Cryptocurrency wallets are the sacred place to store your digital assets. You may have heard the term “Custodial” and “Non-Custodial”, but what do they mean?
In short, it boils down to security, trust, accessibility and control over your private keys. So let’s explore the pros and cons of either so that you can confidently decide where to store your tokens.
Custodial Wallets
When purchasing cryptocurrencies for the first time, people typically use a third-party cryptocurrency exchange as a starting point (hopefully CoinBurp!); a majority of centralised cryptocurrency exchanges provide custodial wallets by default.
With a custodial wallet, your private keys are stored by a third party, meaning the third party is responsible for and has full control of your funds. These keys are complex cryptographic codes that allow you to spend your cryptocurrencies, or transfer them to another wallet.
Think of it as you would for your credit card PIN number; your private keys give you access to your digital asset wallets, though just as you would with a bank, you must provide a lot of personal information to get access to these wallets.
Historically, custodial wallets have a pretty bad track record due to hacks, security breaches, and exit scams. But this was back when there were very few regulations to protect consumers from such events.
Modern times cryptocurrency exchanges are well-regulated and often insured against such instances. Here at CoinBurp, your assets are insured up to $100 million. Furthermore, many custodial wallet providers keep their funds in cold storage, meaning they are stored offline; conversely, hot wallets are online.
One last thing to consider is access. There have been many occasions where the largest cryptocurrency exchanges have had their websites go down, or have trading halted, which can be a major issue during times of price volatility. That said, central cryptocurrency exchanges have a massive variety of crypto trading pairs, though they give limited access to decentralised applications and platforms.
On the upside, if you forget the details to your account, you can quite easily regain access to your custodial wallet, which is not the case for non-custodial wallets.
Summary
Advantages: Wallet security managed for you; low/zero transaction fees; easily retrieve private keys/mnemonic phrase if lost; no extra hardware/security required; greater exposure to more cryptocurrency pairs; some exchanges offer interest on cryptocurrency savings
Disadvantages: Central points of failure; custodians control funds; risk of data breach; chance for no access to new cryptocurrencies created by hard forks;
Non-Custodial Wallets
In the true sense of cypherpunk and financial sovereignty, many purists consider non-custodial wallets to be the storage method of choice. This is because you, and you alone, have complete control over your keys and therefore your funds.
You are required to be extremely cautious of how you record and store your private keys, passwords, recovery phrase, and every other security detail for your non-custodial wallet.
If you lose the wallet, destroy it, forget the password for it, and haven’t taken the right steps to be able to regenerate the wallet, then you may lose access. It should be noted that any non-custodial wallet with large sums held in it should be password protected in written form, kept in a place only you know.
Regardless of wealth, never store your keys in an email or other online entity, and it is highly inadvisable to store them anywhere on your computer unless you’re savvy enough to put the right security in place.
Non-custodial wallets can be found in many forms from web browser plugins, websites and installable software for your mobile or computer, to simple hard drives, built-for-purpose hardware, and others.
Using hardware is considered to be the safest way to secure your cryptocurrencies as they are cold storage. They usually look like USB sticks with a small screen and some buttons, and whilst they may connect to the internet when you’re making a transaction, the actual private key signing takes place offline within the device before being sent online to the blockchain. In essence, this can even protect funds from a malware-infected device.
Summary
Advantages: Full control of funds; sovereignty over transactions, access to advanced features such as decentralised exchanges and DeFi applications; potential for higher levels of security with hardware/paper combination; access to dividends/staking rewards with associated crypto holdings
Disadvantages: Less user-friendly; human error can result in theft or accidental loss; slower trades; occasionally more expensive; limited exposure to cryptocurrency pairs;
CoinBurp Wallets
The CoinBurp DeFi NFT wallet has recently released, which is built to be an accessible gateway to exploring, purchasing, and storing NFTs as well as interacting with the many DeFi platforms out there.
Later this year, the custodial wallet together will be merged with the DeFi solution, after which users will be able to access both Centralised Finance (CeFi) and DeFi in one app, giving you freedom of choice and security — all the advantages above and none of the disadvantages. The CoinBurp Wallet will continue to be protected by BitGo’s $100m insurance.
Important Information
Cryptocurrencies are generally not regulated and investors do not have access to recourse or compensation schemes such as, for example, in the UK, the Financial Ombudsman Service or the Financial Services Compensation Scheme. Investing in cryptocurrencies can be high risk and investors should carefully evaluate their appetite for risk and their understanding of trading cryptocurrencies prior to entering into a transaction.
