Non-custodial technology and crypto wallets provide the highest level of security for crypto assets across the blockchain space by giving users full control of their wallets and funds.
Many people seem to make arbitrary choices when choosing a preferred crypto wallet. However, deciding on a specific wallet is an important part of one's crypto experience. The type of wallet you choose may depend on several factors such as frequency of trades, which cryptocurrencies a wallet supports, and/or wallet features.
Users also have to choose between maintaining control of their private keys or leaving them with the wallet provider. Before purchasing any crypto, users must decide whether they want to use a custodial wallet or a non-custodial wallet.
What Is a Non-Custodial Wallet?
A non-custodial wallet allows the owner to control their own private keys. People who use non-custodial wallets don't outsource the security or trust to any institutions, making themselves entirely in charge of all funds and transactions. Non-custodial wallets support censorship-resistant transactions. In most cases, no single centralized entity can tamper with or confiscate assets held in these wallets.
Each user's non-custodial wallet uses a 'mnemonic phrase' or 'seed phrase' that usually comprises of 12 or 24 random words — essentially a password giving the user access to a wallet's private keys and its funds.
The Difference Between Custodial and Non-Custodial Wallets
There are significant differences between a custodial wallet and a non-custodial wallet. While a non-custodial wallet relies solely on the user, custodial wallets allow the wallet providers or centralized exchanges to hold private keys. This way, the security of assets held in the wallet is mostly the provider or exchange's responsibility, as the user only has access to the public address. Using a custodial wallet is simple for the average user and removes the responsibility of memorizing a seed phrase or having to keep it safe. However, it also leaves users exposed to large-scale hacks or data breaches if something goes wrong for the custodian.
Another difference to consider is the execution of transactions on these wallets. Although most transactions conducted using blockchain technology are fast, non-custodial wallet activities reflect on the chain in real-time, while those on custodial wallets may lag for seconds or minutes as they are processed.
Benefits of Non-Custodial Wallets
There are several benefits of using a non-custodial wallet to HODL cryptocurrencies.
Your Keys, Your Coins
Non-custodial wallets have gained tremendous traction because they provide users with autonomy and a high degree of self-sovereignty. Users don't require authorization from a third party to handle assets or perform any transactions. Users have complete control of their private keys, which makes it much easier to send and receive crypto.
Safety of Assets
Since all of the details related to a users' crypto wallet and its funds are with the user, there is little to no risk of a remote hack. The inherent safety of non-custodial wallets is a major reason many people are slowly shifting away from custodial options for cryptocurrency trading and towards decentralized exchanges (DEXs) that support non-custodial wallets.
Transactions conducted via non-custodial wallets are faster as they don't require any middlemen or centralized authorities for approval.
Non-custodial wallets are necessary for interacting with most decentralized finance platforms and permissionless blockchain protocols. The number of DeFi applications such as DEXs, lending platforms, and DAOs has skyrocketed over the past couple of years.
Hardware and Software Wallets
Non-custodial wallets can be broken down further into two major categories: hardware wallets and software wallets.
Non-Custodial Hardware Wallets
Non-custodial hardware wallets, also known as cold wallets, are simple devices that store private keys offline for better security. They usually look like small external drives. Access to assets held in non-custodial hardware wallets requires users to plug the devices into computers and manually confirm transactions through the device.
Hardware wallets aren't susceptible to computer viruses or hacks. However, users must keep private keys safe to reduce the risk of theft. A non-custodial hardware wallet is the safest option for crypto users with large amounts of digital assets in their portfolios, as well as those focused on long-term holding. Popular examples of non-custodial hardware wallets are Trezor and Ledger.
Non-Custodial Software Wallets
Non-custodial software wallets are applications include web browser wallets or applications that users download on computers or mobile device. Non-custodial software wallets have direct access to most public blockchains and require the user to provide their private keys or passwords to access stored assets. Unlike cold wallets, the private keys are accessible online. An example of a non-custodial software wallet is the AtomicDEX or Metamask.
Many users now understand the risks of custodial wallets and prefer to use non-custodial options for better security. Although custodial wallets are currently the more popular option, this type of wallet doesn't provide users with the privacy expected of blockchain technology. Using a non-custodial wallet is the best way to keep assets safe, especially when the user has a large portfolio or when the plan is to ride out a bear market. Several different factors help users determine their preferred non-custodial wallet.
Try the AtomicDEX Non-Custodial Wallet
AtomicDEX is Komodo's flagship application. It's a non-custodial multi-coin wallet and cross-chain/cross-protocol decentralized exchange rolled into one app. AtomicDEX users store coins in their own wallets and make cross-chain swaps while always controlling their private keys.
You own your keys, so you control your coins. AtomicDEX supports BTC, ETH, LTC, DOGE, KMD, and thousands of assets across dozens of blockchains.
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