What is the difference between custodial and non custodial wallets

Non custodial wallet vs custodial wallet. Crypto users get different choices for storing their cryptocurrencies by selecting between these wallets. Moreover, the digital platforms of both kinds of wallets are making more profits due to the sudden increase in crypto investors worldwide. 

Many entrepreneurs and investors are interested in making their crypto platform through blockchain development. But, it becomes hard for them to select between custodial wallets or non-custodial wallets development. 

After knowing the difference between these wallets, entrepreneurs can easily select between them and decide which kind of crypto wallet development will be more suitable for their business. 

What is a crypto wallet? 

A crypto wallet is a hardware device, software, or online service that helps users store their cryptocurrencies. Each wallet has its unique keys. 

Keys contain the information of wallet address and password for sending and receiving funds within cryptocurrencies. The keys come in two types: the public and private keys.  

Types of keys in a crypto wallet?

There are two types of keys in crypto wallets, i.e., public and private keys. 

1. Public Keys

Public keys allow crypto wallets to receive cryptocurrency transactions. You can think of public keys as a mail address that can be shared with anyone for receiving funds in your crypto wallet.

2. Private keys

While private keys are similar to passwords, private keys create digital signatures without revealing your private keys. Private keys show the ownership of specific blockchain addresses during crypto transactions. The owner keeps the private keys in hardware like mobiles, pcs, hard wallets, etc. 

If anyone lost their crypto wallet’s private keys, they would lose all their crypto holding stored in that wallet. Without the private keys, the owner would not be able to access the wallet for spending, withdrawing, or transferring the crypto coins.

What are custodial wallets?  

Centralized third-party services provide custodial wallets. The wallet’s service providers hold the private keys of each user.

Custodial wallets' advantages & disadvantages

Advantages of custodial wallets

Knowing the advantages of centralized wallets gives the reason for opening crypto wallets on custodial platforms. Let’s discuss them in detail. 

1. Cost-free transactions

It can be the top of the plus point users can enjoy during crypto transactions. Users can enjoy. Also, know how Freewallet helps its users save around $500k by not taking a commission fee for crypto transactions during 2019. 

2. No chance of losing private keys

Even if users forget their private keys, they can still recover them. As the service providers keep the private keys in their servers, the users can ask them for their private keys.

Having private keys held by custodial service providers can almost eliminate the chance of losing private keys forever as users can recover them again anytime.

Disadvantages of custodial wallet

Along with taking benefits from custodial services, there cames some drawbacks of using centralized wallets that we’ve discussed below.

1. Wallet providers can control your money.

The third-party centralized wallet has overall control over your crypto wallets. The total control of your crypto wallets by custodial service can also freeze your crypto wallet account for any restricted actions. That’s why it makes sense to follow all terms and conditions of the specific centralized wallet providers. 

2. Need KYC verification

The users can’t be anonymous for doing crypto transactions on specific centralized wallet platforms. For registering their crypto accounts, the users need to submit their KYC to the service providers. KYC also assures that the same users can’t open their crypto multiple crypto wallets on the same platform.

3. Risk of having attacks from hackers

There’s no reason left to doubt the security of centralized crypto wallets. But still, there come many cases arise where hackers steal the crypto-coins from centralized crypto exchanges. In 2014, the hackers managed to hack 70% of bitcoin transactions from the Japanese exchange Mt. Gox giving a disastrous loss of $450M.

Best custodial wallets

The users can buy, sell and swap crypto assets in minutes. Users can also earn upto 11% of interest on their crypto holdings. Also, from this platform, the users can access NFTs and Defi tokens straight from the app.

Top best custodial wallets

1. Binance

The platform supports 600+ cryptocurrencies. Binance has managed to cover upto 90 million users on its platform. Also, the brand has introduced many unique services such as Binance pay, Binance earns, and so on. 

Founded in2017
Supported platformWeb, Android, iOS
App rating4.5
App downloads50M+
Net revenue$20 Billion

2. BitMex

The BitMexwallet lets you convert, store and trade crypto assets. Moreover, more features come, such as receiving airdrops and earning interest on purchased Bitcoin and USDT. The platform comes with its only cryptocurrency, known as BMEX. 

Founded in2014
Supported platformWeb, Android, iOS
App rating3.7
App downloads5k+
Net revenue$1.3 Billion

3. BitGo

BitGo provides a complete institutional platform for digital asset investors. Also, it comes with a BitGo insurance program to help users get money back in case of losing their private keys by the BitGo platform. 

The platform provides a stacking option to earn interest on the crypto holdings.

Founded in2013
Supported platformWeb, Android, iOS
App ratingN/A
App downloads100+
Net revenue$77 Million

4. Freewallet

The platform supports over 150+ coins and allows users to do free transactions within the Freewallet ecosystem. The platform offers lending cryptocurrency, crypto trading, staking, cloud mining, and other valuable features.  

Founded in2016
Supported platformWeb, Android, iOS
App rating4.4
App downloads500k+
Net revenueN/A

5. Blockchain.com

The users can buy, sell and swap crypto assets in minutes. Users can also earn upto 11% of interest on their crypto holdings. Also, from this platform, the users can access NFTs and Defi tokens straight from the app.

Founded in2011
Supported platformWeb, Android, iOS
App rating3.9
App downloads10M+
Net revenue$14 Billion

What is a non-custodial wallet?

The non-custodial wallet is the exact opposite of the custodial wallet. As a non-custodial wallet is a decentralized wallet, the owners keep the private key of their crypto wallets to themselves.

The keys can be stored on hard wallets or noted down on paper, and the keys are available for accessing anytime. Giving them complete control over their crypto wallets makes them responsible for protecting the private keys of their wallets. 

It is not possible to recover private keys once they are lost. So it will be better for users to write it down in multiple secure places for creating backups.  

Non custodial wallets' advantages & disadvantages

Advantages of non-custodial Wallet

Since the user holds the private keys of their crypto keys, it generates some benefits that users can take from non-custodial wallets.

1. Full control over funds

The non-centralized wallet helps users to stay independent from any third-party service providers. As users keep private keys to themselves, they are left with additional options to control their crypto wallets compared to centralized wallets.

2. Better security 

Since the private keys of crypto wallets are not available online. It is almost impossible for hackers to steal private keys and take out funding from the crypto wallets. 

3. Instant withdrawals

Having private keys enable users to withdraw money anytime without confirmation from centralized crypto wallet services. The instant withdrawal gives a better way for the user to use their funds anytime they want.

Disadvantages of non-custodial wallets

Since the users are responsible for securing their private keys, it creates some drawbacks for these decentralized wallets that we have discussed below:

1. Risk of losing funds forever

Users are most vulnerable to losing their funds if they forget or their hardware that private store key. There is no chance to recover it as no one would be there to help you with restoring private keys. 

2. Complex User Interface

Since users are responsible for handling their crypto wallets, there comes a need to do additional methods to follow by the users within decentralized wallets. Having overall responsibility results in having more buttons and UI elements in the app, and non-centralized wallets, making a complex user experience for new users. 

3. Trade delay

Unlike centralized wallets, there is a trade delay in decentralized wallets. The trade order will go first to their exchanges, and they will execute it whenever they find another interested buyer or seller on their platform. 

4. More responsibility

The users are overall responsible for losing their private keys. Users will lose their crypto funds forever within the crypto wallet. So users will need to be alert to secure their private keys and not share them with anyone. 

Best non-custodial wallets

Check out the best crypto wallet app examples in non-centralized wallets. These examples will help you know how you can create such apps. 

Top best non custodial wallets

1. Electrum 

Electrum wallet is one of the oldest and most popular platforms. The wallet provides 2-factor authentication to secure users’ funds. Moreover, it comes with many add-ons to improve the wallet’s functionality, giving the best experience for storing and transferring cryptocurrencies.

Founded in2011
Supported platformWeb, Android, iOS
App rating3.3
App downloads500k+
Net revenue<$1 Million

2. Exodus

The platform allows more than 200+ cryptocurrencies. It supports multiple platforms such as mobile, desktop, and tricky wallets. Moreover, it has partnered with Trezor to advance the crypto hardware wallet.

Founded in2015
Supported platformWeb, Android, iOS
App rating4.4
App downloads1M+
Net revenue$69.4 Million

3. Zengo

Zengo gives an additional option for users to connect with NFT and Defi apps. The apps have multiple security features such as keyless encryption, biometric authentication, and 3-factor recovery. 

Moreover, it gives access to Web3 to let users enjoy different decentralized services such as NFTs, Defi, crypto games, and much more.

Founded in2020
Supported platformWeb, Android, iOS
App rating3.6
App downloads100K+
Net revenue$24 Million

4. Ledger Nano X

Ledger provides Bluetooth-enabled hard wallets for its users. The hardware helps users to store and access their crypto funds offline. The platform allows users to install up to 100 apps on the hardware along with holding upto 5,500 different tokens. 

Founded in2019
Supported platformWeb, Android, iOS
App rating3.7
App downloads500K+
Net revenue$1.5 Billion

5. TREZOR one

The brand provides hardware wallets for storing crypto coins. It supports 1816 tokens and crypto coins for storing and transfer. The device allows users to access their crypto portfolio offline by entering their 12 to 24 words long recovery seed. Moreover,  the most famous brands, such as Forbes, CNN, Coin Desk, etc., have reviewed this wallet.

Founded in2014
Supported platformmacOS, Windows, Linux
App ratingN/A
App downloadsN/A
Net revenue$5 Million

6. Wasabi

Wasabi is an open-source bitcoin wallet for desktops providing an integrating functionality with TOR. The wallet creates an anonymous connection between sender and receiver over the TOR network.

Founded in2018
Supported platformAndroid, macOS, Windows, Linux
App rating3.0
App downloadsN/A
Net revenue$7.5 Million

Difference between a custodial wallet and a non-custodial wallet?

Knowing the difference will help you understand and decide which kind of crypto wallet would suit your business.

Difference between custodial and non custodial wallets

1. Ownership of private keys

The users don’t have access to their private keys in centralized wallets. The service provider provides passwords instead of private keys in centralized wallets. While in the case of centralized wallets, the users use their private keys anytime to transfer funds.

2. The way of the crypto transaction

The user needs verification from a service provider in the centralized wallet. Talk over the decentralized wallet. Since users have access to private keys, there is no need for taking any verification.

3. Security level

There is more security in the decentralized wallet as the owner doesn’t keep his private keys online. In the case of a centralized wallet, the hacker may get access to the privacy of the crypto wallet and can take out the general funds.

4. Possibility of backup and recovery

Users can lose their overall funds if they forget the alphanumerical sequence of their private keys in the decentralized wallet. But in the centralized wallet, the recovery of funds is possible as the service providers secure the keys of wallet users in their servers. 

5. Having offline accessibility

It needs an internet connection to access and transfer crypto funds a centralized. Also, for submitting a transfer request, an internet connection is required.

The user can use crypto wallet-based software to transfer the funds to another crypto wallet in a non-centralized wallet.  

So, Non custodial wallet vs custodial wallet, which can be more suitable for your business.? Let’s understand.

What to summarize?

Custodial wallets are more popular as almost every beginner in the crypto world opens their account on centralized platforms. 

But due to some limitations in these centralized wallets, many users are moving towards decentralized wallets to have complete control over their crypto wallets.

Talk over the difference between custodial and non-centralized; each kind of wallet has its unique audience. So keeping targeted users in your mind, you can decide to develop any crypto wallet based on the demands and requirements of your target audiences.

Clearing all your doubts and making your crypto wallet involves contacting some IT experts experienced in blockchain technology. Moreover, you can contact our blockchain experts to get a free consultation on your mobile crypto wallet app business. 

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FAQ

Let’s check some most asked questions that come during the discussion of custodial vs. non-custodial wallets 

1. How is a custodial wallet different from non-custodial wallets?

The main difference between both wallets is that the service provider in centralized wallets owns the private keys. In contrast, in the case of non-centralized wallets, the ownership of private keys is taken by users themselves. 

2. What are private keys?

Private keys are passwords for enabling wallets to transfer their funds to other wallets. The private keys come in a series of alphanumeric codes. 

3. What are the best examples of custodial wallets?

The best examples of centralized wallets are as follows:

  • Binance
  • BitMex
  • BitGo
  • Freewallet
  • Blockchain.com

4. What are the best examples of non-custodial wallets?

The best examples of non-centralized wallets are as follows:

  • Electrum 
  • Exodus
  • Zengo
  • Ledger Nano X
  • TREZOR one
  • Wasabi
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