Custodial vs Non-Custodial Wallets
Custodial and non-custodial crypto wallets refer to two different types of cryptocurrency wallets. A custodial wallet is one where the private keys are managed by a third party, such as a cryptocurrency exchange or online wallet provider. In contrast, a non-custodial wallet is one where the private keys are managed by the user themselves.
One key difference between the two types of wallets is control. With a custodial wallet, the third party has control over the private keys, which means that they have control over the user's funds. This can be convenient for users who don't want to worry about managing their own private keys, but it also means that users are trusting the third party to keep their funds safe.
In contrast, with a non-custodial wallet, the user has complete control over their own private keys, which means that they have complete control over their own funds. This can be more secure, but it also means that users are responsible for keeping their private keys safe and secure.
Another key difference between the two types of wallets is security. Because custodial wallets are managed by a third party, they can be more vulnerable to hacks and other security threats. In contrast, non-custodial wallets are generally considered to be more secure, because the user is in control of their own private keys.
Overall, the choice between a custodial and non-custodial wallet will depend on an individual's preferences and needs. Some people may prefer the convenience and simplicity of a custodial wallet, while others may prefer the added security and control of a non-custodial wallet.
| Private Key Management | Control | Security | Sample Wallet Providers | |
|---|---|---|---|---|
| Custodial | Third party | Third party has control over funds and user just has access | Can be more vulnerable to security threats since it's centrally controlled | Coinbase, Binance, Kraken |
| Non-custodial | User | User has control over funds since they are the only ones with access to wallet | Generally considered to be more secure | Ledger, Trezor, MetaMask |