What is a Wallet and Why Do I Need One (or Multiple)?
There are a couple types of crypto wallets available, some are located on the internet and some are physical devices that look like a USB drive that are not connected to the internet.
These all have pros and cons but for most beginners the internet based wallets are broken down into two categories and either of these should work for most beginners.
A Custodial Wallet is basically a wallet in which the private keys are held by a platform or company. Basically, someone else has control over your crypto. A Non-Custodial Wallet is one in which you maintain the private keys, nobody that you do not grant keys to should be able to access your wallet.
Pros of Custodial Wallets
Low or No Transaction Fees
One of the biggest benefits of a Custodial wallet is there are no or low transaction fees. The best example of this is probably Freewallet.
Less Chance of Loosing Private Keys
The place your wallet is located and is managed can assist you in recovering your password, keys, or seed words. This could be very important as something like 4 million bitcoin have been lost because people were locked out of wallets.
Higher Probability of a Backup
Most of these third parties have the ability to back up the wallets and it is done more frequently. This is better for overall security and increases the chances of recovering potential lost crypto.
Pros of Non-Custodial Wallets
You Have Control
You are the one steering the ship here. There is no middleman or anyone else with access to your precious crypto.
Overall Security
Since you are the one who knows how to get into the wallet the risk of someone stealing your crypto is much lower. More than half of the wallet holders today are using non-custodial wallets.
It’s My Money and I want it Now!
The process involves less people and steps and you have quicker access to your funds. This is just the nature of the beast when it comes to having to wait around for funds to be sent the more people involved the longer it will take.
Really the only downside to the non-custodial and this could be pretty important is if you lose your keys, you are screwed!
So with the higher risk of loss you gain anonymity and are for the time being out of the purview of the government. Nobody likes the Know Your Customer (KYC) requirements and I believe there are some genuine concerns about the potential for terrorist organizations and money laundering operations to take advantage of the decentralized networks.
Some of the custodial wallets have in the past provided KYC information to governments and one would assume this would be due to the government's efforts or desires to track and tax crypto transactions to an extent.
This was written for true beginners and if you are new to the crytpo world I hope you learned something from this short article.
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