From our expose on how to buy and sell bitcoin, we mentioned something along the lines of … “Since bitcoin is a digital coin, it is usually stored in virtual wallets regardless of whatever medium you use to purchase the digital gold”. Your virtual wallet may be a custodial wallet (accessed via a cryptocurrency trade platform) or a non-custodial wallet (a digital wallet provided by an independent wallet service provider). You may also store itin a hardware device, desktop wallet, or even a mobile wallet etc.
The same way you use a bank account number to identify a traditional bank account, your wallet address is your crypto wallet identifier. It is what you send to traders as your digital storage address for crypto transactions. Before transferring any unit of bitcoin to your wallet, make sure the entire wallet address -which is a mix of letters and numbers just like this xFgFh1ghG35fvs4KjHFSB-is correct and intact. Also, please safeguard your private keys and password as diligently as possible. You do not want to lose them.
I write this article with our readers in mind. We want all and sundry to understand the differences between the two basic forms of digital wallets that we have: They are Custodial and Non-Custodial wallets. This will inform what type of wallet you choose or maintain.
Really, the decision to choose either of the two types of wallet or even both types boils down to how you want to secure your private keys.
Custodial Crypto Wallets
A Custodial Crypto Wallet gives you some sort of quasi control over your wallet. your private keys lie with a third party. Many Crypto Exchanges give you the option of this kind of wallet in the form of “web-based exchange wallets”. The responsibility of safeguarding your wallet largely lies with the crypto exchange offering the service of the custodial crypto wallet. The crypto exchange holds your private and public keys, and they gotta monitor your funds. To be honest, they are also largely more accessible to crypto trade platforms.
If you lose your password to a non-custodial wallet, you may have to move mountains before you get it back, unlike with a wallet in the custody of a crypto exchange; it is easier to reset your password with the latter. We also have newer models of custodial wallets: Exchange Traded Products- ETP wallets and Exchange Traded Funds- ETF wallets.
Non-Custodial Crypto Wallets
If you are the type who wants complete control and privacy of their funds and means to your funds, non-custodial crypto wallets may just be for you. Non-Custodial Crypto wallets eliminate third parties between you and your digital funds- crypto. These types of wallets may be accessible via a website; they can be hardware devices, mobile phone based softwares, desktop based softwares whatever forms they take. The most secure out of the foregoing appears to be hardware device wallets, which is like a USB Storage device. Each time you want to access your crypto, you must connect the hardware to the computer.
Yes, we have established that non-custodial crypto wallets are relatively more secure; it requires utmost care on your part to not lose or forget your password, else you lose your hard-earned funds. Not that there is no way to recover access to a non-custodial wallet. Most service providers provide a back-up procedure.
Although it is important to keep private keys private- like their names, it is also expedient that a trusted someone knows your private key, because what then happens to an individual’s digital assets should that individual pass on to the great beyond? If a person passes on without their next of kin becoming privy to their crypto wallet details, it may be nearly impossible for them to retrieve the sums.
Have You Decided Yet?
The decision to choose either of the two kinds of wallet lies with you. You may even use a combo for different or even the same purposes. The most important denominator is to be cautious and abide by the best security practices as instructed by your wallet service provider. All the best.
Please take note this piece is merely for informational purposes only and not construed as a business or investment advice. Please conduct your due diligence research before the execution of any decision based on this article.
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The writer, Taiwo is a transactional legal practitioner in the Tech and IP space. She is glad to answer your questions and know your experience via the comment section below.
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