Custodial Vs Non Custodial Wallets
Cryptocurrency is a significant genre in itself, and there is no such “one size fits all” approach in it. The segment is highly customizable depending on the preference of the users. The users can enjoy various options when it comes to choosing the type of cryptos. They may go for mining or staking or even trading crypto. With all of these going around, there is still one essential topic that people are often confused about. This is especially the new ones who are trying to gain their place in the crypto field. There has been a confusion between whether to opt for the custodial wallets or the non-custodial wallet of Bitcoin. This calls for an immediate comparison of the Custodial Vs Non Custodial Wallets.
The new crypto enthusiasts are often confused about which one would be better for them. Both the bitcoin wallets have their individual benefits and disadvantages. Thus, before opening a Bitcoin account, you need to consider everything about Custodial Vs. Non-Custodial Wallets. In this article, we are going to let you know everything about both these wallets. It becomes a lot easier for you to decide which wallet you would want to go for.
What Does A Custodial Bitcoin Wallet Mean?
The primary concept of a custodial bitcoin wallet is that a third party will control the private keys. This means the users are placing their trust in a different entity, usually the cryptocurrency exchange platforms. Many of the newest Bitcoin investors have depended on a custodial wallet at some point in their crypto journey. If you create an account with reputed exchanges such as Gemini or Coinbase, you will have the opportunity to use a custodial wallet, and it is all part of their service.
These platforms want to protect the users’ funds and will make an effort to do so. It is because they have their interest in it as well. The users often term the custodial crypto wallets as hosted wallets. Without any doubt, the custodial wallets remove the users from their personal responsibility for their funds. This might be a plus point to some users, while others might perceive it as a significant red flag. Additionally, the custodial wallets are typically web-based applications, unlike the hardware wallets that require a constant internet connection.
Advantages Of The Custodial BTC Wallet
The BTC custodial wallets do not hold the best reputation in cryptocurrency community. This is not because they are considered unsafe. Fact is that the user doesn’t hold their private keys, and they are not in charge of their entire funds. Some believe that the lack of this control is unacceptable. But for the others, this is the only reason for appreciating the custodial wallets.
The private key serves as the only path to access the money that the users earn. But what will happen if you cannot remember the private key? This means that all your Bitcoin (BTC) is lost forever. This does not occur with the custodial wallets, as the exchanges take certain precautions for ensuring that you always have access to your funds.
Generally speaking, custodial wallets are also a safer option as they offer better security against phishing scams and malware when web-based wallets come into consideration. However, there are a couple of downsides that you need to focus on as well. The first is that some of the exchanges would require you to use their wallets. In this case, as you do not hold the private keys to your wallet, it could mean that they might take your assets if they would want to, and you will have nothing to do about it.