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Non-Custodial Wallet Explained

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A reliable and user-friendly cryptocurrency storage solution is more important than ever in today’s lightning-fast cryptocurrency market. To maintain complete control and ownership of their cryptocurrency holdings, more and more crypto enthusiasts are turning to non-custodial wallets.

But what is a non-custodial wallet, and how is it different from a custodial wallet?

In this thorough article, we will delve into the notion of non-custodial wallets, analyzing their benefits, as well as their potential drawbacks, and the critical role that they serve in protecting your cryptocurrency assets.

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What is a non-custodial wallet?

A non-custodial wallet, also known as a self-custody wallet, is a crypto wallet that enables users to take full ownership and responsibility for their assets.

A non-custodial wallet does not hold custody of your crypto. Many people prefer non-custodial wallets as they eliminate the need for a third party, providing higher security.

These wallets can come in various forms: browser-based, software on mobile devices or desktops, and hardware devices like USB sticks.

How do non-custodial wallets work?

During a transaction, the signing of the transaction by the private key is done offline within the hardware wallet itself before being sent online to the blockchain for confirmation. This process ensures that even if your computer or phone is infected with malware, it cannot access your funds.

Overview of non-custodial wallets

Self-custody wallets have several benefits that make them attractive to cryptocurrency newcomers, but they also have certain drawbacks. However, the pros and cons are relative to each user and their tastes and level of technical knowledge.

Pros of a non-custodial crypto wallet

Non-custodial wallets offer users a host of benefits, including:

  1. Users’ control over funds: Non-custodial wallets provide individual access to funds, eliminating the need for third-party management.
  2. Safety in funding: Since all wallet details and funds are under the user’s control, the risk of data breaches is lower, making non-custodial and mobile storage solutions popular among 66.5% of crypto holders.
  3. Instant withdrawals: Unlike custodial wallets, non-custodial wallets do not require third-party confirmation for transactions, enabling instant withdrawals and streamlining the process.
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Cons of a non-custodial crypto wallet

Non-custodial wallets come with a set of disadvantages:

  1. Self-responsibility: Users need to take full responsibility for the security of their private keys and wallets. Unlike with custodial wallets, if you lose access, forget passwords, or mishandle the recovery seed phrase, you may permanently lose all of your digital assets.
  2. No third-party assistance: Non-custodial wallets lack password resets or customer support for recovery, making it more challenging to regain access compared to custodial wallets.
  3. Increased complexity: Managing keys and ensuring fund safety can be more complex, especially for newcomers.
  4. Higher risk of loss: Inadequate safeguarding of keys or recovery phrases can lead to fund loss, as there is no centralized authority to assist with recovery.
  5. No insurance coverage: Unlike some custodial wallets, non-custodial wallets typically do not offer insurance coverage, leaving users fully responsible for any losses or security breaches.

Additional drawbacks include trade delays, increased responsibility for security, potentially difficult user interfaces, and the risk of permanently losing access to wallets and funds if private key or seed phrases are lost without any backup and recovery options.

Types of non-custodial wallets

Software wallets

Software wallets function like any other software application, and they are considered ‘hot wallets’ due to their internet connectivity, ensuring better accessibility. These wallets remain connected to the internet in one way or another, making them easily accessible for users.

They come in various forms, each offering different features and accessibility options. One type is the web wallet, which operates through internet browsers, providing practical management of cryptocurrencies online, and facilitating transactions with web-based marketplaces.

Another variant is the desktop wallet, where you download the software to your computer, offering enhanced control and security as it is locally installed on your device.

For those who prefer mobile access, mobile wallets are available for download on smartphones. They allow flexible and convenient on-the-go access to funds.

Both desktop and mobile wallets incorporate safety features. However, specifics may vary depending on the wallet provider.

Some software wallet providers also offer browser extensions for Chrome and Firefox. It provides seamless and accessible cryptocurrency management directly from desktop or mobile devices.

Hardware wallets

A hardware wallet is an external device that stores your private key and cryptocurrencies. This non-custodial wallet operates as a form of cold storage, similar to encrypted external hard drives.

Even though you purchase crypto through an online exchange, your digital assets are connected to the exchange’s system.

However, by withdrawing the funds to this non-custodial wallet, you gain greater control and security because the digital assets are removed from the online exchange and can only be accessed using the physical wallet and a private key.

The main advantage of a hardware wallet is its stability and enhanced security. Since the wallet remains offline most of the time, the risk of viruses and hackers accessing your private key is minimal.

While these wallets offer excellent security, they may be less convenient than other wallet options as they require physical access and PIN entry. However, if you have significant cryptocurrency investments and prioritize security, a hardware wallet is an ideal choice.

Also, unlike software crypto wallets that store keys on the internet, these wallets keep the private keys on the device. It makes them less susceptible to hacking and malware attacks.

Moreover, usually, this kind of non-custodial wallet is portable. Therefore, you can easily carry it around as a secure private key to access crypto assets from anywhere.

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What is the best non-custodial wallet in the UK?

Many non-custodial wallet providers offer great options. Here is our Top 3.

Ledger

Ledger is an established and reputable company known for its flagship non-custodial wallets. These wallets can interact with multiple blockchains via the Ledger Live desktop app, offering users convenience and top-level security.

However, the company faced significant backlash due to its ID-based Ledger Recover feature. It stores a backup of the user’s recovery seed phrase. While introduced to help users recover keys if they lose access to their recovery phrase, many argue it contradicts the purpose of having a non-custodial wallet.

Additionally, Ledger experienced a massive leak of customer information, leading to phishing attacks. Despite the leak not directly compromising funds due to the non-custodial nature of the wallet, it raised concerns about data security.

Trust wallet

Trust Wallet is an open-source and decentralized non-custodial wallet application acquired by Binance. This crypto wallet supports over 35 blockchains and 160 digital assets, providing in-house buy, swap, and exchange features for easy trading and buying crypto with fiat.

Users can securely interact with dApps on Ethereum and other EVM-compatible ecosystems. Available on iOS, Android, and desktop, Trust Wallet offers multiple options to buy crypto, stake assets for interest, and instantly exchange them while maintaining privacy. Also, you can withdraw your money in case you want close your account.

Users can also track prices and charts within the crypto wallet and view NFTs and collectibles in one place. Moreover, employing fingerprint and PIN code scanning, Trust Wallet prioritizes security by not storing user data on servers, giving users full control of their keys.

Exodus

Exodus is a visually appealing and user-intuitive multi-currency, non-custodial wallet available on various devices. It offers a slick interface and portfolio management services and caters to both crypto beginners and experienced user

Users can store, manage, and trade over 130 different cryptocurrencies, including popular options and even NFTs. This crypto wallet also provides a risk-free way for users to earn from crypto-to-crypto purchases, rewarding them with a percentage of the profit directly to their accounts.

The non-custodial wallet introduces various features like live charts, crypto staking, and crypto deposits to enhance its functionality. One advantage is its customizable fee options for Bitcoin, Ethereum, and ERC-20 transactions while operating on a light client for faster transactions without complete blockchain downloads.

However, some users may find the lack of 2FA as a drawback in terms of security.

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FAQ

Is MetaMask non-custodial?

Yes, MetaMask is a non-custodial wallet. It is a popular browser extension wallet that operates as a non-custodial Ethereum wallet. It provides users with full control over their private keys and cryptocurrencies.

When you use MetaMask, you retain complete ownership of your funds and manage your keys directly. The private keys are stored securely in the extension on your web browser, and MetaMask does not have access to or control over your funds.

This means that you are responsible for the security of your private keys and need to keep them safe to ensure the safety of your assets.

As a non-custodial wallet, MetaMask allows you to interact with decentralized applications (dApps) and transact on the Ethereum blockchain with the assurance that you have full ownership and control over your cryptocurrencies.

Are non-custodial crypto wallets better than custodial ones?

Individual choices and needs determine whether non-custodial crypto wallets are superior to custodial wallets. Non-custodial wallets give users complete ownership and control over their private keys, improving security and privacy.

However, they also require users to be more responsible for their crypto wallet security. On the other hand, custodial wallets may be more user-friendly and offer customer support. However, they come with the drawback of users having less direct control over their funds.

The choice between the two types of crypto wallets depends on security concerns, convenience, and comfort with managing private keys.

Are non-custodial crypto wallets safe?

Non-custodial hardware wallet offers a higher level of security compared to software wallet. They store private keys offline on a physical device, isolated from potential online threats like malware or hacking attempts.

In contrast, software crypto wallets are stored on electronic devices like computers or smartphones. It makes them potentially vulnerable to security breaches if the electronic device is compromised.

The self-responsibility associated with non-custodial and mobile storage solutions further reduces the risk of data breaches. It makes them a preferred choice for 66.5% of crypto holders.

Živilė Šarkauskaitė

Živilė is a writer with a diverse background, having worked with tech start-ups and pioneering brands across various industries. Her profound interest in progress and innovation drives her to the field of Fintech, a realm that sparks her curiosity and inspires her to share insights with others.

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