypto users use both, but it all depends on your needs. If you like havingĀ full controlĀ over your assets, or simply want to useĀ blockchain technologyĀ to interact withĀ DeFi applications, you should consider aĀ non-custodial wallet. However, if you are looking for a service provider that can take care of your storage needs while you trade or invest, you can look for reliable custodialĀ wallet serviceĀ providers.Ā
Bear in mind that whether you are using a custodial or non-custodial wallet, you should always be careful and adopt best practices to enhance the security of your funds.
Ever wondered how and where your crypto is stored? There are many different types ofĀ crypto walletsĀ that token holders can use to store crypto. But, they can generally be split into two broad categories: custodial andĀ non-custodial wallets.Ā
A custodial wallet, likeĀ Ceffu (formerly Binance Custody), is a service that owns theĀ private keyĀ to your wallet and holds your assets in custody. Your regularĀ BinanceĀ account is also a custodial wallet. In contrast, if you use aĀ non-custodial wallet, you alone haveĀ complete controlĀ over your assets.Ā MetaMaskĀ andĀ BinanceĀ Chain Wallet are examples ofĀ non-custodial wallets.
Both custodial andĀ non-custodial walletsĀ have their pros and cons. Let's explore their differences so you can learn when to use one type or the other.
Ā
Introduction
If you've ever usedĀ BitcoinĀ or otherĀ cryptocurrencies, you know that having aĀ digital walletĀ is essential. You will need one if you want to make transactions, trade on aĀ crypto exchange, or useĀ blockchainĀ applications. As such, it's important to understand howĀ cryptocurrency walletsĀ work and the main difference between non-custodial andĀ custodial wallet providers.
HowĀ crypto walletsĀ work
AĀ crypto walletĀ is a tool that allows you to interact with aĀ blockchainĀ network. Among other things, you can use it to send and receiveĀ cryptocurrenciesĀ or access decentralized applications (DApps).
Technically speaking,Ā crypto walletsĀ don't reallyĀ storeĀ yourĀ digital assets. Instead, they generate the information you need to use crypto. Still, most users adopt the verb to make it easier forĀ beginners, so we will use the term throughout this article.Ā
Among other things, aĀ crypto walletĀ is made up of two main components ā aĀ public keyĀ and aĀ private key.
If people want to send you crypto, they can make a transaction to one of your addresses, generated by your wallet'sĀ public key. Your wallet addresses and yourĀ public keyĀ can be shared with others (hence the term public).Ā
YourĀ private key, however, should be treated as a confidential password because it signs transactions and provides access to your funds. As long as you keep yourĀ private keyĀ safe, you will be able to access your crypto from any device.
WhileĀ cryptocurrenciesĀ are digital,Ā crypto walletsĀ that hold private andĀ public keysĀ can come in various options ā the keys can be printed on a piece of paper, accessed via desktop wallet software, or storedĀ offlineĀ inĀ hardware walletĀ devices.
Some wallets also offer the option of storing and transferringĀ NFTs, which are non-fungible tokens issued on aĀ blockchain.
But regardless of theĀ wallet type, you will always have either a custodial or aĀ non-custodial crypto wallet.
Ā
What is a custodialĀ crypto wallet?
As the name suggests, a custodialĀ crypto walletĀ is one where your assets are held in custody for you. This means a third party will hold and manage yourĀ private keysĀ on your behalf. In other words, you won't haveĀ full controlĀ over your funds - nor the ability to sign transactions. But using a custodialĀ crypto wallet serviceĀ isn't necessarily a bad thing.
In the early days ofĀ Bitcoin, all users had to create and manage their own wallets andĀ private keys. While "being your own bank" brings a lot of benefits, it can be inconvenient and even risky for less experienced users. If yourĀ private keysĀ get compromised or lost, you will lose access to yourĀ crypto assetsĀ permanently.Ā BlockchainĀ analysis reports suggest that over 3 millionĀ BTCĀ might be lost forever.
There have also been instances of crypto inheritance being unretrievable because theĀ private keysĀ were held by the original crypto owner alone. You can prevent such incidents from happening by sharing access to your assets with a custodian.Ā
Even if you happen to forget yourĀ cryptocurrency exchangeĀ password, you should still be able to access your account and assets by contacting customer support. However, if you're using aĀ non-custodial wallet, you are responsible for keeping your crypto safe.
So, in many cases, it makes sense to rely on a custodialĀ wallet service. But, this also means that you are entrusting yourĀ private keysĀ to a third party. That's why it's important to choose a reliable exchange or service provider.
Some information to look out for when exploring custody service providers would be whether it is regulated, what types of services you get, how yourĀ private keysĀ are stored, and whether there is insurance coverage.
For instance,Ā Ceffu, which is both regulated and compliant, offers standard insurance for corporateĀ BinanceĀ accounts. It also offers crime insurance coverage and other bespoke insurance coverage requirements available upon request.Ā Ceffu also uses multi-signature wallets (multisig), a protocol that removes centralized risks by requiring multiple parties to approve crypto transactions before they can be carried out.
Ā
What is aĀ non-custodial crypto wallet?
A non-custodial crypto wallet is a wallet where only the holder possesses and controls the private keys. For users who want full control over their funds, non-custodial wallets are the best option. Since there are no intermediaries, you can trade crypto directly from your wallets. It's a good option for experienced traders and investors, who know how to manage and protect their private keys and seed phrases.
You will need aĀ non-custodial walletĀ when interacting with a decentralized exchange (DEX) or decentralized application (DApp). Uniswap, SushiSwap, PancakeSwap, and QuickSwa are popular examples of decentralized exchanges that require a non-custodial wallet.
Trust Wallet andĀ MetaMask are great examples ofĀ non-custodial wallet serviceĀ providers. But remember that with these wallets, you are fully responsible for keeping yourĀ seed phraseĀ andĀ private keysĀ safe.
Ā
Custodial vs non-custodial wallets
Custodial service
Non-custodial service
Private Key
Third-party ownership
Wallet holder ownership
Accessibility
Registered accounts
Accessible to anyone
Transaction Costs
Typically higher
Typically lower
Security
Typically lower
Typically higher
Support
Typically higher
Typically lower
KYC requirements
Yes
No
Ā
Pros and cons of custodial wallets
As discussed, the major downside of custodial wallets is that you have to trust your funds andĀ private keysĀ to a third party. In most cases, these service providers will also require identity verification (KYC). The advantage, however, is the peace of mind and convenience. You won't have to worry about losing yourĀ private keyĀ and you can contact customer support when you run into trouble.
When using custodial services, make sure you choose a reliable company that offers high security and insurance coverage. Look out for custodians that are regulated and compliant.
Some crypto custodians also have other requirements that you may not qualify for. For instance,Ā Ceffu is a custodial service provider that only onboards corporate users at the moment. You can check theĀ Ceffu FAQ for more information.
Ā
Pros and cons ofĀ non-custodial wallets
Without a third-party guardian,Ā non-custodial walletsĀ offerĀ full controlĀ over your keys and funds. In other words, your assets are truly yours and you can be your own bank. In addition, non-custodial transactions tend to be faster as you donāt have to wait forĀ withdrawalĀ approval. Finally, without a custodian, you don't incur extra custodial fees, which may be costly depending on the service provider you choose.
As weāve seen, one disadvantage of usingĀ non-custodial walletsĀ relates to accessibility and ease-of-use. They are usually lessĀ user-friendlyĀ and tend to pose a problem to first-time crypto holders. As non-custodial service providers evolve, this should be resolved in the future.
Of course, you also bear the sole responsibility of your keys and have to take your own precautions when managing them. This means that instead of trusting someone else to take care of your funds, you have to trust yourself.
ToĀ secure your crypto and protect yourself againstĀ hackers, you should consider the followingĀ security measures:Ā
Using a strong password.
Enabling two-factor authentication (2FA) as an added layer of protection.Ā
Staying alert toĀ scams andĀ phishing attacks.
Being cautious when clicking links and downloading new software.
Ā
WhichĀ wallet typeĀ should I use with my crypto?
BothĀ wallet typesĀ are good to store yourĀ crypto assets, includingĀ NFTs. Most traders and investors use both in different situations. However, you should make sure that the wallet you use supports the type of crypto you wish to store. They can't all be stored in the same way.
There are different blockchain networks running various types of cryptocurrencies. We can classify these types by their token standards, but keep in mind that we may have the same tokens running on multiple blockchains under different standards. For example, you can find BNB as a BEP-20 on the BNB Smart Chain, but also as a BEP-2 token on the BNB Beacon Chain.
Ā Here are some of the most common token standards:
BNB Smart Chain: BEP-20, BEP-721, BEP-1155
BNB Beacon Chain: BEP-2
Ethereum: ERC-20, ERC-721, ERC-1155
Solana: SPL
MetaMask, Trust Wallet, andĀ MathWallet areĀ non-custodial walletsĀ that accept the most common and popularĀ crypto assets. If you are unsure of what tokens your wallet supports, check their official FAQ or documentation for more information.
Sometimes, wallets that are constantly upgrading to meet the demands of their users might support more tokens as time goes by. For instance,Ā Ceffu currently supportsĀ BTC, ETH, BCH, LTC, BUSD, BNB, CAKE, and many other ERC-20 tokens.Ā Ceffu will gradually include more token types to support user demand.
Closing thoughts
Custodial wallet orĀ non-custodial wallet? Most crypto users use both, but it all depends on your needs. If you like havingĀ full controlĀ over your assets, or simply want to useĀ blockchain technologyĀ to interact withĀ DeFi applications, you should consider aĀ non-custodial wallet. However, if you are looking for a service provider that can take care of your storage needs while you trade or invest, you can look for reliable custodialĀ wallet serviceĀ providers.Ā
Bear in mind that whether you are using a custodial or non-custodial wallet, you should always be careful and adopt best practices to enhance the security of your funds.
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