0 minsPublished on 10/28/2022

How to choose a crypto wallet

We examine the two main types of crypto wallets: custodial and non-custodial, and help you to decide which may be the right type for you.

By Corey Barchat

How to choose a crypto wallet

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.

In this article, we will explore the two main wallet types you can use to store your cryptocurrencies: custodial and non-custodial, and offer some guidance on how to choose the right one for you.

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 the private keys, as you are delegating custody of your funds to the custodian.

Many popular crypto exchanges offer custodial accounts, such as Binance and Coinbase. It is recommended to review the wallet provider’s terms and conditions to understand what protections, if any, may  apply to 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 result in loss of some or all of your funds

  • Third parties may prevent you from accessing your  funds if they go under

News headline on collapsed crypto exchange.

What is a non-custodial crypto wallet?

If you prefer to have total control over your funds, then non-custodial wallets may be 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.

An image stating "Not your keys, not your coins"

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 risk of third parties losing your funds

  • Ease-of-access to your funds

  • Offline (hardware) 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 you

An image of a non-custodial wallet and a custodial wallet.

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 Ledger, Trust Wallet, Exodus.

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.

Corey Barchat
Written byCorey Barchat

You might also like