What is a custodial wallet?

A custodial walletis a wallet in which a third party(usually a central authority like a crypto exchange) is responsible for managing your private keys. Instead of having sovereign custodial access to your funds, a service provider gets complete controlof your money. Users rely on custodial wallets because managing private keys is not an easy task.

What is a non-custodial wallet?

A non-custodial walletis a wallet in which you are responsible for storingand managingyour private keys. Instead of third parties like crypto exchanges having custodial access, you have full controlover your digital assets. Users with non-custodial wallets become their own banks with round-the-clock access to their funds.

What criterion should you consider when choosing a crypto wallet?

Users must consider security as the most important criterion when choosing a crypto wallet. Since a custodial wallet stores a user’s keys in centralized servers, they are more prone to attacks and hacks from malicious actors. The $90 million Liquid exchange hack, for example, demonstrated the vulnerability of exchange-hosted custodial wallets.

What is the difference between a non-custodial wallet and a KYC / AML wallet?

Users need to complete Know Your Customer (KYC) and Anti Money Laundering (AML) forms for security and regulatory compliance. This can be a lengthy and time-consuming process. Non-custodial wallets, on the other hand, do not require KYC / AML. Thus, creating a non-custodial wallet is faster and easier, and users have the benefit of anonymity.