Which is Better: Custodial or Non-Custodial Wallets?

4 min readJul 22, 2021

A silent battle has been raging on among cryptocurrency adopters for years. It is whether Custodial or Non-Custodial Wallets are more functional to use. However, this dilemma does not have a simple answer as both of these wallets have advantages and disadvantages. To make things a little easier for you we will look at both of these wallets and help you make a more informed decision on which one is better for you.

What is a custodial and non-custodial wallet?

There are some distinct differences between these wallets and this is why we will look at them individually before comparing them to one another.

Custodial Wallet

A custodial wallet in essence is a type of digital wallet that keeps your private keys safe and also supplies you with backup options in case of theft or if you forget your private keys. Furthermore, a custodial wallet will provide the customer with security for their assets.

This gives users the most convenient way to store crypto. You will get access to your assets by a touch of a button. Moreover, there are a few features that are unique to custodial wallets that we will cover later.

Non-Custodial Wallet

Unlike a custodial wallet, a non-custodial wallet is a decentralized class of wallets. This type of wallet lets customers own their private keys and take full responsibility for their assets. The user gets a file with their private keys that will enable them to get access or restore their funds.

You will have to write down your private keys (mnemonic phrase) and store it in a safe place to avoid theft. It gives you full control of your money and leaves you fully responsible for your assets.

The differences between Custodial and Non-Custodial wallets

There are five key factors that you should look at when deciding which wallet will work best for your needs. They give you a more detailed overview of what you can expect and what you might need.

Private keys

The leading factor people look at when comparing custodial vs non-custodial wallets is who has access to the private keys. In the case of custodial wallets, a third party will manage your private key. When dealing with a non-custodial wallet all the blockchain custodian services fall on you.

Transaction type

The transaction type is another factor to consider. When looking at a non-custodial wallet the transactions you make are reflected on the blockchain in real-time. However, this is not the case with custodial wallets.

Security

Security is an important factor to consider when comparing a non-custodial wallet to a custodial wallet. All of the sensitive user data is stored in hot and cold storage when it comes to custodial online crypto-wallets. Over the years hackers have been able to gain access to these wallets; so you would want the authoritative party that controls your private keys to have strong security measures in place to lessen your risk.

Having Non-custodial wallets gives you all of the sensitive information. It reduces much of the risk of your data being stolen. However, you will still be at risk if you share your details with someone or your device gets stolen.

Backup and recovery possibility

When it comes to backup and recovery possibilities a non-custodial wallet offers more options than a custodial one. With a custodial wallet, you will be able to regain access to your wallet by contacting the third party. This is not possible with a non-custodial wallet where you are solely responsible for your private keys and information.

Offline accessibility

To access your custodial wallet you will have to go online and log in to access your funding and corresponding details. So, without internet connectivity, this would not be possible.

However, with a non-custodial wallet, this is not a requirement and allows you to enjoy full blockchain development services in real-time.

Final thoughts

It comes down to how you want to secure your crypto

Securing your cryptocurrency holdings is paramount to everyone in the cryptosphere. This makes choosing a custodial or non-custodial wallet key to achieving your goals and security needs. You can choose either of these or use them in combination to best suit your needs.

Custodial wallets have good UI and non-custodial wallets give you more control over your wallet. It’s up to you to determine which will better fit your lifestyle and the amount of risk you want to take.