What is a Self-custody Wallet? | OWNR Wallet

A self-custody wallet is a cryptocurrency storage type that allows complete control over the user's funds. A custodial wallet allows users to store their digital assets directly on their own personal devices, as opposed to a third-party custodian such as an online exchange or hosted service provider.

Unlike other types of wallets, users completely control the security and storage of their digital assets. This means the user owns all private keys, and no third parties can access or freeze funds without permission. Self-custody wallets provide more autonomy than traditional non-custodial wallets, reducing potential risks associated with theft by eliminating counterparty risk as much as possible.

Self-Custody Crypto Wallet: Hot and Cold Wallets

Self-custody crypto wallets are a great option when it comes to storing cryptocurrency. They provide users with complete control over their funds, and the protection of personal data is ensured through private keys, which only you have access to

A self-custody hot wallet gives users easy access and flexibility, as the private keys are stored online in an easily accessible environment. On the other hand, self-custody cold wallets give you more peace of mind by keeping your private keys offline in paper format and USB drives where it's virtually impossible to hack them.

Different Kinds of Self-Custody

Crypto Wallets

Types of wallets

Self-custody wallets can be broadly categorized into hot and cold wallets. A self-custody hot wallet is a cryptocurrency wallet that allows users to manage their private keys and funds. Unlike cold wallets, which store the user’s data offline, hot wallets keep it accessible online, such as on a computer or smartphone. They provide a high level of security due to their strong encryption protocols.

On the other hand, Cold wallets are not connected to the internet but instead stored on a secure hard drive or other medium such as offline paper or USB drives. This provides additional security but limits accessibility only when physically present at a given location where you store your wallet.

Hot Wallets

Hot wallets refer specifically to those connected directly or indirectly (through a third-party platform) to the internet, allowing users to 'hot swap' in and out of their cryptocurrencies at any time. These hot crypto wallets offer greater convenience than traditional cold storage solutions but come with an increased risk of theft by malicious hackers because they reside on the web.

Desktop / Mobile Wallets

Hot wallets come in desktop or mobile versions, both options having pros and cons depending on your specific needs. A Desktop crypto wallet is a software program that allows users to securely store, send and receive their cryptocurrencies from the comfort of their computer device. It provides the user full control over their coins and allows them access to all features offered by cryptocurrency networks, such as staking and voting rights.

On the other hand, Mobile crypto wallets function much the same way as desktop versions. Still, they are optimized for installing directly onto mobile devices. These types of wallets provide users with greater convenience since they can be accessed from virtually any location anytime with an internet connection.

Cold Wallets

A cold crypto wallet is an offline means of storing cryptocurrency. It’s called a “cold wallet” because it maintains your cryptocurrencies in an environment not connected to the internet, shielding them from would-be hackers and malicious actors.

Cold wallets are typically used for more secure long-term storage and offer several advantages, such as enhanced security and greater privacy due to limited information exchange with online servers. However, they also have drawbacks – lack of usability makes trading difficult without frequent transfers between hot (online) and cold (offline) wallets.

Hardware Wallet

Hardware crypto wallets are physical, secure devices that store cryptocurrency in an offline environment. The device functions like a physical vault, allowing users to keep their assets safe from hackers and thieves by keeping them off the main network. Hardware wallets are popular among cryptocurrency investors due to their increased security, as the private key never leaves the device, streamlined access to digital assets, and improved data privacy.

Other Aspects of Self-custody Wallets

While Self-Custody wallets help give users greater control over their funds, they also come with certain risks and disadvantages that potential users should note. For example, these wallets require users to be extra attentive in handling their private keys since there will be no intermediary or centralized party who can act as a form of protection for your wallet funds should any accidents occur.

Keep Your Investments Private

Keeping your crypto safe is a must if you're serious about investing in it. The first step, arguably the most important, is keeping your investments private; keep information about what or how much you are buying/selling or storing with yourself. This means limiting who sees your transaction history and wallet address and not publicising when you make large trades or purchases.

Recovery Phrase Can Never Be Too Secure

Securing your seed phrase is absolutely essential if you want to keep your crypto funds safe. With a Self-Custody wallet, you hold the keys to it, and if you forget or lose access, no one else can help retrieve them for you. Taking extra steps like writing down and safely storing your wallet seed phrase alongside other sensitive information allows easy retrieval of funds when needed with little effort.

Use a Back-up Device

Investing in a quality backup device can often mean the difference between losing all of your hard-earned savings or having them safely stored away from possible threats. Storing a copy of the seed phrase in multiple locations also helps ensure that if one storage medium fails, you can still access your funds.

FAQ

Are self-custody wallets secure?

Yes, self-custody wallets are secure. They give users full control of their private keys and funds, so they do not have to depend on any third party or service provider to manage their money. So as long as users use safe practices when setting up the wallet and storing it, self-custodial wallets can provide the best protection for cryptocurrency investors looking to safeguard their funds.

Can a self-custody wallet provider access my funds?

No, a self-custody wallet provider can not access your funds. Self-custody wallets are designed to give individuals full control of their cryptocurrency and blockchain tokens by allowing them to store and manage the private keys associated with their accounts offline. This means that only you have access to these funds; no one else.

Is Coinbase wallet a self-custody wallet?

Yes, Coinbase wallet is a self-custody wallet. The user maintains full control of their funds and can securely hold several digital currencies in their private storage.

What are the benefits of self-custody crypto wallet?

One of the main benefits of using a self-custody crypto wallet is that it allows for direct control over personal funds. Instead of relying on centralized custodial services, users can store their private keys and have sole access to their cryptocurrency holdings without being subject to third-party regulations or security risks.

What is the Difference Between Custodial and Non-custodial Cryptocurrency Services?

The main difference between custodial and non-custodial cryptocurrency services is ownership. Custodial crypto service providers retain control of the customer's funds and offer several account management features. In contrast, non-custodial crypto services give all authority over the user's assets to themselves.

How does a Custodial wallet work?

To use a custodial wallet, you must deposit your cryptocurrency to the address provided by the service. This means they hold temporary access to your coins. At the same time, they store the encrypted private key in their system’s storage locations in a cold or hot wallet.

Every time you want to transact on the blockchain platform, this third party will track each amount sent or received and update it accordingly in their servers to keep an accurate record of what was exchanged.

What are private keys?

Private keys are cryptographic strings used to gain access and control over cryptocurrency wallets. They are long, encrypted alphanumeric codes used in cryptography that help secure your digital assets by proving ownership of the address and allowing you to sign validated transactions.