Choosing a Bitcoin wallet requires consideration of several factors. You can choose between two types: custodial and non-custodial, depending on your needs.

Cryptocurrencies can be stored in a variety of ways, just like traditional financial assets. What type of investor you are and how risk-averse you are determine how you store your funds.

In this article, we’ll explain how to choose a custodial or non-custodial wallet for your cryptocurrency.

How Does A Custodial Crypto Wallet Work?

The funds you store in custodial wallets are held by a third party. Essentially, this is like a bank providing secure storage for your money. Instead of you having to store it yourself, the bank handles it for you. Because you are delegating custody of your funds to the crypto exchange, you will not have access to your private keys.

Custodial accounts are available on many popular crypto exchanges. In the event that something goes wrong with your exchange, you should check with your wallet provider if they provide any insurance or guarantees.

The benefits of having a custodial wallet

• Invest in third-party crypto storage instead of storing it yourself
• Your private keys will never be lost
• For new users, navigation is easy to use

Risks associated with custody wallets

• Your funds can be lost if your third-party storage is hacked
• You may be unable to access your wallet and account if a third party goes bankrupt

How Does A Non-Custodial Crypto Wallet Work?

Wallets that do not retain custody of your funds are a great option for those who prefer total control over their funds.

As we mentioned in the bank analogy, you are acting as your own bank when you use a non-custodial wallet. Funds are kept under your own lock and key, so no one else has access to them.

In web 3, there is a maxim that says, “you don’t want your keys and coins”. Money that is controlled by a third party will never truly be in your control if they control your wallet’s private keys.

Your non-custodial wallet serves as a digital safe for your money. Unless you have access to your wallet’s private keys, no one can withdraw or send funds from your Bitcoin wallet. It is possible for you to send funds instantaneously to another wallet whenever you want.

Benefits of non-custodial wallets

No third-party risk of losing your crypto investments, with total control over your cryptocurrency.

• Funds are easily accessible
• KYC is not required
• The ability to store data offline

Risks associated with non-custodial wallets

• If A forgotten key or wallet information may lock you out of your own account, preventing you from accessing your cryptocurrency
• User interfaces tend to be less user-friendly for beginners
• Users have a greater responsibility for security

How To Choose The Right Crypto Wallet

When choosing between a custodial wallet and a non-custodial wallet, you should consider the type of crypto investor you are.