Have you ever been puzzled about the where and how of your crypto storage? Token holders can choose from a wide variety of cryptocurrency wallets to safely store their tokens. However, there are two essential kinds of wallets: custodial and non-custodial.
TL;DR
Ceffu (formerly Binance Custody) is an example of a custodial wallet, which is a service that holds your funds in custody and owns the private key to your wallet. A custodial wallet is a feature of your regular Binance account.
If you utilize a non-custodial wallet, on the other hand, you are the sole custodian of your funds. Non-custodial wallets include services like MetaMask and the Binance Chain Wallet.
There are pros and cons to every custodial and non-custodial wallet. Let’s look at the distinctions between the two to better understand when to use each.
Introduction
Having a digital wallet is a must if you want to use Bitcoin or any other cryptocurrency. If you wish to buy or sell cryptocurrency on an exchange or use other blockchain-based services, you will need one. Therefore, it is crucial to realize the functionality of Bitcoin wallets and the primary distinction between non-custodial and custodial wallet service providers.
How Crypto Wallets Work
A cryptocurrency wallet is a piece of software that allows users to send and receive cryptocurrencies through a blockchain. You can use it for a variety of purposes, not just buying and selling cryptocurrencies or getting into decentralized applications DApps.
Cryptocurrency wallets don’t keep your funds in the traditional sense. Instead, they generate the information you need for cryptography. Because it is the more usual form, we will stick with it throughout this text. A cryptocurrency wallet’s essential components are the public key and the private key.
If you have a cryptocurrency wallet and a public key, someone else can send cryptocurrency to your wallet by sending it to the address linked with your public key. Everyone (thus the word “public”) can have access to your public key and wallet address.
However, much like a password, you’ll need to keep your private key safe if you want to use it to sign transactions and have access to your funds. Your encryption will work on any device as long as you have a copy of your private key.
While cryptocurrencies themselves are strictly digital, crypto wallets, which hold one’s private and public keys, can take many different forms. It is possible to create tokens on a blockchain that are not fungible with one another, known as NFTs. Custodial and non-custodial wallets are the two primary types of cryptocurrency storage options.
Define a custodial cryptocurrency wallet
A custodial cryptocurrency wallet is one that physically maintains your digital assets for you. This means you’ll be dependent on a third party to keep and protect your private keys. That is to say, you will not be able to sign transactions or have complete control over your money. To be sure, there are some drawbacks to using a custodial crypto wallet service.
In the early days of Bitcoin, users were responsible for their own wallets and private keys. While “being your own bank” has various advantages, it can be challenging and even dangerous for new users. If you lose or have your private keys taken, you will no longer have access to your cryptocurrency. According to blockchain analysis, more than 3 million BTC may be permanently lost.
On the other hand, there have been occasions where a transferred crypto asset was unrecoverable since only the original crypto owner had access to the private keys. Giving a trusted third party access to your assets can protect them from theft or other wrongdoing.
Even if you forget your password, you should still be able to access your account and assets on your Bitcoin exchange by contacting customer service. If you choose to keep your Bitcoin outside of a custodial wallet, you are responsible for its security.
As a result, a custodial wallet service is a good option in many situations. However, this necessitates putting your trust in someone else to handle your private keys. As a result, selecting a trustworthy service or exchange partner is critical.
Examining the provider’s regulatory status, the range of services offered, the security of private key storage, and the availability of insurance are all critical questions to consider while researching a custody service.
Ceffu, which is both licensed and compliant, offers regular insurance for Binance business accounts. Crime insurance and other forms of speciality insurance are also available. Ceffu also uses a mechanism known as multi-signature wallets (multisig) to eliminate centralized concerns by having many signatories confirm cryptocurrency transactions.
Define a non-custodial cryptocurrency wallet
A non-custodial crypto wallet is one in which only the holder has access to and control over the private keys. Non-custodial wallets are the ideal alternative for individuals who desire complete control over their cash. Because there are no middlemen, you can exchange cryptocurrency directly from your wallets. It’s an excellent choice for seasoned traders and investors who understand how to preserve and safeguard their private keys and seed words.
When connecting with a decentralized exchange (DEX) or decentralized application (DApp), you will require a non-custodial wallet. Popular decentralized exchanges that need a non-custodial wallet include Uniswap, SushiSwap, PancakeSwap, and QuickSwa.
Non-custodial wallet service providers include Trust Wallet and MetaMask. However, keep in mind that you are solely responsible for the security of your seed phrase and private keys when using these wallets.
Custodial vs non-custodial wallets
| Custodial service | Non-custodial service | |
| Private Key | Third-party ownership | Wallet holder ownership |
| Accessibility | Registered accounts | Accessible to anyone |
| Transaction Costs | Typically higher | Typically lower |
| Security | Typically lower | Typically higher |
| Support | Typically higher | Typically lower |
| KYC requirements | Yes | No |
Custodial Wallet: Pros and Cons
As previously said, the main drawback of custodial wallets is that you have to entrust a third party with your assets and private keys. The majority of these service providers will necessitate Know Your Customer (KYC) checks as well. The benefit, though, is reduced stress and increased comfort. You may always contact customer service if you have any issues or concerns, and your private key is safe and secure.
Choose a trustworthy custodial agency that provides outstanding protection and insurance when entrusting your valuables to them. Keep an eye out for safekeeping services that follow the rules and regulations.
There may be other criteria that you do not meet to store cryptocurrency with a given custodian. For instance, Ceffu provides a custodial service but only accepts business customers at this time. For Ceffu FAQs, you can look here.
Non-Custodial Wallets: Pros and Cons
With a non-custodial wallet, you are in complete charge of your private keys and funds without the need for a trusted third party. That is to say, you have complete control over your financial situation and can act as your own bank. Not having to wait for withdrawal permission also makes non-custodial transactions more expedient. Last but not least, you can avoid paying custodial costs, which can add up to a significant amount depending on the service provider you go with.
As we’ve seen, convenience and simplicity of access are two areas where non-custodial wallets fall short. Users who are new to cryptocurrency may find it difficult to use. Future solutions will emerge as non-custodial service providers mature.
You are entirely responsible for your keys and must exercise your discretion in protecting them. That implies you can’t put your faith in a third party to handle your money; you’ll have to do it yourself.
You should take the following precautions to secure your crypto and prevent unauthorized access:
- The use of a secure password
- As an extra precaution, you can enable two-factor authentication (2FA).
- Keeping one’s guard up against phishing and other scams
- Taking precautions when visiting new websites and installing software is essential.
Which Cryptocurrency Wallet Should I Use?
You can store your NFTs and other cryptocurrencies safely in either wallet type. The majority of traders and investors employ both strategies. However, the wallet you use must be compatible with the cryptocurrency you plan to store. There is no single storage solution that will work for all of them.
Several cryptocurrency platforms run on their own distinct blockchain networks. We can classify them based on the token standards they follow, but keep in mind that the same tokens can exist on multiple blockchains with different token standards. BNB is available in two token forms: a BEP-20 on the BNB Smart Chain and a BEP-2 on the BNB Beacon Chain.
The following are some typical token requirements:
- The BEP-20, BEP-721, and BEP-1155 components comprise the BNB Smart Chain.
- On the BNB Beacon Chain, BEP-2
- ERCs 20 (ERC-20), 721 (ERC-721), and 1155 (ERC-1155) are Ethereum ERCs.
- As Solana might put it, “SPL.”
Non-custodial wallets such as MetaMask, Trust Wallet, and MathWallet support the most popular cryptocurrencies. Consult the wallet’s official documentation or Frequently Asked Questions section to learn more about the tokens that are compatible with it.
Wallets that meet their users’ needs may eventually expand their token support to include additional types of tokens. Ceffu, for example, accepts Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Bitcoin USD, Bitcoin BNB, and Cake at the moment. In response to client demand, Cefnu intends to provide more token variants.
In conclusion
Which is more secure, a custodial or a non-custodial wallet? It depends on your unique needs; however, most crypto users use both. If you desire privacy and security, or if you simply want to use blockchain technology to interface with DeFi applications, consider a non-custodial wallet. However, if you need someone to look after your storage needs while you trade or invest, there are trustworthy custodial wallet service providers available.
Regardless of whether you use a custodial or non-custodial wallet, you should always be cautious and use best practices to increase the security of your currency.