Custodial vs Non Custodial Wallet: Comprehensive Comparison

The number of people and businesses paying attention to cryptocurrency trading and wondering how to do it effectively is growing every day. Cryptocurrency wallets allow users to store and control various types of crypto assets and make transactions with them. 

Most crypto wallets are divided into custodial and non-custodial. Custodial wallet services are provided by cryptocurrency exchanges such as Kraken and Coinbase, wherein a third party manages your private keys and, consequently, your cryptocurrency holdings. Conversely, in a non-custodial wallet like the BitPay Wallet, only users can access their private keys, ensuring complete control over their assets. 

Both types have pros and cons, so the final choice of custodial vs non-custodial crypto wallet will depend on your requirements. This guide provides all the necessary information about crypto wallets to help you choose the right one for development.

Thanks to the widespread use of blockchain technologies, cryptocurrencies have become an essential part of the ecosystem of blockchain solutions. Statista estimates that the cryptocurrency market's user base is projected to amount to 992.50 million by 2028. This means that the demand for using crypto wallets will increase.

Crypto wallets are digital tools designed to manage, store, and facilitate cryptocurrency transactions. These wallets operate by storing pairs of cryptographic keys: a public key for obtaining funds and a private key for authorizing transactions and accessing holdings. These keys essentially serve as the user's digital signature, enabling them to interact securely within the blockchain network.

There is a fundamental difference between non custodial wallets vs custodial wallets. Each of the variants offers unique features and functionalities tailored to different user preferences and needs.

What is better: custodial vs non custodial wallet? Let’s consider their features.

Comparing a non custodial vs custodial wallet, in custodial wallets, the private keys are stored and managed by a third party, like a crypto exchange, for example. What about non-custodial wallets? Users have full control of their private keys. Securing the keys is also the responsibility of users. 

Custodial wallets can streamline transactions. How? They have a service that handles most of the technical tasks. Non-custodial wallets require users to verify and authorize transactions manually. Yes, users get greater control, but they should understand the tech process behind transactions.

When applying custodial wallets, users rely on third parties. These platforms store private keys and funds. So, the security depends on the service provider's systems. Non-custodial wallets enable users to keep their private keys offline. This offers a more secure solution, but users should stick to the security measures themselves.

Custodial wallets often provide recovery mechanisms. These are password resets or customer service support. In non-custodial wallets, if users lose the seed phrase, they cannot recover it and access funds.

Custodial wallets rely on online storage for private keys. Comparing a non custodial vs custodial wallet, non-custodial wallets, particularly hardware solutions, store private keys offline. This reduces the risks of diverse hacks. 

Custodial wallets remain a popular choice among beginner and casual users who prioritize convenience. However, non-custodial wallets are likely to see more widespread adoption among users who value full control and privacy.

Platforms like Binance, Coinbase, Kraken, and Gemini offer custodial types of wallets that are managed by these platforms. What is a non custodial crypto wallet? Great examples include TrustWallet, MetaMask, and hardware wallets - Trezor and Ledger. 

But how to create a crypto wallet? At Peiko, we will help you develop a secure and robust solution that meets your specifications.

It is a type of wallet where the holder’s private keys are stored by a third party. The owner of a custodial wallet can send and receive payments but cannot manage the wallet keys.

Crypto exchanges and other decentralized finance (DeFi) companies often use custodial crypto wallets. A third party (such as an exchange) manages such a wallet and is responsible for executing transactions and securely storing keys and funds. In this case, the advantage for the holder is ease of access—to enter the wallet, you only need to enter one key.

By the way, at Peiko, we help businesses get top crypto solutions with our blockchain development services. 

Custodial wallets, provided by platforms like cryptocurrency exchanges, offer convenience and user-friendliness, but they also come with their own set of advantages and disadvantages.

• Ease of use: A custodial crypto wallet eliminates the need for users to manage and secure their private keys, making them suitable for beginners or those who find handling cryptographic keys complex.
• Enhanced security measures: Custodial services usually introduce robust security protocols, such as encryption and multi-factor authentication, to protect individuals’ assets. This can instil confidence in users regarding the safety of their funds.
• Customer support: Most custodial wallet providers have customer support channels, allowing users to seek assistance with any queries or problems they face. This support can be invaluable, particularly for novice users navigating the cryptocurrency landscape.
• Fund recoverability: In scenarios involving the loss of private keys or other complications, custodial wallets often implement procedures to assist in recovering users' funds. 

• Limited control: Custodial wallets entail relinquishing control of private keys to the service provider, undermining cryptocurrencies' decentralized nature. Users should trust the third-party provider to manage their funds securely.
• Centralization of asset control: It is the company—not the individual user—that retains access to the private keys and, by extension, the funds. This centralization introduces a significant trust risk, as users must rely on the integrity of the custodians. 
• Dependency on the provider: Users rely on the custodial service's uptime and availability to access their funds and execute transactions. Any downtime or operational issues on the platform could impede users' ability to manage their assets.
• Regulatory compliance: Custodial wallet providers must adhere to regulatory requirements, including KYC (know-your-customer) and AML (anti-money laundering) regulations. This may involve collecting users' personal information, potentially compromising their privacy.

The three examples below—Binance, Gemini, and Kraken—are custodial wallets of crypto exchanges. Users have become accustomed to using these exchange wallets because the reputable crypto exchanges manage them, providing convenience and trust.

Binance
This platform was created in 2017, grew rapidly, and quickly became the biggest crypto exchange in the world before Coinbase went ahead. In addition, Binance is one of the highest-rated exchanges in terms of rates, has a high-security rating, and has super low fees. Binance offers users a reliable custodial wallet crypto solution.

Kraken
Although this platform may not be as popular as other Binance, this custodial wallet crypto exchange has maintained a strong reputation in the industry. Kraken provides support in over 190 countries, has over 10 million active users, and has a quarterly trading volume of US$207 billion. Kraken is a good option for users looking for a reliable custodial wallet.

Gemini
Established by cryptocurrency investment pioneers Cameron and Tyler Winklevoss, Gemini is a dual-purpose platform, serving as both a cryptocurrency exchange and a cryptocurrency custodian wallet. The platform proudly boasts SOC1 (system and organization controls) Type 2 and SOC 2 Type 2 certifications, ensuring adherence to stringent security and operational standards.

But what does non custodial wallet mean? Read the next section.

In this section, we will observe a non-custodial wallet meaning. It is a wallet whose holder has full access to his funds and is also personally responsible for their safety. The owner himself manages the crypto keys and processes transactions.

To understand the non-custodial wallet meaning, let’s discover how they manage assets and and keys. 

Most often, a non-custodial wallet is also provided by a third party. However, the management of assets in such a wallet is carried out personally by their holder. The same refers to ensuring the safety of funds in such a wallet. The user himself stores public and private keys and enters them during each transaction. Because of this, non-custodial wallets tend to be more difficult to use.

There are several types of non-custodial wallets with varying levels of tech knowledge to use them:

• Browser- and app-based wallets: These software solutions are connected to the Internet 24/7, which makes the wallet more vulnerable to hackers and various scammers.
• Hardware or physical wallets: They are considered the most reliable. The key is not stored on the network but on the device itself, so it is almost impossible to hack.

Comparing a custodial vs non custodial wallet, the most significant advantage of a non-custodial wallet is reliability, which is also its biggest disadvantage. Having lost the key, the user loses access to the wallet and everything that is in it. No one is there to offer support. The user is face-to-face with the wallet and all the nuances that arise.

Non-custodial wallets, such as software or hardware wallets, offer individuals greater control and autonomy over their crypto holdings. However, they also present distinct pros and disadvantages.

• Enhanced control: Non-custodial wallets provide users with sole control over their private keys, empowering them to manage and safeguard their funds independently. This decentralized approach meets the key principles of blockchain technology, promoting self-sovereignty.
• Increased security: Since users retain possession of their private keys, non-custodial wallets lower the risk of funds being compromised by some threats, such as insider attacks. To enhance the security of the wallets, users can be provided with additional security measures, such as encryption and passphrase protection.
• Privacy protection: Non-custodial wallets offer greater privacy by minimizing the disclosure of personal information to third parties. Users can transact pseudonymously, preserving their anonymity and privacy rights.
• Extensive cryptocurrency variety: Non-custodial wallets often offer a wider array of cryptocurrencies, expanding users' investment opportunities. This variety empowers users to explore diverse cryptocurrency options, facilitating portfolio diversification and risk mitigation.

• Complexity: Non-custodial wallets require users to take responsibility for managing their private keys and ensuring the security of their wallet software or hardware. This may pose challenges for inexperienced users or those unfamiliar with cryptographic concepts.
• Risk of loss: Since users are solely responsible for safeguarding their private keys, any loss or theft of these keys could result in irreversible loss of funds. This risk underscores the necessity of applying robust security practices, such as securely storing backup copies of private keys.
• Lack of user support: Unlike custodial wallets, these wallet providers typically offer limited customer support options. Users may encounter difficulties or technical issues with their wallets and struggle to find timely assistance or resolution.
• Recovery challenges: In the case of hardware failure or wallet loss, recovering access to funds stored in a non-custodial wallet can be challenging. Users must follow strict backup procedures and ensure they retain access to their recovery phrases or seed phrases.

Let’s consider some famous examples of non-custodial wallets. By the way, at Peiko, we know how to help you create outstanding wallets by providing our top crypto wallet development services.

MetaMask
It is a prominent non-custodial crypto wallet app widely recognized in the crypto world. As a Web3 wallet, it provides a secure environment for typical wallet transactions. In addition to basic functions, MetaMask enables users to connect with decentralized applications and DeFi protocols through its wallet gateway.

TrustWallet
This is another non-custodial wallet example. Also trusted in the community is the non-custodial multi-wallet Trust Wallet, which belongs to Binance. The wallet supports tokens on more than 100 blockchains. The application works on iOS and Android. Extensions are also available for Google Chrome, Brave, Opera, and Edge.

MyEtherWallet (MEW)
This solution stands out as a seasoned, non-custodial Ethereum wallet that has withstood the trials of time. Initially launched as a web-based platform, MEW now provides a mobile application, catering to users seeking convenient asset management on the move. With its capability to handle Ethereum, ERC-20 tokens, and ERC-721 collectibles, MEW enables users to store, transfer, and receive their digital assets securely.

Let's summarize the core disparities, comparing a custodial wallet vs non custodial wallet.

So, you decided on the dilemma of custodial vs non custodial crypto wallet and chose the type. The development of crypto wallets is carried out by companies that specialize in the development of blockchain solutions. But how do you choose the right company?

Before selecting a firm to create a crypto wallet, be it custodial wallets vs non custodial wallets, or maybe a Telegram wallet, it is vital to read reviews about the companies. In addition, portfolios and individual cases will help you understand whether you like the products the company has worked on. A portfolio of real work also helps weed out scammers.

If you are searching for a blockchain wallet creation firm, Peiko can help. We have extensive experience in blockchain technologies, wallet development, and related areas. Our experts also know how to create a stablecoin and private blockchain. So we can help with any request.

One of our best crypto wallet projects is a non-custodial wallet that was developed to support EVM (Ethereum Virtual Machine) and non-EVM blockchain networks. What did we have to do?

• Provide seamless cross-chain swaps, 
• Enhance security, 
• Create a user-friendly design.

Here are the key features we implemented for this non-custodial wallet:

• Multi-сurrency support: This non-custodial Ethereum wallet is compatible with EVM and non-EVM blockchain networks. This enables users to manage a variety of assets.
• Simple cross-chain swaps: Thanks to the integration with Changelly, users can easily swap cryptocurrencies across different blockchain networks.
• Enhanced security: The solution adheres to regulatory compliance with KYC and AML through SumSub, offering transaction monitoring and security.
• QR code wallet funding: Users can quickly and securely fund their wallets by scanning QR codes, streamlining the deposit process.
• Biometric login: The app allows secure, convenient access via biometric authentication, adding an extra layer of security for users.
• Various wallet management: Users can manage multiple wallets within a single account, offering greater flexibility in asset management.
• Top UI/UX redesign: A complete redesign of the user interface improves navigation and creates a more intuitive visual experience.
• Cross-platform support: We developed the project using React Native. Now, the crypto app provides seamless compatibility on both iOS and Android devices.

As a result, the client got a secure, multi-functional, and convenient crypto wallet. It provides the best user experience by combining a user-friendly design with robust security measures. 

What is better to develop: custodial wallet vs non custodial solution? It depends on your project. If you need help with any blockchain or software creation services like SaaS development services, for example, turn to Peiko, and we will create a top solution for you.

So, which wallet is better to choose for development, a self custodial wallet vs non custodial one? Most users use both types of wallets depending on their specific needs. Users prefer a non-custodial wallet to have complete ownership over assets and apply blockchain technology to interact with the DeFi apps. Still, many seek a service provider to store assets while users trade or invest. In this case, people choose a reliable custodian.

Remember that no matter the type of wallet, you must always use reliable methods to protect people's funds to ensure that users do not abandon the solution.

If you are searching for a credible blockchain development service provider, contact Peiko. We are eager to discuss your idea and create a top crypto wallet that fits your needs.