Just as with traditional financial assets, there are multiple ways to store your crypto. How you choose to store your funds depends on your investor profile (the type of crypto investor you are) and what your risk appetite is.
What is a custodial crypto wallet?
With custodial wallets, your funds are in the possession of a third party. You can think of this like a bank: when you deposit and store your money, the bank is securing it for you so that you don’t have to take on the risk of storing it yourself. In this case, you will not have access to your private keys, as you are delegating custody of your funds to the crypto exchange.
Many popular crypto exchanges offer custodial accounts, such as Binance and Coinbase. It is recommended to check with your wallet provider to see if they have any insurance or guarantees when storing your funds, should something happen to the exchange.
Custodial wallet benefits
Outsource the burden of storing your crypto to a third party
No need to worry about losing your private keys
Beginner-friendly user interface
Custodial wallet risks
Hacks targeting third party storage can wipe out your funds
Third parties may lock you from accessing your wallet and account if they go under
What is a non-custodial crypto wallet?
If you prefer to have total control over your funds, then non-custodial wallets are the choice for you.
Going back to our bank analogy, with a non-custodial wallet you are acting as your own bank. No one else has access to your funds, which you keep under your own personal lock and key.
There's a popular web 3 maxim: "not your keys, not your coins". If a third party controls the private keys to your wallet, then your funds are never truly in your control.
You can think of your non-custodial wallet as your own private digital safe. You own the private keys, and no one else can withdraw or send funds from your wallet without access to these keys. If you decide to send funds to another wallet, you have the authority to do so instantly, and whenever you decide to.
Non-custodial wallet benefits
Total control over your crypto, with no third party risk of losing your funds in investments
Ease-of-access to your funds
No KYC process
Offline storage capability
Non-custodial wallet risks
If you forget your keys or wallet information, you may be locked out of your own account and lose access to your crypto
User interface is generally less beginner-friendly
Greater security responsibility is placed on the user
Deciding which crypto wallet is right for you
To understand whether a custodial or non-custodial wallet is the right fit, you need to evaluate what kind of crypto investor you are.
If you prefer to have complete access over your own funds, or if you send and receive crypto quite frequently, then you may be inclined to choose a non-custodial wallet, such as ZenGo (no key, no password), Bitcoin.com or Spot.
If you’re new to crypto and prefer that a third-party manages your funds, you may lean more towards a custodial wallet.
Looking to create a new wallet address? You can get started here.