HomeOPINIONNon-Custodial and Custodial Wallets: Distinguishing the two

Non-Custodial and Custodial Wallets: Distinguishing the two


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Indeed, the evolving NFT space has created a room for the classification of the trend into custodial and non-custodial wallets. Users, however, come across the two categories of NFTs while choosing a wallet, trading, or minting NFTs on marketplaces. With this, users become bestowed with a choice between using custodial or non-custodial wallets. Accordingly, this article seeks to enlighten you all as regards both NFT wallet categories and how they function distinctively in the interest of its holders.

Recall that Non-fungible tokens (NFT) emerges as a virtual asset, usually purchased via blockchain technology. NFTs also manifest as real world items, art songs, sport cards, video games, fashion items and real estate. These creative arts consequently become minted as tokens which can be traded, purchased and sold. With this, creators grossly relay their respective work of arts into the NFT digital market. Each of the tokens possesses a distinctive code which makes their trading easy.
However, the aforementioned marketed the tokens as one of the most valuable virtual assets and thus pushed the need to own, stock and operate an NFT. Though, owning or trading with this asset is not rocket science. First, investors must acquire a virtual wallet which grossly gives the platform for such operations to manifest.

Keys in virtual wallets

Accordingly, a crypto wallet emerges as a program that allows users to sign transactions, and access NFT marketplaces, and stock-owned tokens. As programmed, all virtual wallets possess a public and private key. Consequently, the public key of each wallet becomes connected to the holder of the concerned tokens.

In addition, the key manifest like the traditional bank account details, which serve as an identity of the wallet. The private key on the other hand works as a security mechanism installed to safeguard the wallet. As programmed, it appears like a pin code through which every operation obtainable on the wallet becomes signed. To avert unauthorized access to the wallet, users must keep the codes safe and private. The moment this key becomes compromised, users tend to lose their tokens courtesy of hackers. Hence, the extent of safety enjoyed by a wallet relies solely on how the users treat the private key. Without equivocation, the criticality attached to the key leads us to the custodial and non-custodial wallets.

Knowing how non-custodial wallets work

Accordingly, non-custodial wallets as implied gives their users the responsibility of accessing and securing their private keys. With this feature, users possess more control over their respective virtual assets without any hitches. As earlier hinted, users subscribing to this kind of wallet must use all avenues known to them to protect the key as such amounts to protecting their funds from any potential exploitation. Any user who forfeits the key or the recovery phrase attached to it tends to lose both the funds and the wallet. Examples of these kinds of wallet softwares include; Trust wallet, MetaMask, etc.

More so, non-custodial wallets enable users to grossly trade NFTs directly through their respective wallets. This, however, eliminates the presence of intermediaries in every transaction obtainable on the wallet. With this kind of wallet, users ultimately determine the transaction fee suitable to them based on how fast they want the transaction to manifest.

Knowing how custodial wallets work

As for custodial wallets, it disallows full accessibility or control of the private key. Here, the exchange performs the storage of the virtual assets on behalf of its users. With this, the responsibility of safeguarding the wallet lies with the exchange and they tend to come to the aid of their users whenever they lose any identity details. This category of wallet tends to be user-friendly as if devoid of any complications whatsoever. It usually requests users to do Know Your Customer (KYC) requirements, particularly through the verification of their passports, driving license, and other personal documents. However, all users possess the responsibility of using a highly reliable and trustworthy exchange.

By virtue of the aforementioned, NFT holders possess the responsibility to choose between the two categories of wallets or both. However, checking to verify whether the desired form of wallet accepts or aligns with the kinds of NFTs intended for it remains mandatory. To do this, users need to check the token standards of the respective wallet and thus form a decisive decision from such realization.

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