Why Custodial Wallets Remain Popular Among Some Crypto Users
A blog shared by David Breiner in our Developer Nation Community.
For storing, transmitting, and receiving digital assets, cryptocurrency wallets are crucial tools. Custodial and non-custodial wallets are the two major varieties that are available. A third party, like an exchange, manages custodial wallets, whereas non-custodial wallets allow users complete control over their assets. Although non-custodial wallets have become more common, some bitcoin users still choose custody-based wallets. We examine the benefits of custodial wallets for some cryptocurrency investors in this article.
Convenience and simplicity of use
Custodial wallets are still widely used for a number of reasons, including their practicality and simplicity. Cryptocurrency exchanges frequently provide custody wallets, making it simple for customers to maintain their digital assets in addition to their trading. When contrasting custodial wallets vs non-custodial wallets the former frequently offers an easier user experience since users are relieved of the responsibility of storing their backup phrases and private keys, which can be burdensome and confusing for certain users. Instead, individuals may easily access their assets by logging into their account anytime they need to.
Giving up control of one’s digital assets to a third-party provider is the price one pays for this convenience. On the other hand, non-custodial wallets provide users more privacy and control over their assets, but they also require them to take responsibility for managing their own private keys and security protocols. In the end, whether a user chooses a custodial or non-custodial wallet will depend on their desire for convenience against control.
Insurance and security
Users with non-custodial wallets have greater control over their digital assets, but there is also more danger and responsibility involved. A user could never again be able to access their assets, for example, if they lose their private key. Furthermore, if malware infects a user’s computer or gadget, their digital assets could be taken. Custody wallets, on the other hand, provide extra security measures like two-factor verification and advanced encryption techniques. Customers can feel more secure knowing that the vast majority of reliable custodial wallet suppliers also offer insurance against asset loss or theft.
Assistance and client services
Custodial wallets also have the advantage of the support and customer service provided by the wallet provider. If a user encounters any issues with their wallet, the provider’s support team is frequently able to assist them. This might be quite beneficial for inexperienced bitcoin users who may have questions or concerns about their wallet. Additionally, custodial wallet providers usually hire a larger team of engineers and security experts that are dedicated to ensuring the dependability and security of their platform. Updates and solutions for any possible issues could be provided more quickly as a consequence.
Integration with trading platforms and exchanges
Custody wallets also offer easy communication with bitcoin exchanges and trading systems. Due to the fact that custodial wallets are frequently supplied by exchanges, users may easily move money between their wallet and their trading account. This may prove to be of great assistance to active traders who need to move their assets quickly and successfully. Users may get a more complete view of their trading habits with the use of advanced trading capabilities and statistics that can be included in custody wallets.
Adherence to regulations
Last but not least, businesses and institutional investors typically choose custodial wallets since they adhere to standards. Since they are typically registered with regulatory entities, suppliers of custody wallets must adhere to strict security and reporting standards. This may be of particular significance to businesses that may be the target of regulatory audits or compliance inspections. Additionally, custodial wallets can offer more accountability and transparency, which makes them a more desirable option for institutional investors.
Opportunities to earn interest
Another reason for the ongoing popularity of custody wallets is the chance to make money that they provide. By creating an interest-bearing account with some providers of custody-based wallets, users may earn a return on their digital assets. Custodial wallets can provide interest rates that are far higher than those of traditional savings accounts, making them an attractive option for anybody looking to enhance their bitcoin holdings. In addition, some providers of custodial wallets provide staking services, which let users be compensated for participating in the network’s consensus mechanism. This might prove to be quite advantageous for those who hold certain cryptocurrencies that offer stacking bonuses.
Custodial wallets may also be less expensive than non-custodial ones. Customers usually benefit from lower transaction fees when transferring assets between their wallet and their exchange account since custodial wallets are commonly provided by cryptocurrency exchanges. Additionally, suppliers of custodial wallets could charge less for certain services like trading or cash withdrawals. This can be especially useful for users who wish to lower their transaction costs and boost their earnings.
In conclusion, some cryptocurrency users continue to choose custodial wallets because of how convenient and simple they are to use. By handling the protection and storage of digital files, they provide a more user-friendly experience, but at the expense of ceding control to a third-party supplier. Non-custodial wallets provide users more freedom and privacy, but they also force them to take care of their own security precautions. Ultimately, the user’s interests and preferences will determine whether they choose a custodial or non-custodial wallet.