As crypto continues to cement itself into our financial system, the question of custody, or how individuals and entities should hold their assets, is becoming increasingly important. This is especially true following the fallout of multiple centralized platforms last year, such as FTX and Gemini, which caused many investors to lose their crypto holdings.
The ethos of crypto is decentralization and ownership. Because third parties are effectively cut out, individuals have direct control over their funds. They don’t need to trust middlemen, such as banks or other centralized financial entities, to properly manage their assets.
However, this complete control is often somewhat sacrificed when the question of storage comes into play. There are two types of digital wallets for storing cryptocurrency, custodial and non-custodial wallets, and each have their unique advantages and disadvantages. The primary difference between the two lies in the control and custody of the private keys, which are the cryptographic codes that enable cryptocurrency transactions. Generally, custodial wallets are less safe but more convenient, while non-custodial wallets are more secure but less convenient.
Selecting between the two is a tricky tradeoff, but it is important that users, investors and institutions have a fundamental understanding of how each option works and the associated risks before deciding how they want to store their assets.
When investors choose to use non-custodial wallets, also referred to as self-custody, they have total control over their private keys and by extension, total control over their assets. Self-custodying is in essence the ethos of crypto — there is no counterparty risk. Full ownership gives investors the
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