Custodial Vs Non-custodial Wallets

Custodial Vs Non-custodial Wallets

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2 min read

The term "wallet" is used to describe hardware or software that holds cryptocurrencies. it allows users to store and retrieve their digital assets.

There are two different types of cryptocurrency wallets:

  • Hardware wallets

  • Software wallets

All crypto wallets consist of two important components:

  • A Private key

  • A Public key

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The two keys are used together, in order to send coins through the blockchain network, a user must first enter the public key and then confirm the transaction by entering the private key.

CUSTODIAL WALLETS:

Custodial wallets are wallets offered by a centralized business such as a crypto exchange. In this wallet, private keys are held by a third party. This wallet has certain benefits such as less user responsibility regarding private key management. This creates an extremely simple solution for the user but also creates an additional layer of risk.

example of custodial wallet

NON-CUSTODIAL WALLETS:

Non-custodial wallets do not require the outsourcing of trust to an institution, so no institution can refuse to complete transactions. in this wallet, the user controls the private key, information isn't stored on central server. However, misplaced private keys can be a costly mistake, the wallet will be lost forever.

example of non-custodial wallet

  • Exodus
  • Electrum
  • Trust Wallet

Ultimately, there's no right and wrong way to store your assets. A beautiful feature of cryptocurrency is that each user has the choice to decide what works best for them.