Self-Custody Wallets And Why They Matter So Much

By Pillar | Pillar Blog | 4 Jan 2023


The recent events with FTX have led people to recall the famous rule in the crypto world: Not Your Keys, Not Your Crypto. This phrase becomes more popular whenever a crypto-based company experiences something catastrophic, as it happened with Mt Gox, 3 Arrows Capital, Celsius, and now with FTX.

The main similarity between these companies is that in order for them to function, they required crypto deposits from customers. However, once the funds were deposited, users had no idea how their money was managed —-  which was often done poorly. As these companies were dealing with billions of dollars, a more important question arises: why would anyone entrust their assets to a third party when blockchain enables direct ownership of assets?

In this article, we'll take a closer look at crypto wallets and discuss why non-custodial wallets are more secure than custodial ones. We'll also introduce you to the ‘smart’ wallet category, including Pillar —  the wallet of the future. 

What is a cryptocurrency wallet?

Let’s start with the basics. You can use your digital crypto wallet to trade (buy/sell) or store cryptocurrency. The same operations and interface as in your online banking app. Unlike paper money that is physically stored in your wallet, crypto wallets don’t hold your cryptocurrency. Yep, that’s a bit confusing, so let’s take a closer look at this crypto paradox. 

From a technical perspective, a crypto wallet only holds your public and private keys. These keys are used to access and interact with your cryptocurrency that exists on a blockchain.

If we’re talking about banking, a public key is your bank account number that you may share with anyone to receive money. Therefore, it’s public. One can use it only to receive cryptocurrency but not to send it or withdraw it from your wallet.  On the other hand, a private key is a sort of a pin-code that proves your ownership of the wallet. You can spend your crypto assets only by knowing your wallet's private key. 

Custodial vs. non-custodial wallet

We assume you’re familiar with the word ‘custody’ — the protective care or guardianship of someone or something. When talking about crypto wallets, this term has a similar meaning. Who is taking care of the access to your wallet? Generally, there are two wallet types — custodial and non-custodial. 

What is a custodial wallet?

You probably use a custodial solution if you own a cryptocurrency but don’t know how it is stored. This option is easy-to-use, simple, and fast. When you purchase crypto through a crypto exchange, this exchange usually takes care (has ‘custody’) of your private keys. 

For example, Binance offers a custodial wallet, meaning they have access to your funds. It is very convenient if you lose your password, but at the same time, this wallet type is prone to hacker attacks, data breaches, and scams, as recently happened with FTX. 

Nowadays, popular custodial wallet choices are Binance, Crypto.com, or Coinbase.

What is a non-custodial wallet?

The rapid downfall of Sam Bankman-Fried's company will accelerate a trend towards individuals holding crypto assets on non-custodial wallets, says Peter Smith, the CEO of Blockchain.com.

In the case of a non-custodial wallet, you are the only person who is in charge of your assets. You can think of a non-custodial wallet as your personal bank. Only you know your private key, meaning no transaction from the wallet can be conducted without your consent. In other words, no middleman will ever have access to your funds (unless you share your private key or someone steals it from you). 

If you think about it, this approach is quite revolutionary. Since Babylonian times, when the economy as we know it today started developing rapidly, people relied on third-party institutions like banks. Yes, you own your money in the bank, but technically, you can’t use it without the bank's permission. Now, for the first time in history, you don’t give custody to anyone to use your own money. 

Unlike custodial wallets that usually come as a web-based wallets, a non-custodial one can be in the form of a mobile app, browser extension, desktop app, or even a physical device. The latter one is called a cold wallet, while the others are hot wallets. Trust Wallet, Metamask, and Pillar Wallet are among the best and most widely used non-custodial wallets.

So as you can see, security is a significant benefit of a non-custodial wallet. However, that is its main risk, too. If you lose your private or public key, there is usually no other way to recover your wallet. Many times, people lose access to their funds simply because their private key was written on a random piece of paper and got lost. 

Pillar Wallet

Luckily, there is another type of wallet out there that solves this single point of failure entirely while not compromising security —   a smart contract wallet.

Pillar Wallet is a community-run, multichain, and cross-chain DeFi wallet that supports Ethereum, Polygon, Gnosis Chain, BSC & Optimism. Pillar Wallet is powered by Etherspot SDK.

The difference to regular non-custodial wallets like Metamask is that your private keys are secured by smart contracts

Furthermore if you lose access to your private key in the near future you will be able to recover your Pillar Wallet. At the same time Pillar doesn't know your private key. When users execute an operation requiring the private key with the wallet, the application communicates with the smart contract so that the funds are never at risk. Sounds better, doesn't it?

While private key wallets are usually free, smart wallets come with a small cost, as a smart contract must be deployed on the blockchain. However, Pillar Wallet offers to deploy Polygon and Gnosis wallets for FREE, i.e., it covers the deployment fees.

Here are a few things that Pillar Wallet can do:

  • Store, buy, send, trade, and swap assets with low-to-no gas fees on different EVM-compatible chains within the app
  • Buy crypto directly on Ethereum or Polygon with a card or bank transfer via implemented on-ramp solutions
  • Move funds seamlessly between different EVM-compatible chains without the need for external bridging apps
  • Cross-chain swaps without gas tokens on the destination chain. Users can cover gas fees with any stablecoin that they have in their wallet
  • Use Wallet Connect to interact with a wide range of supported DeFi applications directly in the in-app browser
  • Pillar is a fully decentralized, open-source, non-custodial, and community-run wallet. Join our DAO and manage the treasury, make proposals to the DAO and shape the future of the project

Pillar Wallet is a next-generation crypto wallet that stores your cryptocurrencies securely and provides you with the same level of comfort as any custodial wallet.


Useful Links:

Pillar DeFi Smart Wallet 

Download Wallet | Website | YouTube | Discord | Github | Telegram

Etherspot Account Abstraction SDK 

Website | Discord | Twitter | Medium | Hackernoon | Github 

AirdropMe Reward Distribution Tool

Website | dApp | Twitter | Medium

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Pillar
Pillar

A community-run, multichain & non-custodial DeFi wallet with one address, low-to-no gas fees and cross-chain super powers!


Pillar Blog
Pillar Blog

Pillar Wallet is a self-custodial smart contract wallet enabling low fees, cross-chain swaps & stablecoin gas payments, all in a unified multichain DeFi experience. Powered by Etherspot - Account Abstraction SDK for frictionless Web3

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