Custodial vs Non-custodial

Custodial vs. Non-custodial Wallets

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Preface

. Despite game-changing and disruptive features, blockchain still has some hurdles related to security issues.

Almost every crypto enthusiast has the fear of losing their  because they . Once lost, the keys cannot be restored and you will no longer control the savings, so you won’t be able to restore access to the wallet. Such wallets are called non-custodial.

On the other hand, . This is the hidden peril of every wallet service that doesn’t provide you with private keys. These wallets are called custodial.

. When the third-party data is getting hacked, your money becomes exposed to a high risk to be stolen.

So let’s take a closer look at custodial and non-custodial wallets to find out all their pros and cons.

What are Custodial wallets?

 are services and exchanges that  The main advantage of custodial wallets is that you can restore access to your account in case you’ve lost your password. The bad news is they can freeze your funds in case of maintenance or due to KYC requirements. There is always a risk that your money may be stolen in case of hacking attacks.

For example, hackers stole about 700 BTC from one of the most famed Bitcoin centralized wallet: Blockchain.Info

The same is fair for centralized exchanges, as they are also prone to hacker attacks. The exchanges control your assets and may freeze your account without KYC/AML confirmation (KYC – Know Your Customer, AML – Anti Money Laundering).

What are non-custodial wallets?

. The keys stored in an encrypted manner on the user’s device and never leave it out. Your money is under your control, but there is also a drawback. 

For example, in case you brake your PC, it is stolen, or if you delete the app, you will be able to recover the access only with your seed phrase.  

How to securely store your mnemonic seed?

Keys are generating by mnemonic seed. We strongly recommend you to store it on paper in two secured places.  The seed is even more important than the password of your wallet since it generates the keys and restores the data. Back up the seed, write it down on a piece of paper, engrave on a piece of metal, store it in your safe or give it to your mom. Don’t lose the seed, under any circumstances!

How to create a non-custodial wallet