Users dealing with crypto assets must be aware of crypto wallets that store private keys and handle crypto balances. There are mainly two types of crypto wallets - custodial and non-custodial. A third-party controls the private key in a custodial wallet, while a crypto owner has sole ownership over his private key in a non-custodial wallet.
Users often go for non-custodial crypto wallet development because it provides complete ownership over their private keys. Crypto experts consider a non-custodial wallet more secure than a custodial wallet. Apart from this benefit, this crypto wallet provides instant funds, public blockchain access, fee customization, and more.
In this article, we explore the importance of non-custodial wallets and what makes them different from others.
Non-custodial wallets are digital wallets that let crypto owners take complete asset ownership. They provide full control over funds and their associated private keys to users. Only users get their private keys as files or mnemonic (or recovery) phrases with 12-24 arbitrarily produced words.
The term "non-custodial" refers to a type of wallet that does not hold onto cryptocurrencies. Instead, it acts as a user-friendly interface that allows owners easily access their crypto, while providing the option for third-party integrations.
Non-custodial wallets enable crypto owners to send, receive, and store cryptocurrencies without depending on intermediary custodians. They provide users control over their finances and privacy, an essential aspect of the decentralized nature of cryptos. Non-custodial wallets come in various forms - software on desktops or mobiles, hardware devices, and more.
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We have already mentioned that non-custodial crypto wallets do not hold users' private keys. Third parties manage private keys in the case of custodial wallets.
Another factor that differentiates these crypto wallets is transaction type. Non-custodial wallets display real-time transactions on blockchains, but it is not a possibility with custodial wallets.
Another differentiating factor of non-custodial wallets is their high-security level. Custodial wallets store sensitive user data in hot or cold storage, which is prone to hacking. Thereby, it decreases the level of security. On the contrary, only users control their data in non-custodial wallets, reducing the possibility of data breaches.
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From sole ownership to instant withdrawals, here is a list of benefits of non-custodial crypto wallets:
Non-custodial wallets offer users personal access to their funds. Crypto holders do not have to rely on a third party to handle their funding or execute related activities.
Non-custodial crypto wallet providers cannot access their users' funds. These wallets generate private keys solely on users' devices, preventing anyone else from accessing them. Even if a wallet creator discontinues support, the crypto owners will still maintain crypto ownership.
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The security of non-custodial wallets entirely depends on their holders and how they keep their private keys. Only holders have all the data related to crypto wallets and their funds, reducing the chances of hacking by data intruders. Crypto owners can enhance their wallet security by using various measures, including hardware, software, and physical access to their wallets.
These wallets offer instant withdrawals as they do not require third-party confirmation to execute any transaction. It simplifies the entire withdrawal process.
Non-custodial crypto wallet users do not need to share their data to receive, send, and manage their funds. So, users do not have to compromise on their rights to privacy control.
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Non-custodial wallets let users decide their transaction fees for public blockchain validators and miners. Usually, transactions set on high priority come with more charges than those on low priority. So, whenever a user needs to transfer funds quickly, she can pay more transaction fees. And when not in a hurry, she can choose to pay low fees while waiting in the transaction queue.
Non-custodial crypto wallets give individuals immediate access to blockchains. So, users can interact with smart contracts as well. It can help users to generate passive income by accessing decentralized finance (DeFi) products.
Users can access advanced features like swapping crypto, staking, DeFi, and more with these crypto wallets.
Users can utilize their recovery phrases in different wallets. They can also create various portfolios in the same wallet.
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Here are some examples of non-custodial wallets:
Exodus is a non-custodial wallet that supports peer-to-peer (P2P) crypto trading in decentralized exchanges (DEXs). It offers various wallet types, such as Trezor hardware, mobile, desktop, Web3, and more.
Electrum is another popular crypto wallet that provides private keys to users only. It utilizes servers that index Bitcoin. From multi-sig to cold storage, the platform offers various features.
ZenGo is a non-custodial wallet without any private key. It uses multi-party computation (MPC) and threshold signatures to create two mathematical secret shares for the ZenGo server and a user's device. In a fund transfer process, the server and device shares interact to initiate the transaction without exposing their secrets.
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Nowadays, many crypto holders prefer non-custodial crypto wallets simply due to their offerings. Security, privacy, ownership rights, and various other features are making these wallets a popular choice among crypto users.
You can also step into non-custodial wallet development with the right partner. Crypto wallet developers at Oodles can assist you in developing a non-custodial wallet with advanced features. Contact us today to discuss your crypto project requirement.