Custodial or Non-Custodial Wallets: Which is the safer option?

Custodial or Non-Custodial Wallets

Where do most people keep their money? In banks. Do they have full control over that money, or do they have full custody of their money? The answer would be a disappointing no. Banks are custodial of the funds kept in their accounts and they can, at times, deny access to these funds to their legal customers (and it has happened in the past).

What is the alternative to this? Keeping one’s money in his/her own custody, at home, or at some other safe location where it might be safe from problems like theft and robbery as well. Why do most people avoid this alternative? Because it puts more responsibilities on them and requires a lot more effort and care compared to opening a bank account.

The story is somewhat similar in the case of cryptocurrencies. A crypto wallet is where a cryptocurrency is kept. And just like a bank account managed by a bank or a safe locker at home managed by the customer herself, there are two different types of wallets in crypto. 

What are custodial wallets?

Some of the oldest and most popular mobile wallets for crypto are custodial (for example Binance Exchange wallet). Just like it’s easier to store money in bank accounts and let the banks take care of the security and technicalities of storing money, it is easier to hand over the custody of your wallet to a trusted entity and let them handle your private and public keys.

Crypto wallets need to store your personal blockchain information such as your private key in order to access and transfer your funds in cryptocurrencies (a private key is an alphanumeric code of length 12-24). If this code is lost, your crypto funds are practically inaccessible, it’s like storing cash at home and later losing access to it because you simply lost it. There was a popular case where a man lost 7500 bitcoins because he lost the physical hard drive he had stored the money in.

This is why custodial wallets can be a safer bet if you cannot manage and protect your non-custodial crypto wallet. Other than that, custodial wallets usually have much better UI, which means they are easier to use for those who are newcomers into the world of blockchain and cryptocurrencies. But custodial wallets can be dangerous for newcomers into the field as well.

What are non-custodial wallets?

Search bitcoin wallet in your AppStore and you would find hundreds of different bitcoin/crypto wallets, many of which are custodial in nature. Now all of these wallets are not managed by trusted firms and entrusting large amounts of cryptocurrencies to these wallets might be very risky.

Many of these wallet firms would be registered offshore and it would become very difficult, if not impossible, for a user to sue the firm if her funds are lost by the wallet. This is where non-custodial wallets are very useful. If kept carefully, secure, and backed up, non-custodial wallets are the safest kind of crypto wallets out there. The user has full control of her funds and can transfer them at will. 

In non-custodial wallets, both your private and public keys are stored inside the wallet and are completely handled by the user herself (public keys are the public address of any wallet used to transfer funds to and from its digital address). This means that the user doesn’t need to have trust in any organization/central authority to ensure the safety of her funds/transfers as these will be handled by the user and the blockchain technology. 

Which is the safer option?

Non-custodial wallets are safer but are difficult to maintain. Custodial wallets are easier to maintain but require trust in the wallet provider. Both options are good and can be an ideal solution for different people based on their knowledge and experience in blockchain and cryptocurrencies. 

But custodial wallets go against the spirit of blockchain. Blockchains are supposed to be trustless decentralized entities that simply take the factor of trust in a centralized organization out of the equation. That’s why we here at Antlia are building a non-custodial wallet for our cryptocurrency ANA. 

Custodial and non-Custodial wallets

Antlia’s would be a Multicoin Wallet, supporting both will have support for ANA and all popular coins/tokens such as BNB coins. It would give full control and custody of funds to the users themselves. We would make our UI easy to understand and use even for newcomers. We believe in the decentralization and democratization of financial institutions, and our crypto wallet will be a step in that direction.

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