There are terms that circulate in the cryptosphere that remain obscure at first glance. Especially since their English formulations do not help to understand their meaning, even in a rough way. This is the case of wallets, which are divided into two distinct categories that seem to animate some debates on the subject. Namely, which is the better option between "custodial" and "non-custodial." A questioning that may seem superfluous, but it highlights two very distinct ways of looking at the world of cryptocurrencies.
First of all, it seems important to understand what we are talking about when it comes to wallets in the field of crypto-currencies. For the moment it still seems quite obvious. We are talking about a system that allows you to store your digital assets and keep them safe. However, this requirement is not fulfilled in the same way in all cases. And the security option of one can quickly become the weakness of the other. And vice versa...
There are many portfolios available. The choice will have to be made according to the crypto-currency concerned, but also the medium on which it will be located. Some formulas include exchange options to make transactions without having to transfer the funds to an exchange. But these services are often charged and sometimes at high rates. This is why it is important to be well informed before making your choice.
How to store your cryptocurrencies
It is important to point out that the worst way to store your crypto-currencies is to consider an exchange as a good place to leave them for the long term. Especially in the case of an activity that boils down to buying them and then not touching them again until the big day. A reality that is not the same for a trader who needs to have his funds available for his current operations.
The point to remember is that when your funds are on such platforms, you are no longer the real owner. This is because you do not have the corresponding private keys. And this delegation can very quickly become a problem, especially in the case of a platform that defaults on its payments for example.
This information is very motivating to look into the question of a portfolio that allows you to get your funds out of exchanges, however big and well-known they may be. Because these structures are not immune to scams and other malicious attacks. Especially since the funds are centralized in one place and in large quantities. But this does not mean banning all exchanges out of hand. Some of these players offer non-custodial options.
How to choose a wallet
There are different types of wallets. They can be divided into two distinct categories which are hot and cold wallets. The first option being a storage system on a computer (desktop) or a smartphone (mobile), in an environment connected to the Internet network. This is as simple as downloading an application and installing it on the device of your choice.
The second option is to store them on media that can be taken offline. This is the cold option. This is the solution offered, for example, by the famous Ledger storage key which dominates the market in this field. This allows you to avoid hacking of your computer, which could allow an intruder to seize the available funds if the storage device is not sufficiently protected.
These differences help define the choice of a wallet. However, there is one final option that may seem trivial, but ultimately proves to be far more important than the others. It is the choice between a custodial or non-custodial wallet.
Custodial vs non-custodial
Because in the cryptocurrency business funds are not really the main concern to have in terms of storage. What matters most is who has possession of the corresponding private keys. This as a title that makes you the owner or anyone else having them at their disposal. And in this area, wallets once again fall into two distinct categories. On the one hand, there are those that do not allow you to have these keys (custodial) and on the other hand, those that offer access to this vital data (non-custodial).
In this example, Ledger's storage key is a non-custodial wallet. Conversely, storing your funds on the Binance platform is custodial storage. There are also non-custodial wallets linked to exchanges like the one set up by the Crypto.com platform. In any case, it may seem obvious that the solution allowing to have these private keys seems to be the best. So why is there a debate on the subject?
Quite simply because having these private keys requires guaranteeing their security and storing them in a secure place as well. This is the same as protecting the security of your wallet. A reality that does not concern the custodial wallet whose security is delegated to a third entity. This is in fact the same as putting your money in the bank. If, however, the current cryptocurrency storage solutions can be compared to this type of structure in terms of security offered.
So, custodial or not? This choice is up to the user depending on their investment strategy and their degree of paranoia towards delegated storage structures. But whatever the decision, it must be the result of an informed choice on the subject.