Custodial vs non-custodial wallet
A custodial wallet is a type of digital wallet where the private keys to a user’s cryptocurrency are held and managed by a third-party service provider, such as an exchange like Binance or a wallet provider. The user does not have control over their private keys, and their digital assets are stored on the third-party’s servers. In contrast, a non-custodial (aka self-custody) wallet like NearMobile is a type of digital wallet where the user has full control over their private keys and therefore, their digital assets.
Main differences between custodial and non-custodial wallets
Here are some of the main differences between custodial and non-custodial wallets:
- Control: With a custodial wallet, the third-party service provider holds and manages the private keys to a user’s cryptocurrency, and the user must trust the provider to manage their assets properly. In contrast, with a non-custodial wallet like NearMobile, the user has full control over their private keys and can manage their assets themselves. Cases such as FTX bankruptcy show how important it is to have one’s assets outside third party control.
- Security: Custodial wallets are generally considered to be less secure than non-custodial wallets, since the user must trust the third-party service provider to properly secure their assets. In contrast, non-custodial wallets like NearMobile allow users to maintain control over their private keys and therefore, their security. Several exchanges have suffered hacks like Binance or crypto.com, and they tend to result in millions of dollars worth of stolen assets
- Accessibility: Custodial wallets are often more accessible and user-friendly than non-custodial wallets since they are managed by a third-party service provider. However, non-custodial wallets like NearMobile are becoming increasingly user-friendly and accessible as they become more popular.
- Fees: Custodial wallets often charge fees for their services, such as transaction fees and storage fees. In contrast, non-custodial wallets like NearMobile typically do not charge any fees for managing assets and any transaction, including paying fees, must be signed using the customers’ privates keys, which the company behind the wallet do not have access to.
- Privacy: Custodial wallets may require users to provide personal information, such as their name, address, and identification documents. Most crypto exchanges currently require a full KYC (know your customer) such as traditional banks. In contrast, non-custodial wallets like NearMobile do not require any personal information, providing users with greater privacy and flexibility.
Non-custodial = control
In summary, the main difference between a custodial wallet and a non-custodial wallet like NearMobile is that with a custodial wallet, the third-party service provider holds and manages the private keys to a user’s cryptocurrency, whereas with a non-custodial wallet, the user has full control over their private keys and therefore, their digital assets. While custodial wallets may be more accessible and user-friendly, non-custodial wallets are generally considered to be more secure and provide users with greater control over their assets.
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