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Now you have tons of options to choose the wallet for storing crypto assets.

You can store cryptos using Hardware, Software, Mobile, Web; even there’re many wallets available for storing particular tokens like Ethereum based ERC tokens.

But at last, the most important thing that matters is how the wallet stores your funds.

When it comes to storing the funds, there are two options one is Custodial another Non-Custodial.

So, let’s look at Custodial and Non-Custodial wallets, how they’re different and their advantages and disadvantages.

Start with a Custodial Wallet.

What is a Custodial Wallet?

Custodial wallets store private keys themself, not in the user-controlled device.

When it comes to storing crypto assets, all pile down to Private Key; if you own the private key, you own the funds.; if the third party owns your private key, they have control.

In the Custodial Wallet, third parties control the private key. For example, when you create an account in a crypto exchange, they also provide a wallet that stores many crypto assets for trading, swapping and other activities.

To provide fast crypto services, crypto exchanges store your private keys on your behalf. However, they provide backup and some additional security features for your funds and of course, you can send and receive crypto assets.

What is a Non-Custodial Wallet?

On the contrary to Custodial wallets, Non-Custodial wallets give full control of private keys to users.

In a Non-Custodial wallet, you get a file with private keys and need to write down a mnemonic phrase with which they will be able to restore the funds.

This means you have full control over your money, so you’re the only one responsible for your funds.

Custodial vs Non-Custodial Wallet.

Differences	Custodial.	Non-Custodial.
Private Key.	The third party manages your private key.	Private key stored on the device which you have control.
Security.	Custodial wallet providers usually store all datas on hot or cold storage which are often prone to hacking or data breaching.	In a Non-Custodial wallet, the heart and soul of the wallet Private key remain within your control. This reduces the risk of data being stolen unless the user shares the details with someone or their device gets stolen.
Transaction Type.	Transactions are not reflected on blockchain in real-time.	Transactions reflect on blockchain in real-time.
Accessibility.	For using a Custodial wallet, you must have to login or create an account.	In a Non-Custodial wallet, it is not necessary to log in or create an account; heck, even you don’t need an internet connection while using a non-custodial hardware wallet for accessing funds.
Backup and Recovery.	Custodial wallet providers control your private key, so even if you lose access to wallet data, you can regain access by requesting the wallet provider.	Here Non-Custodial wallet provides you with a seed phrase for backup and restores the funds, but if you lose the seed phrase, you can’t be able to recover your funds.

Advantages and Disadvantages of Custodial Wallet.

First, look at some Advantages of a Custodial wallet.

Advantages.

Cost-Effective Transactions.

The big advantage you get with the custodial wallet is the transaction fees are less. Sometimes you don’t have to pay any transaction fee at all.

Custodial wallets allow you to make transactions within their ecosystem by charging low or even no fee at all.

The best example is; Freewallet, a custodian wallet, charges no fee to the transactions between Freewallet users.

User Friendly.

Most custodial wallets have a user-friendly design.

You can easily figure out what features a wallet has without having any technical background.

Higher Backup Possibility.

With a custodial wallet, even if you don’t have a recovery phrase for backup, still you can contact the wallet provider for backup because the wallet provider controls your private key.

Less Chance of Losing Private Key.

Since wallet providers control your private key. It reduces the chance of losing a private key or forgetting the mnemonic phrase.

Disadvantages.

Third-Party Controlling Your Funds.

The big setback of custodial wallets is the wallet provider stores private keys on their server instead of giving you.

As I mentioned earlier in this post, a private key is the soul of a wallet, so if a third party has control over the private key, it means they can control the management of fund transfer and associated processes, including freezing the stored amount.

Security.

Usually, custodial wallet providers like crypto exchanges store your funds in hot or cold storage facilities.

Even though these facilities are not easy targets for hackers, they are still vulnerable to security breaches.

Need for KYC.

In a custodial wallet, you have to provide email, ID verification, or KYC details to create and access the wallet.

This necessity of identifying verification impedes the basic principle of Cryptocurrency, i.e, anonymity.

No Offline Facility.

To access your custodial wallet you need to have an active internet connection and wallet provider website or app also up and running.

If you or your wallet provider is offline, you can’t connect to the wallet and access funds.

Ok, now you know what are the advantages and disadvantages of a custodial wallet. It’s time to look at non-custodial wallet advantages and disadvantages.

Advantages and Disadvantages of Non-Custodial Wallets.

Advantages.

You Have Control Over Funds.

A non-Custodial wallet gives you control over wallet private keys, so obviously, when you have control of a private key, you don’t have to rely on any third party to handle the funds or do any relevant activities.

Safety.

Since all the data is stored on your device, you’re responsible for your device security; meaning the lower risk of any data breach because there is not one server handling many wallets, so if someone’s wallet is hacked somewhere in the world, you don’t have to worry.

No KYC is required.

For using a Non-Custodial wallet you don’t need to submit any KYC or ID details.

All the transactions are stored in real-time on the blockchain without submitting any personal details.

You can do seamless transactions being anonymous and without the approval of any third party to do any transactions.

Disadvantages.

Trade Delay.

It is hard to do crypto trade using a Non-Custodial wallet because all the transactions are settled on the blockchain. Where in the custodial wallet, transactions initially are sent to a third-party platform.

User Interface.

To use a Non-Custodial wallet, you have to have some technical know-how of seed phrase, private key, 2FA; even to use a Non-Custodial Hardware wallet, you have to follow specific instructions given by the wallet provider.

This can be a hefty task for a person who doesn’t have any technical background.

More Responsibility.

You have the control of a Non-Custodial wallet private key; this means you have the sole responsibility of safely managing the funds; even the tiniest of mistakes could lead to robbery, deletion, or unplanned consequences.

Conclusion.

Both Custodial and Non-Custodial wallets have their own discriminations for saving crypto assets, but the major one is how they store the private key.

And after reading through the post, you have a better understanding of what is the exact difference between both wallets so you can make clear decisions when choosing a wallet.

Now it is up to you whether to choose a Custodial or Non-Custodial wallet.

If you got any useful insight from the post, then don’t forget to share it with your family and friends.