What is the difference between custodial and non-custodial wallets?

The main difference between custodial and non-custodial crypto wallets comes down to who holds the private keys to your wallet address. A private key is a cryptographic string of numbers and letters that acts as the digital equivalent of a password for your crypto wallet.

Custodial wallets are owned by a private company that holds the private key to your wallet address, while non-custodial wallets give you those private keys so that you have full control over your funds. 

Custodial wallet –  The in-house wallets you have when you create an account at crypto exchanges like Binance and Coinbase are good examples of custodial crypto wallets. Many third-party online wallets you can download are also custodial. The companies that host these wallets all hold the private keys to your wallet address. 

The benefits are that they’re often easier to use, great for beginners and are easy to recover if you lose access to your account. However, the major downside is that you could lose the crypto held in the wallets if the owning company goes bankrupt. Additionally, these wallets are more susceptible to hacking. 

Non-custodial wallet – Also known as self-custody crypto wallets, non-custodial wallets give you full control over your wallet address. These are usually online wallets that you can download as an app or browser extension, or hardware-based options such as Trezor and Ledger. 

While you have full control over your crypto funds, you’re also responsible for remembering the private key and seed phrase for your account. Should you lose access to that key, you won’t be able to recover your account and your crypto funds will be lost forever. 

Which should you choose?

If you prioritise ease of use, a custodial setup might be fine for small amounts. They’re also good options for people who are new to the crypto scene. However, if you care more about privacy, security and having full control of your crypto portfolio, non-custodial is the way to go. It is strongly recommended to use non-custodial wallets for large crypto balances.

It’s essential to select the right wallet for your cryptocurrency experience. If you’re unsure which to go for, check out our guide on the best crypto wallets for casino gaming.