You own your private keys and own your cryptocurrency assets with a non-custodial wallet. You are directly responsible for memorizing your private keys and implementing measures to safeguard your funds when utilizing a non-custodial wallet service. You will be unable to access your Bitcoin if you lose your private keys, which is a typical occurrence. You are responsible for ensuring that you use backup solutions such as cold Bitcoin wallets, which are physical components that keep your keys offline, as well as hardware wallets. Many hardware wallets resemble USB flash drives. Even though hardware wallets are widely regarded as the safest method of storing private keys, there are still hazards. Because a physical device can still be misused, it’s critical to select a reputable hardware provider and keep your hardware wallet safe. Some investors utilize a hardware wallet to physically secure their keys, whereas others write their private keys on paper and store them in a vault. Non-custodial wallets with multi-signature and security are also popular. To obtain access and transfer cryptocurrency, most Bitcoin wallets require only one private key, but multiple signing requires multiple keys. Each key is saved on a distinct device, which is often a combination of your phone and physical hardware wallets. The crucial idea is that you need to back up your key in case you lose it, no matter how you do it, so you don’t lose all of your cryptos because of a mistake.
A custodial wallet provider puts your private keys in the hands of a third company, such as an exchange like Coinbase, Kraken, or Gemini. This means that when you buy Bitcoin on an exchange, you are issued an “IOU” for the Bitcoin, while the exchange owns the private keys and keeps the cryptocurrency in their Bitcoin wallet. Coinbase owes you Bitcoin till you decide to withdraw it when you buy BTC on Coinbase. Although some in the crypto industry argue that “not your keys, not your Bitcoin,” many people prefer a custodial wallet because they don’t have to worry about losing assets due to misplacing or forgetting their private keys. If you elect to utilize an exchange, Philip Martin, Coinbase’s chief security officer, advises, “Take the time to investigate, identify which exchanges have lasted the staying power and have some form of a regulatory framework around it.” You should also be aware of the potential dangers. A hacker might not need your private keys to transfer money from your account if you used a custodial wallet because the exchange holds the keys, not you. According to Neuman, this removes one barrier to your cash’s safety. However, many exchanges place a high priority on security, and there are alternative methods, such as two-factor authentication, to safeguard your account from being compromised individually.