Where will cryptocurrency storage be safer? And convenient? In this review we will compare the differences between custodial and non-custodial services, tell how to store funds in bitcoins and which wallets are better to give preference.
With the advent of the banking system came depository services. This allowed users to secure their money and personal valuable property from theft. People could optionally turn over their savings to banks for safe keeping, but customers had to trust the lending institutions. Essentially, customers had to turn over the management of their assets to the banks, who would have access to them and could use them for their own purposes.
Cryptocurrency storage
On the one hand, this approach promised security, as banks were more difficult to rob than houses and apartments. In addition, customers could claim a refund, and the funds in the bank were insured against theft. If they kept the money in their own home, the only way to get it back would be to buy additional insurance.
Back then, it was a personal choice. But with the advent of electronic money, users can only keep money on deposit with banks unless they withdraw cash from an ATM. But the money remains uninsured by default in case of theft. In addition, if assets are seized, even if it happens by mistake, funds in bank accounts will be blocked, and customers could be left without a livelihood if they don’t have reserves.
Then came the cryptocurrency Bitcoin, which showed the world a decentralized system for storing and accounting for finances. We wrote about bitcoin in detail in our other article. With a bitcoin wallet, users can store money, preventing unauthorized people from accessing it. But they don’t have to give the money to a bank or any other organization. In this article, we will discuss what are custodial and non-custodial services for storing cryptocurrencies, what the difference between them is, and also tell you the best way to store cryptocurrency.
Custodial Wallet: Examples
Binance is one of the largest crypto exchanges in the world;
OKEx is another large and liquid Maltese exchange, somewhat reminiscent of Binance. We did a detailed review about this exchange;
Coinbase is a large custodial service from USA. One of the few exchanges that allows exchanging cryptocurrencies for U.S. residents;
BitMEX – a large leveraged crypto derivatives trading platform.
What is a non-custodial wallet
Non-custodial wallets are completely autonomous. This means that no one but the users themselves can manage the wallet’s balance. In fact, the wallet itself acts as a bank and is controlled by software code, which prevents interference on its part. Access to such wallets requires a private key and a seed phrase, which the user must keep securely. In addition, multiple copies must be made. There are even special devices such as Cryptosteel and BillFodl to store seed phrases.
Custodial Service
Storing cryptocurrency in a non-castodial wallet is entirely the responsibility of the users themselves. If you lose all the private keys, passwords, and seed phrase of the wallet, the funds will be lost irretrievably.
Pros of non-custodial wallets
Full access to funds. Only users decide what to do with the account: how much to keep, when and to whom to send funds, and much more;
The ability to work independently. Some wallets, such as Electrum, allow you to create an offline transaction, which can then be broadcast online when connected to the Internet;
Secure storage of cryptocurrency. It is virtually impossible to hack a personal wallet, especially if it is offline or hardware-based. But you should be aware that online wallets can be hacked. For example, if a user gets caught phishing, which unfortunately is not uncommon, attackers can steal their password or seed phrase and withdraw funds from the wallet.
No transaction delays. Of course, we are talking about the transaction itself: the confirmation of the miners in the network will have to wait in any case. If you withdraw funds from the exchange, you have to send a request, which may take a long time to process or remain unprocessed at all.
Cons
Sole control also imposes its own limitations. If you destroy the seed phrase of the wallet or lose it, you can lose funds forever. This is why you should always keep your private keys and mnemonic password safely on paper or other solid state media.
From this comes the second key disadvantage: if you lose access to the funds, there is no way to recover it. Neither banks nor crypto-exchanges can help in this case, even if they want to.
And the third disadvantage that catches your eye: there is a fee for each transaction. A custodial service may allow some transactions for free. But with non-custodial wallets, there’s no way to get out of it.
Examples of non-custodial wallets
Electrum is a desktop bitcoin wallet. The client provides additional security methods such as 2FA and multi-signature, but only supports bitcoin;
Ledger Nano, Trezor, CoolWallet and others – hardware wallets. Considered the most reliable, but suitable for storing only large sums, because they are not cheap;
Mercuryo is a secure cryptocurrency wallet. In the mobile app you can exchange many cryptocurrencies to fiat after passing the KYC procedure. But the wallet itself is non-custodial. The daily limit for a verified user is 5000 euros.
Blockchain.com is the brightest example of a partially custodial wallet: according to the company, they do not store private keys and other important data on the servers, but the exchange will also require KYC and set small limits.
Conclusions
At the end of the article, let us summarize all the information stated: so how to store funds in bitcoins is the best? Undoubtedly, the user decides for himself, and only he has to choose between sovereignty with personal responsibility or controlled storage with some semblance of a safety cushion.
One option is to choose the optimal set of wallets. For example, use a safe wallet such as Ledger Nano S or Electrum to store the principal amount. And for regular transactions choose a more convenient option – Binance or OKEx. Although there are wallets that perfectly combine both functions. One such example is the Mercuryo multicurrency mobile wallet, where you can safely store cryptocurrency and quickly exchange it in a convenient mobile app at a bargain price.
