How is a Non-Custodial Wallet better than a Custodial Wallet?

Cryptocurrencies and their elementary technology, Blockchain, have gained significant traction in the technical world in the last few years. Businesses are showing a great interest in investing in cryptocurrency development.

One business model that has emerged as an ideal solution is crypto wallet development. However, a common question that surrounds the market when it comes to crypto wallet development is whether to build a custodial wallet or a non-custodial wallet (also known as a DeFi wallet).

To clear the confusion, we will discuss in detail the pros and cons of custodial and non-custodial wallets. So, if you are looking to start developing your own DeFi wallet or custodial wallet, a clear understanding the both will help you make the right choice.

Custodial Wallets- Introduction, Benefits, and Limitations

Custodial wallets are the wallets wherein the private keys are not owned by the users but the company that owns the wallet.

Since the users cannot access their private keys and if the wallet gets hacked due to some reasons, there is a possibility of losing 100% of your funds.

That’s the greatest risk of custodial wallet solutions — the service provider owns users’ keys and assets.

Advantages of Custodial Wallets

1) Lost Private Key is Not a Big Issue

As a central authority manages a custodial wallet, so if users lose their keys, they can regain access to the wallets easily.

2) Backup Provision

A third party manages users’ wallets as well as offers backup facilities, which means a user can restore a previous version of the wallet easily.

Disadvantages of Custodial Wallets

1) Central Authority Controlling Funds

In custodial wallets, users do not have full control over their crypto wallets. It’s a third party that controls the management of fund transfer and related processes such as freezing the stored amount.

2) Data Breach Threat

In custodial exchanges, users’ funds are stored in a hot wallet. Although custodial wallets are not an easy target for hackers, they are still vulnerable to hacking.

Non-Custodial (Decentralized Finance) Wallet- Introduction, Benefits, and Limitations

A non-custodial wallet or a DeFi wallet is a type of blockchain-based crypto wallet that allows users to be their own bank. It provides them full control over their private keys and funds.

A DeFi wallet offers two types of private keys:

1) Raw Private Key

This is a real-form private key that is stored on a user’s computer.

2) Mnemonic Seed

It is usually a 12–24 word phrase designed by compacting the real private key. This key is stored on a user’s device and allows them to access multiple accounts simultaneously.

Today, there are various DeFi wallets available in the marketplace, purely because of the benefits that a non-custodial wallet carries over the custodial wallet. This is the reason people are investing more and more in DeFi wallet development.

Benefits of DeFi wallet (Non-Custodial Wallet)

1) User’s gain control over their funds

The main reason why DeFi wallet development is gaining tremendous traction is that they enable users to access their own funds without the involvement of any third party.

2) Safety in Funding

Since all the details of users’ crypto wallets are with the users, there is a much lower risk of a data breach.

3) Instant Withdrawals

As DeFi wallets do not require third party approval for any transaction to be performed, so it makes the instant withdrawals.

Disadvantages of DeFi (Non-Custodial) Wallet

There’s nothing big that can be illustrated when it comes to the limitations of DeFi wallets. This type of wallet provides the best facilities in the blockchain.

However, to enjoy its advantages, users need to keep their private key secure and safe.

To Sum Up

According to the crypto market trends, DeFi wallets will continue to gain traction over custodial wallets due to the growing cases of a data breach and users becoming more conscious about the security and privacy of their data.

If you also want to start developing your own DeFi wallet, Antier Solutions can help. We offer end-to-end DeFi wallet development services to build robust, secure, and user-friendly Decentralized wallets.

Schedule a free demo of our DeFi wallet solution or connect with our subject matter experts to share your needs for a custom wallet

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