As the year progresses, trust in centralized crypto exchanges and service providers continues to decline. As a result, more and more people realize the importance of holding cryptocurrencies by themselves. In this guide, we will teach you how to choose the most suitable self-custodial wallet for your crypto assets.
What is a Self-Custodial Wallet?
A self-custodial wallet is a type of wallet that provides users with complete control over their private and public keys. This means users have full control over their crypto wallets and assets. If a user loses their private key, they can no longer access their crypto assets in the wallet. This makes it essential that users back up their wallets and store their private keys securely.
It is also critical for users to be aware of potential security risks such as malware and phishing attempts. For instance, users should never share their private key with anyone and should always double-check URLs before entering their credentials to avoid falling victim to phishing scams.
Types of Self-Custodial Wallets
There are two types of self-custodial wallets:
- Hot Wallets: These are wallets that are always online. For instance, an online exchange wallet where users store a small amount of cryptocurrency to facilitate trades.
- Cold Wallets: These wallets are not connected to any network. For instance, a hardware wallet requires users to plug in the device and access the wallet through an application or a web interface.
Custodial vs. Self-Custodial Wallet
Here is a comparison of the main differences between a custodial and a self-custodial wallet:
- Access to crypto assets
Custodial: Your private keys are under the control of the service provider. This means that they have control over your funds.
Self-custodial: As the only holder of your private keys, you have full control over your crypto assets.
- Recovery of assets
Custodial: Recovery of assets is easy and straightforward as the service provider has access to all your funds after verifying your identity.
Self-custodial: Without your private key or recovery phrases, recovery is impossible.
Custodial: There is always a risk of hacks by third parties and misuse by the provider.
Self-custodial: The danger from hacks is significantly reduced.
- Creating accounts
Custodial: Lengthy know-your-customer and anti-money laundering procedures make it difficult to create and use accounts and expose them to the arbitrariness of legislators and providers.
Self-custodial: No KYC and AML procedures.
Custodial: Great user-friendliness with a variety of services offered.
Self-custodial: Requires basic technical understanding. The options for using various crypto services are also reduced.
What Can You Do With a Self-Custody Wallet?
- Self-custodial wallets usually offer the following functionalities:
- Storage of cryptocurrencies and other cryptoassets such as NFTs.
- Buying and selling cryptocurrencies — this usually includes the most popular currencies, tokens, and stablecoins.
- Swapping — i.e. the simple exchange of one currency for another.
- Transfer of crypto assets.
- Some wallets also offer payment services for purchases from merchants that accept crypto.