Many of us are familiar with the word “wallet”, a pouch used to keep money and valuables. Some carry their wallets around while others have immobile wallets. The main purpose, however, remains safeguarding your valuables or assets. In the same way, we have a wallet in our normal world, there are also wallets in blockchain technology where our digital assets are stored or gathered. Before assessing the crypto wallets, let’s first understand the cryptocurrency assets.

Cryptocurrencies are bits of data dispersed throughout a database; the wallet is what locates all of the bits linked with your public address and displays the total amount in the app's UI. These apps make it simple to send and receive cryptocurrency. You can transfer or receive cryptocurrencies from your wallet in various ways. Typically, you enter the recipient's wallet address, select an amount to transfer, sign the transaction with your private key, add a fee, and send.

With the help of near-field scanning technology and integrated QR codes, many wallets enable you to scan a code, choose an amount, input your key, choose the transaction fee, and then click send. Receiving in transaction is even more straightforward; the recipient only needs to enter your address and repeat the procedures to confirm receipt. When you receive payment, you have finished the transaction.

Types of Crypto Wallets: Custody Wallet vs Non-Custodial Wallet

A cryptocurrency wallet is a software program that saves private and public keys and communicates with various blockchain networks to allow users to transfer, receive, and manage coins. Based on money security, wallets are divided into two categories: custodial and non-custodial wallets. To make an informed decision on your crypto ventures, you must first properly comprehend the differences between them. This article aims to review each of these wallet types, to help you choose the best solution.

Understanding Custodial Wallets –Merits and Demerits

A cryptocurrency wallet that is overseen by a third party is called a custodial wallet. Custodial wallets are ones in which your private keys are kept and managed by a third-party entity (such as an exchange or wallet provider) on your behalf. Custodial wallets could be convenient, but they might not align with the decentralization and security ideals of cryptocurrencies because they need you to trust the provider with your money.

You have to give another person or organization custody of your money when you use a custodial wallet. Reputable custodial wallet providers are unlikely to pilfer customers' money, although unexpected wallet lockouts have happened to users before, keeping them from accessing their cryptocurrency. Such incidents, similar to user experiences, cast doubt on the dependability of custodial wallets.

Essentially, the custodial wallet is a user-friendly wallet –particularly for beginners. The third party handles the technical aspects of storing the user's token, so they don't have to worry about that. For those who are new to cryptocurrencies and may not be comfortable with the technical aspects of managing their wallets, this makes it a great alternative.

Nevertheless, using a custodial wallet has several drawbacks as well. To correctly manage their cryptocurrency, the user must first have faith in the third party. This implies that the user's cryptocurrency may be lost if the third party is compromised. Also, if the third party ceases operations, the user may not be able to access their cryptocurrency since they do not have total control over it.

Understanding Non-Custodial Wallets – Merits and Demerits

A cryptocurrency wallet where the user has total control over their private keys is a non-custodial wallet. This implies that it is the user's responsibility to protect and secure their cryptocurrency.

While there are many benefits to using non-custodial cryptocurrency wallets, one crucial prerequisite is that users have a basic understanding of wallet backup and restoration. Users who utilize non-custodial wallets are also accountable for the security of their assets. This suggests that you should know how to safely back up your wallet.

The user's total control over their cryptocurrency is the primary benefit of a non-custodial wallet. This eliminates their concern about a third party handling their money and allows them to access their cryptocurrencies whenever they want. Since the user maintains control over their private keys, non-custodial wallets also tend to be more safe. Nevertheless, there are certain drawbacks to utilizing a non-custodial wallet. In the beginning, since the user is in charge of maintaining their coin, they could be trickier to use. If the user misplaces their private key, they might permanently lose access to their cryptocurrency.

The private key which is a 12- to 24-word recovery phrase needs to be kept in a safe place by users and adequately backed up to avoid loss of assets.

Final Notes

Finally, it is important to understand that there are benefits and drawbacks to both custodial and non-custodial wallets. Ease of use and security is ultimately what the user values more when deciding between the two.

Although custodial wallets are simpler to use, their management necessitates the user's trust in a third party. However, many digital currency enthusiasts favor non-custodial wallets because they give users more autonomy, control, and security over their digital assets. Therefore, to make an informed decision, users need to understand the concept that works best for them and choose accordingly.