Despite the advantages that blockchain and cryptocurrencies offer, they are not entirely free from certain risks. All these risks ultimately boil down to the security apparatus around your crypto assets. Whichever currency you want to buy, its safety will depend on the precautionary measures that you take and the kind of wallet that you choose to store it. For those of you who don’t know, there are two types of wallets, namely Custodial and Non-custodial wallets. While custodial wallets store your private keys on a server, non-custodial wallets place the full control of your funds in your hands. Here are some of the differences between the two.
Table of Contents
1. Nobody Has Access To Your Funds- Except You.
The first most notable difference between the two depends on the location where your keys are stored. If you have your crypto assets stored in a custodial wallet, you will need a login and password to access your wallet. However, many might have reservations against trusting a third party with their personal information. A non-custodial wallet encrypts and stores the private keys only on the user’s device. This way, nobody apart from you can access your funds.
2. Instant and Custody-Free Withdrawals.
When you trust a third party with your private details, it means that whatever you intend to do with your funds should receive confirmation from this entity. This way, custodial wallets are quite similar to traditional banks, where the bank must approve your transactions. Naturally, this also takes more time. On the other hand, non-custodial wallets allow instant withdrawals, thereby making the process easier and faster. All you have to do is decide what you want to do your money, and non-custodial wallets will allow you to perform that action within seconds.
3. Fund Safety
Law regulations bind almost every cryptocurrency wallet and exchange. Also, governments and authorities would be well within their rights to request additional details about users within their jurisdiction. That could mean that your funds may get frozen due to KYC (Know Your Customer) norms. Although the KYC procedure usually gets completed in about three days, the bank can freeze funds if any transaction looks suspicious. The extra caution exercised by exchanges often results in freezing of funds and crypto-assets. If you keep your cryptocurrencies in non-custodial wallets, they wouldn’t have your private keys. Thus, your funds will never get frozen.
4. No Threat of Hacking
The possibility of hacking is another potential threat to custodial wallets. There is a massive database of users on centralized exchange platforms. They store funds in cold and hot wallets. Cold wallets present a substantial amount of resistance to hackers because they require several confirmations to access money. However, hot wallets are easy to hack because of their overtly centralized model. A crypto wallet comparison between a custodial and non-custodial wallet would make it evident that the latter is more secure to hacking.
5. 100% Fork Ready
Custodial wallets can be vulnerable in the eventuality of a fork taking place. The Fork of Bitcoin Cash is one of the most recent cases. It left many exchanges and platforms such as Coinbase unable to access their funds. The customers found themselves unable to trade their coins unless the platform allowed the deal to happen. However, the hard Fork meant that the users of non-custodial wallets didn’t face any such issues.
Conclusion
The safety of your funds should be the first thing you should consider while selecting from the wide range of available wallets. Custodial wallets provide the users with a login ID and password after storing the funds on a centralized server. Regardless of how easy it all looks, the customer might face a tough time accessing their money without the platform’s consent. This can happen during KYCs, maintenance activities, and even hard Fork. On the other hand, non-custodial wallets provide you with the software that you can install on your device and be in full control of your money.
