{"id":275732,"date":"2024-07-08T11:57:17","date_gmt":"2024-07-08T11:57:17","guid":{"rendered":"https:\/\/www.techopedia.com\/?p=275732"},"modified":"2024-07-08T11:57:17","modified_gmt":"2024-07-08T11:57:17","slug":"custodial-vs-non-custodial-wallets","status":"publish","type":"post","link":"https:\/\/www.techopedia.com\/custodial-vs-non-custodial-wallets","title":{"rendered":"Custodial vs. Non-custodial Wallets: Which Is Best for You in 2025?"},"content":{"rendered":"<p>Self-custodianship is the fine line that divides the world of <a href=\"https:\/\/www.techopedia.com\/definition\/34630\/decentralized-finance-defi\">decentralized finance<\/a> (DeFi) and <a href=\"https:\/\/www.techopedia.com\/definition\/traditional-finance-tradfi\">traditional finance<\/a> (TradFi)<\/p>\n<p>It refers to the act of storing, managing and safeguarding your financial assets using a <a href=\"https:\/\/www.techopedia.com\/definition\/cryptocurrency-wallet\">crypto wallet<\/a> that gives you complete control over your assets.<\/p>\n<p>Many are unfamiliar with the concept of self-custodianship because the world is used to relying on third-party commercial banks to custody their cash. Therefore, this article will help you understand the difference between custodial wallets vs. non-custodial wallets.<\/p>\n<p>Find out <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/best-crypto-wallets\">which crypto wallet suits you best<\/a>.<\/p>\n<div class=\"su-note\"  style=\"border-color:#dddddd;border-radius:3px;-moz-border-radius:3px;-webkit-border-radius:3px;\"><div class=\"su-note-inner su-u-clearfix su-u-trim\" style=\"background-color:#F7F7F7;border-color:#ffffff;color:#333333;border-radius:3px;-moz-border-radius:3px;-webkit-border-radius:3px;\">\n<h2><span id=\"key_takeaways\">Key Takeaways<\/span><\/h2>\n<ul>\n<li>Non-custodial wallets give owners full control over the cryptocurrencies they hold.<\/li>\n<li>Custodial wallets refer to third-party controlled accounts that store cryptocurrencies on your behalf.<\/li>\n<li>History has shown us that centralized custodians, such as banks and exchanges, can fail, leading to customers losing access to their funds.<\/li>\n<li>Non-custodial wallet users may find it tedious to secure private keys and SRPs.<\/li>\n<\/ul>\n<\/div><\/div>\n<div>\n    <section class=\"toc-sticky w-100 bg-white \">\n        <div class=\"toc-sticky__container container\">\n            <div class=\"toc-sticky__open d-flex align-items-end\" data-bs-toggle=\"collapse\"\n                 aria-controls=\"multiCollapse1\"\n                 data-bs-target=\"#multiCollapse1\">\n                <button\n                        class=\"btn btn-primary collapse-action-btn p-1 rounded-circle\"\n                        type=\"button\"\n                >\n                    <i class=\"icon-chevron-up\"><\/i>\n                <\/button>\n                <span id=\"toc-current-title\" class=\"d-flex align-items-center\">\n                    Table of Contents\n                <\/span>\n                <span class=\"toc-main-title-permanent\">Table of Contents<\/span>\n            <\/div>\n            <div\n                    class=\"collapse my-3\"\n                    id=\"multiCollapse1\"\n            >\n                <ol class=\"StepProgress\">\n                                                                        <li class=\"StepProgress-item current\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"key_takeaways\"\n                               onclick=handleScrollToTitle(\"key_takeaways\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">Key Takeaways<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                                                        <li class=\"StepProgress-item\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"custodial_wallets_vs_non-custodial_wallets_how_do_they_work\"\n                               onclick=handleScrollToTitle(\"custodial_wallets_vs_non-custodial_wallets_how_do_they_work\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">Custodial Wallets vs. Non-custodial Wallets: How Do They Work?<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                                                        <li class=\"StepProgress-item\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"custodial_vs_non-custodial_wallets_side-by-side_comparison\"\n                               onclick=handleScrollToTitle(\"custodial_vs_non-custodial_wallets_side-by-side_comparison\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">Custodial vs. Non-custodial Wallets: Side-by-Side Comparison<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                                                        <li class=\"StepProgress-item\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"non-custodial_wallets_advantages_pitfalls_examples\"\n                               onclick=handleScrollToTitle(\"non-custodial_wallets_advantages_pitfalls_examples\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">Non-custodial Wallets: Advantages, Pitfalls &amp; Examples<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                                                        <li class=\"StepProgress-item\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"custodial_wallets_advantages_pitfalls_examples\"\n                               onclick=handleScrollToTitle(\"custodial_wallets_advantages_pitfalls_examples\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">Custodial Wallets: Advantages, Pitfalls &amp; Examples<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                                                        <li class=\"StepProgress-item\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"the_bottom_line_which_wallet_type_should_you_choose\"\n                               onclick=handleScrollToTitle(\"the_bottom_line_which_wallet_type_should_you_choose\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">The Bottom Line: Which Wallet Type Should You Choose?<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                                                        <li class=\"StepProgress-item\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"faqs\"\n                               onclick=handleScrollToTitle(\"faqs\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">FAQs<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                                                        <li class=\"StepProgress-item\">\n                                                <div class=\"StepProgress-item__group\">\n                            <a data-id=\"references\"\n                               onclick=handleScrollToTitle(\"references\")\n                               class=\"StepProgress-item__link\" data-level=\"2\">References<\/a>\n                                                    <\/div>\n                                                <\/li>\n                                    <\/ol>\n                <div class=\"toc-sticky__container__disperse\"><\/div>\n                <div class=\"toc-sticky__btn-top justify-content-center\">\n                    <button class=\"btn btn-link d-flex align-items-center\" onclick={btnTop()}><p>Show Full Guide<\/p><img decoding=\"async\"\n                                src=\"\/wp-content\/plugins\/table-of-contents\/assets\/images\/arrow-up-circle.svg\"\n                                alt=\"arrow-up-circle\">\n                    <\/button>\n                <\/div>\n            <\/div>\n        <\/div>\n    <\/section>\n    <div class=\"toc-sticky-list\">\n        <div class=\"toc-sticky__container container\">\n            <div class=\"toc-sticky__open d-flex align-items-end\" data-bs-toggle=\"collapse\" aria-controls=\"multiCollapse2\" data-bs-target=\"#multiCollapse2\">\n                <button class=\"btn btn-primary collapse-action-btn p-1 rounded-circle\"\n                        type=\"button\">\n                    <i class=\"icon-chevron-up up\"><\/i>\n                <\/button>\n                <span id=\"toc-current-title\" class=\"d-flex align-items-center\">\n                    Table of Contents\n                <\/span>\n            <\/div>\n            <div  class=\"collapse my-3\" id=\"multiCollapse2\">\n                <ol class=\"StepProgress\">\n                    \t\t\t\t\t \t\t\t\t\t                                                     <li class=\"StepProgress-item current \">\n                                                    <div class=\"StepProgress-item__group\">\n                                <a data-id=\"key_takeaways\"\n                                   onclick=handleScrollToTitle(\"key_takeaways\")\n                                   class=\"StepProgress-item__link\"\n                                   data-level=\"2\">Key Takeaways<\/a>\n                                                            <\/div>\n                                                    <\/li>\n                    \t\t\t\t\t \t\t\t\t\t                                                     <li class=\"StepProgress-item \">\n                                                    <div class=\"StepProgress-item__group\">\n                                <a data-id=\"custodial_wallets_vs_non-custodial_wallets_how_do_they_work\"\n                                   onclick=handleScrollToTitle(\"custodial_wallets_vs_non-custodial_wallets_how_do_they_work\")\n                                   class=\"StepProgress-item__link\"\n                                   data-level=\"2\">Custodial Wallets vs. Non-custodial Wallets: How Do They Work?<\/a>\n                                                            <\/div>\n                                                    <\/li>\n                    \t\t\t\t\t \t\t\t\t\t                                                     <li class=\"StepProgress-item \">\n                                                    <div class=\"StepProgress-item__group\">\n                                <a data-id=\"custodial_vs_non-custodial_wallets_side-by-side_comparison\"\n                                   onclick=handleScrollToTitle(\"custodial_vs_non-custodial_wallets_side-by-side_comparison\")\n                                   class=\"StepProgress-item__link\"\n                                   data-level=\"2\">Custodial vs. Non-custodial Wallets: Side-by-Side Comparison<\/a>\n                                                            <\/div>\n                                                    <\/li>\n                    \t\t\t\t\t \t\t\t\t\t\n\t\t\t\t\t\t <span class=\"show_moretoc\">Show Full Guide<\/span>\n\t\t\t\t\t\t \t\t\t\t\t \t\t\t\t\t\t  \t\t\t\t\t                                                      <li class=\"StepProgress-item ms_hidetoc\">\n                                                    <div class=\"StepProgress-item__group\">\n                                <a data-id=\"non-custodial_wallets_advantages_pitfalls_examples\"\n                                   onclick=handleScrollToTitle(\"non-custodial_wallets_advantages_pitfalls_examples\")\n                                   class=\"StepProgress-item__link\"\n                                   data-level=\"2\">Non-custodial Wallets: Advantages, Pitfalls &amp; Examples<\/a>\n                                                            <\/div>\n                                                    <\/li>\n                    \t\t\t\t\t \t\t\t\t\t \t\t\t\t\t\t  \t\t\t\t\t                                                      <li class=\"StepProgress-item ms_hidetoc\">\n                                                    <div class=\"StepProgress-item__group\">\n                                <a data-id=\"custodial_wallets_advantages_pitfalls_examples\"\n                                   onclick=handleScrollToTitle(\"custodial_wallets_advantages_pitfalls_examples\")\n                                   class=\"StepProgress-item__link\"\n                                   data-level=\"2\">Custodial Wallets: Advantages, Pitfalls &amp; Examples<\/a>\n                                                            <\/div>\n                                                    <\/li>\n                    \t\t\t\t\t \t\t\t\t\t \t\t\t\t\t\t  \t\t\t\t\t                                                      <li class=\"StepProgress-item ms_hidetoc\">\n                                                    <div class=\"StepProgress-item__group\">\n                                <a data-id=\"the_bottom_line_which_wallet_type_should_you_choose\"\n                                   onclick=handleScrollToTitle(\"the_bottom_line_which_wallet_type_should_you_choose\")\n                                   class=\"StepProgress-item__link\"\n                                   data-level=\"2\">The Bottom Line: Which Wallet Type Should You Choose?<\/a>\n                                                            <\/div>\n                                                    <\/li>\n                    \t\t\t\t\t \t\t\t\t\t \t\t\t\t\t\t  \t\t\t\t\t                                                      <li class=\"StepProgress-item ms_hidetoc\">\n                                                    <div class=\"StepProgress-item__group\">\n                                <a data-id=\"faqs\"\n                                   onclick=handleScrollToTitle(\"faqs\")\n                                   class=\"StepProgress-item__link\"\n                                   data-level=\"2\">FAQs<\/a>\n                                                            <\/div>\n                                                    <\/li>\n                    \t\t\t\t\t \t\t\t\t\t \t\t\t\t\t\t  \t\t\t\t\t         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style=\"border-bottom-left-radius:1px;border-bottom-right-radius:1px\">\n<p>A non-custodial wallet is a cryptocurrency wallet that gives the owner full control over cryptocurrencies held in it.<\/p>\n<\/div><\/div>\n<p>Instead of relying on a crypto exchange or a bank to custody crypto assets, a non-custodial wallet relies on the owner to be the custodian of their own crypto assets. Therefore, non-custodial wallets are also known as &#8220;self-custodial&#8221; or &#8220;self-custody&#8221; wallets.<\/p>\n<p>This means that the owner of a non-custodial wallet is responsible for safeguarding its assets.<\/p>\n<p>Owners of non-custodial wallets must protect <a href=\"https:\/\/www.techopedia.com\/definition\/16135\/private-key\">private keys<\/a> and <a href=\"https:\/\/www.techopedia.com\/definition\/seed-phrase\">secret recovery phrases<\/a> (SRP) required to access the wallets and their contents.<\/p>\n<p>Non-custodial wallets champion <a href=\"https:\/\/www.techopedia.com\/definition\/decentralization\">decentralization<\/a> and privacy, as they prevent third parties from censoring user transactions, seizing their assets, and tracking their crypto spending habits.<\/p>\n<div class=\"su-box su-box-style-default\" id=\"\" style=\"border-color:#004499;border-radius:3px\"><div class=\"su-box-title\" style=\"background-color:#0277cc;color:#FFFFFF;border-top-left-radius:1px;border-top-right-radius:1px\"><strong>What Is a Custodial Wallet?<\/strong><\/div><div class=\"su-box-content su-u-clearfix su-u-trim\" style=\"border-bottom-left-radius:1px;border-bottom-right-radius:1px\">\n<p>Custodial wallets refer to third-party controlled accounts that store cryptocurrencies on your behalf.<\/p>\n<\/div><\/div>\n<p>These wallets are provided by third-party service providers such as <a href=\"https:\/\/www.techopedia.com\/definition\/33372\/cryptocurrency-exchange\">centralized crypto exchanges<\/a> (CEX) and <a href=\"https:\/\/www.techopedia.com\/the-downfall-of-centralized-crypto-lending-platforms-like-celsius-blockfi\">centralized lending platforms<\/a> for their customers.<\/p>\n<p>You can think of custodial wallets as your bank account. The service provider protects your assets against misuse and theft for you. However, the service provider has the power to impose withdrawal restrictions and other limitations on your account.<\/p>\n<h3>Different Types of Non-custodial Wallets<\/h3>\n<p>Let&#8217;s briefly go through the different types of non-custodial wallets to better understand the concept of self-custodianship.<\/p>\n<div class=\"su-accordion su-u-trim\">\n<div class=\"su-spoiler su-spoiler-style-fancy su-spoiler-icon-plus\" data-scroll-offset=\"0\" data-anchor-in-url=\"no\"><div class=\"su-spoiler-title\" tabindex=\"0\" role=\"button\"><span class=\"su-spoiler-icon\"><\/span><strong>Hot Wallets<\/strong><\/div><div class=\"su-spoiler-content su-u-clearfix su-u-trim\"> <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/best-hot-wallets\">Hot wallets<\/a> refer to crypto wallets that are connected to the <a href=\"https:\/\/www.techopedia.com\/definition\/2419\/internet\">internet<\/a>. These wallets are easy to set up and are feature-packed with in-built internet browsers and token swapping tools. Hot wallets are free to download on your phone as an app or on your laptop as a browser extension. <\/div><\/div>\n<div class=\"su-spoiler su-spoiler-style-fancy su-spoiler-icon-plus su-spoiler-closed\" data-scroll-offset=\"0\" data-anchor-in-url=\"no\"><div class=\"su-spoiler-title\" tabindex=\"0\" role=\"button\"><span class=\"su-spoiler-icon\"><\/span><strong>Cold wallets<\/strong><\/div><div class=\"su-spoiler-content su-u-clearfix su-u-trim\"> <a href=\"https:\/\/www.techopedia.com\/definition\/hardware-wallets\">Cold wallets<\/a> are crypto wallets that are not connected to the internet. These wallets are typically hardware devices that specialize in storing cryptocurrencies. Cold wallets are considered among the <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/best-cold-wallets\">safest crypto storage methods<\/a>. <\/div><\/div>\n<div class=\"su-spoiler su-spoiler-style-fancy su-spoiler-icon-plus su-spoiler-closed\" data-scroll-offset=\"0\" data-anchor-in-url=\"no\"><div class=\"su-spoiler-title\" tabindex=\"0\" role=\"button\"><span class=\"su-spoiler-icon\"><\/span><strong>Smart Wallets<\/strong><\/div><div class=\"su-spoiler-content su-u-clearfix su-u-trim\"> <a href=\"https:\/\/www.techopedia.com\/how-to-use-coinbase-smart-wallet\">Smart wallets<\/a> are upcoming non-custodial crypto wallets that remove the technical difficulties and extra steps involved in setting up non-custodial crypto wallets. These wallets are created on-chain by <a href=\"https:\/\/www.techopedia.com\/definition\/32499\/smart-contract\">smart contracts<\/a>. Smart wallets are expected to make the transition to on-chain seamless. <\/div><\/div>\n<\/div>\n<h3>Why Are Non-custodial Wallets Important?<\/h3>\n<p>History has shown us that centralized custodians such as banks and exchanges can fail, resulting in customers losing access to their funds.<\/p>\n<p>The crypto community has a popular expression called &#8220;Not your keys, not your coins&#8221; which refers to the fact that the holder of private keys has complete control over the cryptocurrencies used to access them.<\/p>\n<p>In the case of a custodial wallet, the third-party service provider is the holder of the private keys that can access your crypto tokens, not you.<\/p>\n<p>In 2022, thousands of custodial wallet account holders at now-defunct crypto firms such as <a href=\"https:\/\/www.reuters.com\/technology\/crypto-companies-crash-into-bankruptcy-2022-12-01\/\" target=\"_blank\">BlockFi, Voyager, Celsius, and Vauld<\/a> lost access to their crypto assets after their service providers suspended token withdrawals before filing for bankruptcy.<\/p>\n<p>Similarly, in November 2022, 9 million account holders at the <a href=\"https:\/\/www.techopedia.com\/the-sam-bankman-fried-saga-from-crypto-tycoon-to-alleged-fraudster\">FTX crypto exchange<\/a> lost billions of dollars in crypto assets after the company filed for bankruptcy. It took over 18 months for a US court to approve a liquidation plan that would fund the repayment to customers.<\/p>\n<p>However, <a href=\"https:\/\/www.reuters.com\/legal\/ftx-seeks-creditor-votes-bankruptcy-wind-down-payments-2024-06-25\/#:~:text=FTX%20said%20in%20recent%20court,are%20owed%20up%20to%20%2450%2C000.\" target=\"_blank\">according to Reuters<\/a>, FTX customers are set to receive their crypto refunds in cash based on much lower cryptocurrency prices from November 2022 (<a href=\"https:\/\/www.techopedia.com\/definition\/27193\/bitcoin-btc\">Bitcoin<\/a> price of ~$16,500) compared to elevated prices as seen in July 2024 (<a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/bitcoin-price-prediction\">Bitcoin price<\/a> of ~$55,000).<\/p>\n<p>Even the TradFi world has seen its share of bank failures. In March 2023, two prominent US-based banks, <a href=\"https:\/\/www.pewresearch.org\/short-reads\/2023\/04\/11\/most-u-s-bank-failures-have-come-in-a-few-big-waves\/\" target=\"_blank\">Silicon Valley Bank and Signature Bank, collapsed<\/a> after anxious customers withdrew their funds due to fears of the bank&#8217;s solvency.<\/p>\n<h2><span id=\"custodial_vs_non-custodial_wallets_side-by-side_comparison\">Custodial vs. Non-custodial Wallets: Side-by-Side Comparison<\/span><\/h2>\n<p>Despite the importance of self-custodianship, custodial wallets still have their advantages.<\/p>\n<p>Let&#8217;s dive deeper to understand what is the difference between non-custodial wallets vs. custodial wallets with the help of the following table:<\/p>\n<div class=\"su-table su-table-responsive su-table-alternate\">\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td><strong>Custodial Wallets<\/strong><\/td>\n<td><strong>Non-custodial Wallets<\/strong><\/td>\n<\/tr>\n<tr>\n<td><strong>Cost<\/strong><\/td>\n<td>Creating accounts with service providers is usually free<\/td>\n<td>Hot wallets are free-to-download, while cold hardware wallets are expensive<\/td>\n<\/tr>\n<tr>\n<td><strong>User-Friendliness<\/strong><\/td>\n<td>Easy to set up and use<\/td>\n<td>Newcomers may face technical difficulties setting up non-custodial wallets<\/td>\n<\/tr>\n<tr>\n<td><strong>Experience Level<\/strong><\/td>\n<td>Suitable for beginners and advanced users<\/td>\n<td>Not suitable for beginners<\/td>\n<\/tr>\n<tr>\n<td><strong>Risks<\/strong><\/td>\n<td>Exchange failure, bankruptcy, hacks, token withdrawal suspension, account suspension<\/td>\n<td>Hacks and loss of private keys and SRP<\/td>\n<\/tr>\n<tr>\n<td><strong>Privacy<\/strong><\/td>\n<td>Users must complete <a href=\"https:\/\/www.techopedia.com\/definition\/know-your-customer-kyc\">KYC processes<\/a> when setting up accounts.<\/td>\n<td>No personal information needed to set up non-custodial wallets.<\/td>\n<\/tr>\n<tr>\n<td><strong>Security<\/strong><\/td>\n<td>Password protection and <a href=\"https:\/\/www.techopedia.com\/definition\/13699\/twofactor-authentication\">two-factor authentication<\/a><\/td>\n<td>Password protection and two-factor authentication<\/td>\n<\/tr>\n<tr>\n<td><strong>Private Key Ownership<\/strong><\/td>\n<td>Secured by the third-party custodian<\/td>\n<td>Secured by the wallet owner<\/td>\n<\/tr>\n<tr>\n<td><strong>Transaction Cost<\/strong><\/td>\n<td>Third-party custodians may charge fees and commissions to use their platform<\/td>\n<td>Users pay <a href=\"https:\/\/www.techopedia.com\/definition\/gas-fee-ethereum\">gas fees<\/a> to transact using non-custodial wallets. The fees will depend on the underlying <a href=\"https:\/\/www.techopedia.com\/definition\/30246\/blockchain\">blockchain<\/a><\/td>\n<\/tr>\n<tr>\n<td><strong>Transaction Time<\/strong><\/td>\n<td>Token swaps using CEX accounts are swift<\/td>\n<td>Transaction time will depend on the underlying blockchain used<\/td>\n<\/tr>\n<tr>\n<td><strong>Recovery<\/strong><\/td>\n<td>Accounts can be easily recovered in the event of password loss<\/td>\n<td>Recovering non-custodial wallets due to lost passwords and SRPs is difficult<\/td>\n<\/tr>\n<tr>\n<td><strong>Features<\/strong><\/td>\n<td>Crypto exchange accounts have token swaps, options trading, <a href=\"https:\/\/www.techopedia.com\/definition\/staking-blockchain-staking\">staking<\/a>, and other features<\/td>\n<td>Mobile crypto wallets come with in-built browsers, token swap tools and more. Cold wallets mainly specialize in storing crypto<\/td>\n<\/tr>\n<tr>\n<td><strong>Example<\/strong><\/td>\n<td>Binance, <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/coinbase-review\">Coinbase<\/a>, <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/kraken-review\">Kraken<\/a><\/td>\n<td>MetaMask, Rainbow, <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/ledger-nano-x-review\">Ledger<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<h2><span id=\"non-custodial_wallets_advantages_pitfalls_examples\">Non-custodial Wallets: Advantages, Pitfalls &amp; Examples<\/span><\/h2>\n<h3>Non-custodial Wallets Pros &amp; Cons<\/h3>\n<div class=\"su-row\"><div class=\"su-column su-column-size-1-2\"><div class=\"su-column-inner su-u-clearfix su-u-trim\">\n<strong>Pros<\/strong><br \/>\n<div class=\"su-list\" style=\"margin-left:0px\">\n<ul>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Users have complete control over their cryptocurrencies<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> No censorship<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Privacy-preserving technology<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Mobile and desktop wallets are free-to-download<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Cold wallets are considered the safest method to store cryptocurrencies<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Mobile wallets are well-suited to explore the <a href=\"https:\/\/www.techopedia.com\/top-web3-trends\">web3 world<\/a> as they allow users to easily use their tokens online via the in-built browser and token swap features.<\/li>\n<\/ul>\n<\/div><\/div><\/div>\n<div class=\"su-column su-column-size-1-2 pros_icons_\"><div class=\"su-column-inner su-u-clearfix su-u-trim\">\n<strong>Cons<\/strong><br \/>\n<div class=\"su-list\" style=\"margin-left:0px\">\n<ul>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Beginners may find it difficult to set up non-custodial wallets<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Users are responsible for securing private keys and SRPs<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Recovering non-custodial wallets due to lost passwords and SRPs is difficult<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Cold hardware wallets are expensive<\/li>\n<\/ul>\n<\/div><\/div><\/div><\/div>\n<h3>Example of Non-custodial Wallets<\/h3>\n<p><a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/metamask-wallet-review\">MetaMask<\/a> is arguably the most popular non-custodial crypto wallet in the world. Users can download the wallet on their smartphones or install its wallet extension on their laptop browsers.<\/p>\n<p>At the time of writing, the following browsers supported MetaMask: <a href=\"https:\/\/www.techopedia.com\/definition\/30048\/google-chrome\">Google Chrome<\/a>, <a href=\"https:\/\/www.techopedia.com\/definition\/273\/firefox\">Mozilla Firefox<\/a>, Brave, <a href=\"https:\/\/www.techopedia.com\/definition\/31314\/microsoft-edge\">Edge<\/a>, and Opera.<\/p>\n<p>When setting up a MetaMask wallet, users will be prompted to write down their 12-word SRP on paper and store it in a secure place.<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.techopedia.com\/wp-content\/uploads\/2024\/07\/Meta-Mask-SRP-confirmation-300x277.jpg\" alt=\"Meta Mask SRP confirmation\" width=\"1200\" height=\"1110\" class=\"wp-image-275748 aligncenter\" srcset=\"https:\/\/www.techopedia.com\/wp-content\/uploads\/2024\/07\/Meta-Mask-SRP-confirmation-300x277.jpg 300w, https:\/\/www.techopedia.com\/wp-content\/uploads\/2024\/07\/Meta-Mask-SRP-confirmation-768x710.jpg 768w, https:\/\/www.techopedia.com\/wp-content\/uploads\/2024\/07\/Meta-Mask-SRP-confirmation.jpg 1024w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/p>\n<p>SRP allows users to recover their crypto wallets in the event of loss of password or loss of devices. This also means that anyone with knowledge of your SRP can access your crypto wallet and the tokens in it.<\/p>\n<p>Users can use their cryptocurrencies across multiple blockchain networks from a single non-custodial crypto wallet.<\/p>\n<div class=\"su-note\"  style=\"border-color:#e5e54c;border-radius:3px;-moz-border-radius:3px;-webkit-border-radius:3px;\"><div class=\"su-note-inner su-u-clearfix su-u-trim\" style=\"background-color:#FFFF66;border-color:#ffffff;color:#333333;border-radius:3px;-moz-border-radius:3px;-webkit-border-radius:3px;\">\n<p>MetaMask supports crypto networks such as <a href=\"https:\/\/www.techopedia.com\/definition\/32571\/ethereum-cryptocurrency\">Ethereum<\/a> (ETH), <a href=\"https:\/\/www.techopedia.com\/definition\/polygon-matic\">Polygon<\/a> (MATIC), <a href=\"https:\/\/www.techopedia.com\/definition\/binance-smart-chain-bsc\">BNB Chain<\/a> (BNB), <a href=\"https:\/\/www.techopedia.com\/definition\/arbitrum-arb\">Arbitrum<\/a> (ARB), <a href=\"https:\/\/www.techopedia.com\/definition\/optimism-op\">Optimism<\/a> (OP), <a href=\"https:\/\/www.techopedia.com\/what-is-base-coinbase-l2-chain\">Base<\/a> and more.<br \/>\n<\/div><\/div>\n<p>Non-custodial wallets like MetaMask are the gateway into the world of DeFi. Note that users must ensure that they have <a href=\"https:\/\/www.techopedia.com\/can-we-see-gas-fees-go-away-in-crypto\">gas fee<\/a> tokens to pay for transactions.<\/p>\n<p>If you are not sure which non-custodial wallet to use, <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/best-non-custodial-wallets\">this guide reviews the 20 best non-custodial wallets<\/a> for 2024.<\/p>\n<h2><span id=\"custodial_wallets_advantages_pitfalls_examples\">Custodial Wallets: Advantages, Pitfalls &amp; Examples<\/span><\/h2>\n<h3>Custodial Wallets: Pros &amp; Cons<\/h3>\n<div class=\"su-row\"><div class=\"su-column su-column-size-1-2\"><div class=\"su-column-inner su-u-clearfix su-u-trim\">\n<strong>Pros<\/strong><br \/>\n<div class=\"su-list\" style=\"margin-left:0px\">\n<ul>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Easy to use and set up<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Best suited for beginners<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Most service providers do not charge users to create accounts<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Account recovery is easy in the event of lost passwords<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> CEX accounts offer token swaps, options trading, <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/best-p2p-crypto-exchange\">peer-to-peer trading<\/a>, staking, and more<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> CEX accounts allow crypto-to-fiat conversion and vice versa<\/li>\n<li><i class=\"sui sui-check-circle\" style=\"color:#3CB371\"><\/i> Users do not need to worry about private keys and SRPs<\/li>\n<\/ul>\n<\/div><\/div><\/div>\n<div class=\"su-column su-column-size-1-2 pros_icons_\"><div class=\"su-column-inner su-u-clearfix su-u-trim\">\n<strong>Cons<\/strong><br \/>\n<div class=\"su-list\" style=\"margin-left:0px\">\n<ul>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Third-party custodians can censor transactions, suspend user accounts, and prevent users from withdrawing their crypto tokens<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Custodial wallet users are vulnerable to exchange risks, hacks, and bankruptcies<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Third-party custodians may ask users to submit their personal and financial information when setting up accounts<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Third-party custodians have full control over user&#8217;s cryptos<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Third-party custodians may use custody funds to earn yield<\/li>\n<li><i class=\"sui sui-remove\" style=\"color:#e31f28\"><\/i> Users may incur costs when conducting token swaps<\/li>\n<\/ul>\n<\/div><\/div><\/div><\/div>\n<h3>Examples of Custodial Wallets<\/h3>\n<p>All user accounts on CEXs are considered as custodial wallets, since the CEX is the custodian of user funds.<\/p>\n<p>Binance is the biggest CEX in the world in terms of trade volume. The platform is available in over 100 countries around the world and has over 600 cryptocurrencies listed on its exchange.<\/p>\n<p>Creating a custodial account at Binance is free-of-cost, however Binance charges users a commission on spot crypto trading and debit card purchases, among others.<\/p>\n<p>Custodial account holders at Binance have access to peer-to-peer trading platforms, <a href=\"https:\/\/www.techopedia.com\/cryptocurrency\/best-nft-marketplaces\">NFT marketplaces<\/a>, staking tools, and futures trading. CEXs like Binance also provide crypto traders with deep <a href=\"https:\/\/www.techopedia.com\/definition\/liquidity\">liquidity<\/a>, enabling faster transactions at narrower spreads.<\/p>\n<div class=\"su-note\"  style=\"border-color:#e5e54c;border-radius:3px;-moz-border-radius:3px;-webkit-border-radius:3px;\"><div class=\"su-note-inner su-u-clearfix su-u-trim\" style=\"background-color:#FFFF66;border-color:#ffffff;color:#333333;border-radius:3px;-moz-border-radius:3px;-webkit-border-radius:3px;\">\n<p>Most crypto users tend to buy their cryptocurrencies using custodial wallets on CEXs. They later withdraw their tokens to non-custodial wallets, where they can be used on DeFi websites and Web3 platforms.<br \/>\n<\/div><\/div>\n<p>Note that CEXs like Binance, Coinbase and Kraken also have non-custodial wallets available to download as standalone apps on the Apple App Store and Google Play Store. These non-custodial wallets should not be mistaken for user accounts.<\/p>\n<h2><span id=\"the_bottom_line_which_wallet_type_should_you_choose\">The Bottom Line: Which Wallet Type Should You Choose?<\/span><\/h2>\n<p>Both custodial wallets and non-custodial wallets are essential tools that crypto users need. The former is required for easy conversion of fiat-to-crypto while the latter is needed to safeguard cryptocurrencies against exchange risk and censorship.<\/p>\n<p>If you are a beginner, it is best to start your crypto journey by setting up a custodial wallet account at a CEX. Once you gain experience and learn technical details about crypto blockchains you can choose to practice self-custodianship by sending your tokens over to your personal crypto wallet.<\/p>\n<h2><span id=\"faqs\">FAQs<\/span><\/h2>\n<div class=\"man_faq_sec\" itemscope itemtype=\"https:\/\/schema.org\/FAQPage\"><\/time><section class=\"ms_faq ms_card \" ><div itemscope itemprop=\"mainEntity\" itemtype=\"https:\/\/schema.org\/Question\"><div class=\"accordionButton\"><h3 itemprop=\"name\">What is the difference between custodial and non-custodial wallets?<\/h3> <\/div>\n<div class=\"accordionContent\" itemscope itemprop=\"acceptedAnswer\" itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none;\"><p itemprop=\"text\">Custodial wallets refers to third-party controlled accounts that store cryptocurrencies on your behalf. Non-custodial wallets are cryptocurrency wallets that give owners full control over cryptocurrencies held in it.<\/p>\r\n                <\/div><\/div><\/section>\n<section class=\"ms_faq ms_card \" ><div itemscope itemprop=\"mainEntity\" itemtype=\"https:\/\/schema.org\/Question\"><div class=\"accordionButton\"><h3 itemprop=\"name\">Is MetaMask a custodial or non-custodial wallet?<\/h3> <\/div>\n<div class=\"accordionContent\" itemscope itemprop=\"acceptedAnswer\" itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none;\"><p itemprop=\"text\">MetaMask is arguably the most popular non-custodial crypto wallet in the world.<\/p>\r\n                <\/div><\/div><\/section>\n<section class=\"ms_faq ms_card \" ><div itemscope itemprop=\"mainEntity\" itemtype=\"https:\/\/schema.org\/Question\"><div class=\"accordionButton\"><h3 itemprop=\"name\">What are the disadvantages of a custodial wallet?<\/h3> <\/div><div class=\"accordionContent\" itemscope itemprop=\"acceptedAnswer\" itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none;\"><p itemprop=\"text\">Censorship, privacy challenges and exchange failure risks are the key disadvantages of custodial wallet.<\/p>\r\n                <\/div><\/div><\/section>\n<section class=\"ms_faq ms_card \" ><div itemscope itemprop=\"mainEntity\" itemtype=\"https:\/\/schema.org\/Question\"><div class=\"accordionButton\"><h3 itemprop=\"name\">Should I use a non-custodial wallet?<\/h3> <\/div>\n<div class=\"accordionContent\" itemscope itemprop=\"acceptedAnswer\" itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none;\"><p itemprop=\"text\">Both custodial wallets and non-custodial wallets are essential tools that crypto users need. The former is required for easy conversion of fiat-to-crypto while the latter is required to safeguard cryptocurrencies against exchange risk and censorship.<\/p>\r\n                <\/div><\/div><\/section>\n<div class=\"reference-content\">\n<div class=\"reference-heading reference-content-collapsible-heading\">\n<h2><span id=\"references\">References<\/span><\/h2>\n<\/div>\n<div class=\"reference-content-body\">\n<ol>\n<li><a href=\"https:\/\/www.reuters.com\/technology\/crypto-companies-crash-into-bankruptcy-2022-12-01\/\" target=\"_blank\">Crypto companies crash into bankruptcy | Reuters<\/a> (Reuters)<\/li>\n<li><a href=\"https:\/\/www.reuters.com\/legal\/ftx-seeks-creditor-votes-bankruptcy-wind-down-payments-2024-06-25\" target=\"_blank\">FTX seeks creditor votes on bankruptcy wind-down payments | Reuters<\/a> (Reuters)<\/li>\n<li><a href=\"https:\/\/www.pewresearch.org\/short-reads\/2023\/04\/11\/most-u-s-bank-failures-have-come-in-a-few-big-waves\/\" target=\"_blank\">A look at U.S. bank failures throughout history | Pew Research Center<\/a> (Pewresearch)<\/li>\n<\/ol>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Self-custodianship is the fine line that divides the world of decentralized finance (DeFi) and traditional finance (TradFi) It refers to the act of storing, managing and safeguarding your financial assets using a crypto wallet that gives you complete control over your assets. Many are unfamiliar with the concept of self-custodianship because the world is used [&hellip;]<\/p>\n","protected":false},"author":286557,"featured_media":275798,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_lmt_disableupdate":"","_lmt_disable":"","om_disable_all_campaigns":false,"footnotes":""},"categories":[601],"tags":[],"category_partsoff":[],"class_list":["post-275732","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blockchain"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.2 (Yoast SEO v24.5) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Custodial vs. Non-Custodial Wallets: Which Is Best for You in 2025?<\/title>\n<meta name=\"description\" content=\"Learn all you need to know about custodial vs. non-custodial wallets. 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