As companies continue to launch web wallets and exchanges, the number of crypto users continues to grow. Between all of the wallets available, it can be hard to know what to look for when choosing between them.
One of these differences is custodial vs. non-custodial wallets. It is essential to know the difference between custodial wallets and non-custodial wallets to decide which is best for you.
In a custodial wallet, the funds do not belong to you - they belong to the company that provides you the wallet and makes them available to you on a Terms of Service basis. In this sense, the company operates like a bank handling customers' accounts. Should you breach their terms or your account gets closed, what usually happens is that they often keep the rights to your funds.
A custodial wallet might offer features such as a debit card, interest on your holdings, crypto trading, and deposit/withdrawal to banks. Some of these features are only available after completing KYC, which is often a mandatory requirement for using a custodial wallet.
In this type of wallet, there are no seed phrases to remember, although there will often be a wallet password in its place. Forgetting the wallet password might lock you out of your wallet if you do not have a recovery method available. The company provides user support for their wallet, whether via email, phone, or official social media channels.
Because the company keeps the funds of all of its users in a centralized store, they are an attractive target to hackers, and theft of user funds could cause them to enter bankruptcy, at enormous risk to the user. Usually, the only way a user can get back their money would be to sue the company.
That being said, most companies do a decent job fending themselves off from hacks since it would cost them significantly if such a hack succeeded.
Non-custodial wallets have some significant differences from custodial wallets. The first is that non-custodial wallets do not transfer your money to a company's servers. In fact, there is often no company involved in non-custodial wallets. Instead, the money - often private keys - remain on your computer. You are responsible for the security of your funds inside a non-custodial wallet. People often call this feature "Be your own bank."
The wallet generates a seed phrase for you which you must write down and keep in a safe place. This seed phrase allows you to recover your funds if your wallet gets destroyed. (However, it will not protect you from a computer hack or phishing attempt.) In addition, the software might also employ a wallet password to encrypt a wallet file on somebody's computer. It is important never to lose the seed phrase. Otherwise, You could lose your funds forever.
Keeping a sequence of words around on paper is all you have to do to prevent your funds from getting lost makes it very easy to keep your funds safe. The effort to write and keep a slip of paper somewhere makes the switch from custodial to non-custodial wallets worthwhile.
KYC is usually not implemented for non-custodial wallets. The exception is if the wallet lets you log into a website account that provides crypto-to-fiat features, then the wallet will block those features until the user passes KYC.
Most non-custodial wallets are open-source, so developers provide user support for these wallets using forums, social media, or Github rather than email.
Experts recommend storing substantial amounts of crypto on non-custodial wallets because they are infeasible and a major security risk to keep inside custodial wallets and exchanges.
Which kind of wallet is OWNR Wallet?
OWNR Wallet is a non-custodial wallet with support for seed phrases and passwords.
It also includes features of many custodial wallets, such as:
- prepaid cards
- crypto exchanging
- buy crypto for fiat
These add-ons add the convenient features of custodial wallets to OWNR Wallet without sending sensitive information such as private keys or seed phrases to OWNR Wallet servers. In this way, your crypto always belongs to you, enabling you to transfer it between wallets at any time.
OWNR releases software updates periodically to fix security vulnerabilities in the wallet, which minimizes the risk of phishing.