Wallets that hold money and ones that don’t Cryptocurrency users have more places to store their coins if they choose one of these wallets. Also, the sudden rise in cryptocurrency investors around the world means that the digital platforms for both types of wallets are making more money.
Many business owners and investors who want to make their own cryptocurrency platform are interested in blockchain development. But it’s hard for them to decide whether to make wallets that hold the money or wallets that don’t.
Once business owners are aware of the differences between these wallets, they can choose between them and decide which type of crypto wallet development will be more suitable for their company.
What are Custodial Wallets?
Custodial wallets are run by third-party services that are centralized. The service providers of the wallet keep each user’s private key.
Why custody wallets are a good idea
Because of the benefits of centralized wallets, it makes sense to make cryptocurrency wallets on custodial platforms. Let’s talk about them more in-depth.
1. Exchanges at no cost
It may be the best thing that can happen when people use cryptocurrency transactions. Users might be happy. Also, you should know that Freewallet helps its users save about $500k in 2019 because it doesn’t charge a fee for transferring cryptocurrency.
2. It’s impossible to lose a private key.
Even if users lose their private keys, they can still get them back. Service providers store private keys on their servers, so users can ask for them.
Since users can always get back their private keys, having them held by a custodial service provider makes it almost impossible to lose them forever.
What a custody wallet can’t do
There are some benefits to using custodial services, but there are also some problems with centralized wallets, which we’ll talk about below.
1. Wallet providers can control your money.
The third-party centralized wallet is in charge of everything in your cryptocurrency wallets. Your cryptocurrency wallet account could also be frozen if your custodial service has full control over it and you’re not allowed to do certain things with it. Because of this, it makes sense to follow all of the rules of the centralized wallet providers.
2. Asking for proof of who you are
On some centralized wallet platforms, users can’t be anonymous while making cryptocurrency transactions. To sign up for a cryptocurrency account, users must give their KYC information to the service provider. KYC also makes sure that the same user can’t use the same platform to access more than one cryptocurrency wallet.
3. The chance of attacks by hackers
There is no longer any reason to doubt the safety of centralized cryptocurrency wallets. But hackers still steal cryptocurrency from centralized cryptocurrency exchanges all the time. In 2014, hackers broke into 70% of the transactions on the Japanese exchange Mt. Gox, which led to a terrible loss of $450M.
Concerning Best Wallets
Users can quickly buy, sell, and trade assets that use cryptocurrency. Users can also earn up to 11% interest on the cryptocurrency they own. Also, users of this platform can get NFTs and Defi tokens directly through their apps.
What is a wallet that doesn’t hold your money?
The non-custodial wallet is very different from the custodial wallet. Because they are decentralized, owners of non-custodial wallets keep the private keys to their cryptocurrency wallets close to their chests.
The keys can be kept in hard wallets or on paper, and they can always be gotten to. If you give them full control over their crypto wallets, it will be up to them to keep their private keys safe.
Once private keys are lost, they can’t be found again. Users should write it down in several safe places if they want to make backups.
Benefits of a non-custodial wallet:
Users can take advantage of the benefits of non-custodial wallets because they hold the private keys to their cryptographic keys.
1. Having full control of money
The non-centralized wallet makes it possible for users to stay independent from all third-party service providers. When compared to centralized wallets, users have more control over their crypto wallets because they still own private keys.
2. Making people safer
since it is not possible to get to the private keys of crypto wallets online. Hackers have a hard time getting private keys and taking money out of cryptocurrency wallets.
3. Getting money right away
Users with private keys can take money out of centralized crypto wallet services at any time and without being verified. Users can use their money whenever they want to with instant withdrawal.
The problems with non-custodial wallets:
Because users are responsible for keeping their private keys safe, these decentralized wallets have the following problems:
1. The chance of losing money for good
Users are most likely to lose their money if they lose their hardware or forget their private store key. No one would be able to help you get your private keys back, so there is no way to get them back.
2. Hard for people to use
Since users are in charge of their cryptocurrency wallets, they need to take extra steps when using a decentralized wallet.
More app buttons and UI elements, along with wallets that are not centralized, making it hard for new users to figure out how to use an app.
3. Trade pause
Decentralized wallets have a trade delay, which is not the case with centralized wallets. The trade order will first be sent to their exchanges, where it will be carried out when another buyer or seller on their platform shows interest.
4. Taking more responsibility
Most of the time, it’s the users’ fault when they lose their private keys. Inside of the crypto wallet, users will lose their cryptocurrency funds for good. So, users will have to be extra careful to keep their private keys safe and stop other people from using them. Electrum, Exodus, Zengo, Wasabi, and other wallets that don’t keep your money on their servers are some examples.
What makes a custody wallet different from an ordinary wallet?
Getting to know the differences will help you decide which type of cryptocurrency wallet is best for your business.
1. Having the secret keys
Users can’t get to their private keys in centralized wallets. In centralized wallets, the service provider doesn’t give out private keys but instead gives out passwords. While with centralized wallets, users can use their private keys to move money at any time.
2. The way to buy and sell cryptocurrency
In a centralized wallet, the user must be checked out by a service provider. Discussions about the distributed wallet. Users don’t need to be checked because they have access to their private keys.
3. How safe it is
The decentralized wallet is safer because the owner doesn’t store his private keys online. In the case of a centralized wallet, the hacker may be able to get into the crypto wallet’s privacy and take out all of the money.
4. Options for backing up and restoring
Users risk losing all of their money if they forget the alphanumeric sequence of their private keys in a decentralized wallet. But if you use a centralized wallet, you can get your money back because the service provider keeps the keys to your wallet on their servers.
5. Allowing access when not online
To use and move cryptocurrency funds, you need to be connected to the internet. To send a transfer request, you also need to be connected to the internet.
Users can use software based on crypto wallets to move money from one crypto wallet to another in a decentralized wallet.
Which of the two types of wallets, non-custodial or custodial, is best for your business? Let’s take a look.
What do we need to sum up?
Custody wallets are becoming more and more common as almost every new cryptocurrency user creates an account on a centralised platform.
But because these centralized wallets have some limitations, a lot of people are switching to decentralized wallets so they can have full control over their cryptocurrency wallets.
Separate custodial wallets from non-centralized wallets; each has a different market. So, you can choose to make any kind of cryptocurrency wallet based on what your target users want and need while keeping your target users in mind.