With the increasing use of cryptocurrency as a method of investment and for trade, there has really never been a greater requirement for safe and sound methods of storage.
When it comes to safeguarding your digital assets, you have two primary options: custodial and non-custodial cold storage solutions. Each of them has its characteristics and follows from the above list of features, as well as from the purpose of the purchase, security requirements and experience in working with cryptocurrencies. Here this article will walk you through the important characteristics of a custodial and non-custodial wallet so that you can know where to store your digital assets.
Understanding Custodial Wallets
Custodial wallets are sometimes the best crypto wallet type in which the keys are stored by a third party on behalf of the investor. In simple terms, when you use a custodial wallet, what you are really doing is handing over your cryptocurrency funds to a company or a platform and leaving the custody of the funds to the company or the platform and such wallets can be found at most exchanges including Coinbase, Binance and Kraken and they make it easy for users to hold their coins.
The main benefit of the custodial wallets is the simplicity of their usage and availability for everyone. As the service provider takes care of the security aspect, the users do not have to bother about key management especially the private keys which many a time can be a bit cumbersome and challenging to deal with, especially for the first timers. Furthermore, Custodial wallets have certain features that include insurance, customer service and ease of integration with other trading platforms, which makes them favourable for beginners in the cryptocurrency world.
Non-Custodial Wallets
Non-custodial wallets, on the other hand, allow you to have complete control of your private keys and hence your cryptocurrency. Some of the most known ones are MetaMask, Ledger and Trezor which enable you to store your private keys on your device or a physical hardware wallet so that only you can access your money.
The advantage of non-custodial wallets is that they really provide the users with the best security and control over their funds. Since you control your private keys, you do not need a third party to take care of your property and this level of control is particularly useful for those who value security, as it minimizes the chances of you losing your cryptos due to a hack or a platform unpredictably going belly up.
Security Features in Custodial Wallets
Non-custodial wallets enable users to have really more control over their funds than custodial wallets, but these wallets contain more security features for your protection. The majority of custodial wallets take measures like Multi-factor Authentication (MFA), encryption and cold storage to protect the funds of the users. Also, some of the platforms offer insurance for the assets that are stored in the wallets of the platform.
Nevertheless, it is crucial to understand that custodial wallets have their risks and the above-mentioned are not the one and only ultimate solutions. These assets are also really easy to attack since they are all accumulated in one place and the story of cryptocurrencies has many examples of large-scale hacker attacks that deprive users of their funds and therefore, it is essential to select a custodian wallet service provider with a good history of security and customer funds protection.
Comparing Wallet Options
When it comes to picking a custodial or non-custodial wallet, one should really know their needs and how much they want to handle their cryptocurrencies. In case you do not need the complexities of private keys and want a wallet that does not require worrying about keys, then a custodial wallet is what you need. These wallets are most suitable for the person who has several exchanges and wants to easily exchange his or her cryptocurrencies from one exchange to another.
On the flip side, if you really prefer to keep your funds within your very own Pokémon trainer-like pocket and have full control over them without the concern of any external interference, then a non-custodial wallet will be the best bet. These wallets ensure that you have extra confidence that your assets are with you and not an unknown entity. But they work at a higher level of authority and complexity because you have to manage your keys and your funds personally.
Why Wallet Choice Matters
There are different types of wallets that one can use and the type which you choose will usually define the level of security as well as the ease that you will be able to use in order to access your cryptocurrency. In the current world, cybercrime is on the rise especially where cryptocurrencies are concerned, this means that one has to be very keen to ensure that their funds are secure. Custodial wallets are easy to use but their disadvantage is that the user surrenders control to a third party while non-custodial wallets are safer and mean greater control on the part of the user.
In conclusion, the most effective place to store your cryptocurrency is a matter of preference and depends on the user’s experience, the level of risk they are willing to take and the type of cryptocurrency which the user is going to store. With the knowledge of the strengths and weaknesses of each of the options that you have highlighted above then one can make a decision depending on his or her requirements and in a bid to ensure that his or her digital property is secure in the future.