Finance is complicated, and it can be as complicated as just storing your assets in wallets as well. One must ask, how is it so? What are the complexities involved in storing assets in wallets? The answer is a custodial or non-custodial wallet. Generally, service providers such as banks tend to keep custody of your assets. This means that whenever you withdraw money from your bank account, you ask for your bank’s permission.
As a matter of fact, banks can deny permissions such as withdrawals if they find a reason to do so. However, when crypto started gaining prevalence, the concept of non-custodial wallets or self-custodial wallets started popping up. As the name suggests, a non-custodial wallet allows users to retain control over their deposited assets. Moreover, due to the inherent nature of crypto, the option of self-custodial financial services became practical on a large scale.
A non-custodial wallet allows the user to withdraw funds at his/her will, unlike custodial wallets
If you’ve been following the crypto news lately, you know very well that the crypto market is not in its ‘best’ shape. Moreover, due to the current market conditions, many crypto firms have paused services in order to preserve themselves. The first firm that comes up your mind is Celsius Network. The popular crypto lending firm had to pause withdrawals and transactions due to “unfavorable market conditions”. Moreover, the situation at the crypto lending firm doesn’t look good.
Celsius isn’t the only one troubled with this. Yesterday, Vauld another popular crypto lending firm announced that they are pausing withdrawals on their network due to “unfavorable market conditions”. Both firms offered custodial wallets, which means that the firms had control over users’ deposited assets.
Due to this, users cannot withdraw their funds from the platforms. The firms tend to do so that they avoid the ‘avalanche’ of withdrawals that could completely disrupt their operations. However, not allowing users to withdraw their funds is an issue in itself.
One needs to be careful when operating a non-custodial wallet, otherwise, it is a better proposition
While a non-custodial wallet has a big advantage in offering you all the control of your assets, it’s not with its caveats. Users need to possess the private key associated with their wallets. The private key is a ‘mnemonic phrase’ consisting of 12-24 randomly generated words. if one forgets the private key, they permanently lose access to their wallet and the deposited assets.
However, many non-custodial wallets offer the option of cloud backup service. Basically, users can store their private keys to any popular cloud service such as Google Drive or Apple iCloud.
Besides this, with a non-custodial wallet, users can customize the fees for public blockchain miners and validators. Also, users can interact with smart contracts with the backing on non-custodial wallets. This is because non-custodial wallets directly access the blockchains.