Custodial vs non-custodial (self-custodial) crypto wallets, and why it matters

Custodial vs non-custodial (self-custodial) crypto wallets, and why it matters
3 min read
14 July 2022

Understanding the difference between  custodial and self-custodial wallets   is an essential part of keeping your  crypto secure for years to come.

The term custodial wallet means there is a  custodian, like Coinbase, who can access the   cryptocurrency in your wallet. These centralized  services have control over their users’ crypto,   and this can lead to some pretty bad outcomes.

For example, Coinbase recently  released a document suggesting   that in the event of a bankruptcy, the exchange  might use customer deposits to pay off creditors. Celsius is another great example of  why custodial wallets can be dangerous.   The centralized lending and borrowing  service, with more than $10 billion in   assets, recently blocked all customer withdrawals. Due to an overinvestment in staked  Ethereum, and a large loan on MakerDAO,   Celsius doesn’t have enough liquid  assets to give everyone their money back.   It’s now unclear when or if Celsius will allow  their customers to access to their own money. As you can see, when you use a custodial wallet  you don’t have full control of your crypto. A non-custodial wallet is the  opposite.

Non or self-custodial   means there’s no need for a custodian or third  party to have access to your cryptocurrency. That’s because the private keys to your wallet  are stored directly with you. The only thing you   have to do to keep your wallet safe is to protect  your password and your 12 or 24 word seed phrase,   which allows you to restore  your wallet on any device. Exodus is a great example of a self-custodial  wallet. No matter what happens, Exodus can   never access any of your crypto or  stop you from transacting with it. Hardware wallets are also non-custodial,   and they’re one of the safest  ways to store cryptocurrency. To send crypto from a hardware wallet a  user has to push a button on the device,   which guarantees that a hardware  wallet is almost impossible to hack. Not your keys, not your coins, is a  common phrase in the blockchain community.  

Using a non-custodial wallet is the  only way to hold your private keys   and take complete control  over the coins in your wallet. One of the best things about crypto  is that for the first time in history,   people have full control  over their digital assets. With cryptocurrency you can be your own bank, but  only if you’re willing to be your own custodian! 

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Kelly 3.6K
I'm your source for the latest in tech news and updates. Stay informed with my articles on the most exciting developments in the tech world
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