Are non-custodial crypto wallets a practical option for the everyday hodler?

0
30

As crypto ownership becomes more and more common, holders will have to think about how they protect and hold their assets. The safest option is to store cryptocurrency in a personal wallet.

Crypto wallets are programs that allow users to store, send and receive cryptocurrency. Each wallet has a private key that allows the wallet to be issued. Private keys are cryptographic sequences of codes that allow owners to spend the money in a wallet and prove ownership. Wallet information is also stored offline, reducing the risk of a hacking attempt. Everyday non-technical crypto users can take advantage of the increased security, but it may come at the cost of convenience depending on their needs.

What is a custodial wallet?

A custodian wallet is a type of online cryptocurrency wallet that a third party manages, such as an exchange, after users make their first cryptocurrency purchase. In other words, the exchange is the custodian, responsible for keeping the user’s money safe and keeping the keys. Most of customer funds are housed in cold storage hardware wallets at major crypto exchanges in the United States.

A custodial wallet is less secure than a non-custodial wallet. Yet many people still choose them because they are easier to use and come with less responsibility. If users forget their Exchange account password, they can likely reset it through established identity verification processes.

What is a non-custodial wallet?

With a non-custodial cryptocurrency wallet, users are the sole guardians of their private keys and thus of the assets that are stored. Non-custodial wallet because it removes the need for a trusted third party and, in some ways, is more secure than custodial wallets.

There are many different types of non-custodial wallets, including browser-based wallets, software wallets for mobile phones and computers, and hardware wallets. Hardware wallets, which come in different sizes, are said to provide the highest level of security for storing crypto. These digital currency wallets resemble USB drives, but instead have a display and physical buttons.

See also  Composite cETH market slammed by update - 7 days wait for vote to fix it

Hiccups with non-custodial wallets

Non-custodial wallets are easy to set up. For non-custodial software wallets, holders must download the wallet, backup the recovery seed phrase or a key consisting of a 12, 18 or 24 word string of random words, and set a password.

In addition, if users forget their password, the seed phrase serves as a backup that still allows them to access their assets.

Furthermore, there is little support for hardware wallet users if users lose their keys or do not take the necessary operational security measures to protect the password and keys. If a user loses, deletes or forgets their key, they risk losing access to their funds completely.

Therefore, to adequately protect this information, non-custodial wallet users must take extra precautions to ensure that the password and wallet are secure.

Related: Simple steps to keep your crypto safe

When securing seed phrases, the usual advice for users is to write them on a piece of paper and keep them in a safe place. However, it is generally not recommended that users keep seed phrases stored in text files on their PC or mobile devices. For example, personal computers and Android devices are susceptible to viruses, while notes stored on iPhones can be compromised if a user’s iCloud account is hacked. So instead, the best way to keep seed phrases safe is to keep them offline.

There are additional methods that users can use to secure their seed phrases. For example, Serenity Shield is a digital storage platform that allows users to recover their seed phrases in case of loss through the Strongbox feature. Seed information resides on the blockchain as a non-transferable non-replaceable token (NFT). In this way, only the owner has access to the information stored in the Strongbox.

See also  Ethereum Merge Outlook Happening Earlier

Aside from the concerns of keeping them safe, the mechanics of sending transactions on non-custodial wallets can also be challenging for crypto newbies.

Most non-custodial wallets require users to pay for transactions using the native cryptocurrency of the network on which the token is built. For example, if a user wants to transfer Tether (USDT) to Ethereum, he must have Ether (ETH) in his wallet to pay for gas. So users will have to buy ETH and then move it to their wallets before they can transfer the USDT.

However, hot wallets on exchanges allow users to pay for transactions with the same token. For example, cryptocurrency exchange Binance allows users to pay for Tether transactions using USDT instead of ETH or the tokens of other networks it runs on, such as BNB or Tron (TRX). Because users don’t need to have the network’s native token, token transfers are simplified.

Some in the crypto world believe that non-custodial wallets are still not practical for regular users who may not care about backing up their own private keys.

Hsuan Lee, CEO of Portto, the developer of the Blocto multichain wallet, told TSWT that when a new user “gets their hands on a blockchain app for the first time, they don’t care if they hold the keys themselves, they want to just get started quickly.”

Rodolphe Seynat, co-founder of Serenity Shield – a digital storage and privacy platform – told TSWT: “Non-custodial wallets have a long way to go before they can be considered viable options for everyday use. should be made from cryptocurrency to give them a common use case for the average retail user,” adding:

“That said, I strongly believe that non-custodial wallets will continue to be a safer, more secure and more private way for users to manage assets and position themselves well for the future.”

User-friendly?

Wallet providers have worked over time to make them more user-friendly. For example, both custodial and non-custodial wallets remind users to double check destination addresses to avoid losing the funds. There is even an option to automatically copy an address with a button, to further reduce the chance of errors in the transfer process.

See also  Yield Guild Games: Web3 Gaming Adoption Needs a Local Touch

In addition, solutions like Coinbase Wallet allow users to set usernames when creating a new wallet. Usernames make it easy for people to send and receive crypto as they are easier to remember, leading to fewer mistakes when transferring money. The wallet also allows the user to decide whether to make their wallet public (other Coinbase wallet users can search for their username) or private.

In regards to crypto transactions, lower fees usually mean longer transaction times due to lower miner priority, while higher fees mean faster speeds and users may not be aware of this in general. Therefore, many crypto wallets pre-set the transaction fees to an average level, allowing the user to send a transaction with the average transaction times.

So sending tokens with a non-custodial wallet can be frustrating for the average, non-technical user. In cases where users expect to send tokens regularly, they may find a custodial wallet more convenient. On the other hand, when it comes to long-term storage and safekeeping, non-custodial wallets are the way to go as long as the seed phrase is kept safe.