What is a Non-Custodial Wallet in Crypto
Non-custodial wallets are wallets that give the owner exclusive control of the private keys rather than entrusting them to a third party, such as an exchange. With a non-custodial wallet, you are entirely responsible for securing your private keys and wallet.
In contrast to custodial wallets, in which the host platform ultimately controls access, non-custodial wallets are censorship-resistant; they give the owner a direct link to their blockchain address, meaning their access is not dependent on any other entity, and assets cannot be confiscated by another party.
Types of Non-Custodial Wallets
Generally, there are three types of non-custodial wallets
- Software Non-Custodial Wallets: These wallets are a software application that you can access through a web portal, computer, or mobile device. Software wallets store your private keys within an interface that is always connected to the internet. This makes these wallets easy to access – but also means the private keys that store will always be online, and vulnerable to digital hacks. Examples of software non-custodial wallets include Metamask and Trust Wallet.
- Hardware Wallets: Hardware wallets are crypto wallets that store your private keys offline in a secure physical (hardware) device isolated from internet connection. The hardware is usually a portable device you plug into your computer to access your crypto assets. Examples of hardware wallets include Ledger hardware wallets, such as the Stax, Nano X, and Nano S Plus.
- Paper Wallets: Paper wallets also store your private keys offline. It is a printed piece of paper that contains your private keys and QR codes. To access your assets, you need another crypto wallet app that can scan the QR code and transfer your assets into the software wallet. Paper wallets are entirely removed from the internet and are considered the safest way to store your crypto assets. However, they are less common because paper is a less durable storage mechanism.
Benefits of Non-Custodial Wallets
Benefits of using non-custodial wallets include:
- Complete Control of Your Wallet: Since you have both your private keys and recovery phrase, non-custodial wallets give you complete control of your wallet and assets.
- Censorship-resistant: Non-custodial wallets may be more secure than exchange wallets because private keys are not managed by a single entity.
- No limitations – Transactions on custodial wallets may be restricted in terms of withdrawal limits or even freezing of your account by a third-party. In this context, non-custodial wallets are unrestricted as the freedom as well as responsibility of the assets is completely in your hands.