Updated: Jun 30, 2022
Just like fiat money, you need to store your crypto assets in a safe but accessible wallet. A crypto investor has two options: a custodial and non-custodial wallet. Your choice of wallet determines the level of user responsibility and security measures you must put up.
But before we explore your options, let’s explore the concept of private and public keys, which are essential in understanding the difference between custodial and non-custodial wallets.
Public vs. Private Keys
All crypto wallets have a pair of public and private keys. Both consist of a complex code of alphanumeric characters used to keep the account and assets safe.
The public key is the code that enables the user to facilitate crypto transactions and allows them to receive crypto in their accounts. It’s a public-facing data point that serves as the deposit address.
The private key is the code that authorizes the user to withdraw, transfer, spend, or carry out other crypto transactions. Unlike the public key, the private key is known only to the user and serves as their digital ID.
Together, this pair enables the transfer of coins from one place to the other. If you’re sending coins to a wallet, you input the public key then authorize the transfer via the private key.
The private key spells the difference between custodial and non-custodial wallets.
When you use a custodial wallet, you don’t have the private key. Instead, you trust the wallet as the custodian of your private key and count on it to make your assets available to you whenever you need them.
Custodial wallets have a lot of advantages:
There’s less user responsibility because you don’t have to worry about keeping your private key safe
It’s easier to use because you only need a username and password to log in
However, there’s an added layer of security risk, since these platforms can be hacked, and malicious actors could drain your account.
Most popular custodial wallets
With 21 million users, Meta Mask is one of the most popular custodial wallets in the world. It supports the entire Ethereum blockchain.
A popular wallet for Australian users, CoinSpot supports over 360 cryptocurrencies. It’s also certified with Blockchain Australia and Sci Qual.
Cobo Wallet is one of Asia Pacific’s most popular wallets, supporting over 40 chains and 180 tokens. It’s also the first wallet of its kind to support pooled staking for different projects.
When you use non-custodial wallets, you possess a private key. You don’t have to trust a third party to keep your private key safe, and in essence, you are fully responsible for its safekeeping.
A lot of crypto investors use non-custodial wallets because it:
Eliminates third parties between you and your crypto assets; and
Gives you the full freedom of a decentralized financial platform
But as Spiderman puts it, with great power comes great responsibility. Non-custodial wallet users must keep their private keys secure because if they’re lost, the coins might also be lost forever. In addition, they must have a solid grasp of backing up and restoring wallets.
Most Popular Non-Custodial Wallets
The Bitcoin.com Wallet is Bitcoin.com’s multi-coin, a non-custodial wallet that allows users to sell, send, receive, and trade the most widely used ERC-20 tokens.
ZenGo is used by over half a million users, who enjoy stringent security measures like keyless encryption, biometric protection, and three-factor authentication. It supports over 70 kinds of assets.
Nuri is a favorite among European users, allowing them to save, invest, and grow their crypto assets.
You have a myriad of options, but at the end of the day, it’s up to you to determine which you prefer. In fact, you don’t have to choose — many crypto owners use a combination of custodial and non-custodial wallets. What’s important is you study each option diligently and be prepared for the risk that each entails.