WHAT IS CUSTODIAL AND WHAT IS NON CUSTODIAL WALLET?
When we talk about whether a wallet is custodial or non-custodial, what’s actually being taken into custody—at least in the world of cryptocurrencies like Bitcoin and Ethereum—is not the funds that a user has deposited into their account but rather the private key needed to access those assets.
A custodial wallet service, such as Binance , holds on to the private key and is thus responsible for protecting a user’s funds. A non-custodial wallet, on other hand gives users full control over their holdings: they must safeguard them with their own private keys.
CUSTODIAL WALLET SERVICE AS BINANCE HOLDS ON TO THE PRIVATE KEYS AND ARE RESPONSIBLE FOR PROTECTING USERS FUNDS
When we talk about whether a wallet is custodial or non-custodial, what is actually custodial – at least in the world of cryptocurrencies like Bitcoin and Ethereum – is not the money users deposit into their accounts, but the private keys that are required access these assets. Custody wallet services like Binance store private keys and are therefore responsible for protecting users’ funds. Non-custodial wallets, on the other hand, give users full control over their holdings: they must protect them with their own private keys.
Hosted wallets also give users peace of mind, since a lost or forgotten password doesn’t mean they can’t access their funds. Most of the time, the provider or exchange can easily reset your password with a few security questions. If non-custodial wallet holders lose their private keys, their funds cannot be recovered. Using a depot wallet, users can initiate a transaction through the platform of their choice and choose a wallet address to send funds to. The custodian of the private key (in this case, the cryptocurrency exchange) is tasked with “signing” the transaction with the private key to ensure that it is done correctly. Custody wallets are often easily connected to decentralized applications (dApps) and financial opportunities such as staking or yield farming.
NOT YOUR KEYS NOT YOUR CRYPTO
There’s an old adage in crypto circles, “not your keys, not your cryptocurrency,” which essentially means that the person holding the private key is the only true and verifiable owner of the funds in their corresponding wallet. Some crypto users say this means that depot wallet users don’t actually “own” their cryptocurrencies, since they don’t control the private keys. With non-custodial wallets, crypto users have full control over their private keys as well as their funds. Non-custodial wallets tend to be a bit more technically complex than custodial wallets, so they are usually preferred by experienced crypto users.
Non-custodial wallets give users the freedom to be their own bankers, but with that freedom comes more responsibility. If you forget your depot wallet provider account password, it can be reset with a few emails and possibly an identity check. However, if you lose your hardware wallet or private keys, you may not be able to access your funds.
IB WALLET HAS SEED PHRASE WITHIN THE IB CARD
Luckily, many non-custodial wallet providers provide users with a seed phrase, or “seed phrase.” This phrase consists of 12-24 random words and acts as a backup password recovery method even if the wallet is lost, deleted or damaged. But this phrase should be guarded as carefully as your private key, since anyone with the seed phrase can gain access to the account. With IB Wallet your seed phrase is not a problem anymore. Your seed phrase is implanted within the card and it can never be lost or rewritten from any entity.
You can order our card in our shop.
