In the world of cryptocurrencies, wallets play a crucial role in the safe storage and management of digital assets. Two common types of wallets are custodial and non-custodial wallets, each offering different features and trade-offs. Understanding the difference between these types of wallets is important for any cryptocurrency holder.
Non-custodial wallets
Non-custodial wallets give absolute control to users over their cryptocurrency. An example of such a wallet is Gem Wallet, which is available available available on Android and iPhone smartphones, the user downloads it from the official app store. Storage in a smartphone — a convenient format, in addition, the founders of Gem Wallet launched an educational platform about cryptocurrencies — where you can learn about crypto a lot of useful things. You are advised to read it!
Non-custodial wallets are designed to store private keys locally on the user’s device, rather than from a third-party custodian. Non-custodial wallets can be:
- Software-based, like the one we mentioned above.
- Hardware (Ledger, Trezor).
Keys to hardware wallets are stored on a separate device.
The main advantage of non-custodial wallets is increased security and privacy. Since wallet owners have full control over the private keys, they have sole ownership of their funds, which reduces the risk of hacking or theft by custodial providers. Additionally, these wallets often prioritize anonymity, allowing users to make transactions without revealing personal information. However, this increased control and security comes at the cost of added complexity and responsibility. Users must safeguard their private keys, as losing them can result in irretrievable loss of funds.
Custodial wallets
Let’s briefly characterize them as well. Custodial wallets, as the name suggests, include a third-party custodian that stores and manages the user’s cryptocurrency funds. These custodians can be centralized cryptocurrency exchanges or other service providers.
Choosing the right wallet
When it comes to choosing a wallet, it is important to consider individual preferences and needs. Non-custodial wallets provide users with increased security and ownership, albeit with more responsibility. To give you an example, Gem Wallet allows you to store Bitcoin, Ethereum, TON, USDT, BNB, SOL, LTC, ADA, MATIC, SUI, PEPE.
Some users may benefit from a combination of both types of wallets. They keep a portion of their funds in a custodial wallet for convenience and daily transactions, while keeping a significant portion in a non-custodial wallet for long-term storage and added security.
Ultimately, the choice depends on individual risk tolerance, technical knowledge, and preference. Regardless of the type of wallet chosen, it is critical to stay abreast of security best practices and regularly update software to keep digital assets safe.