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Wallets | Crypto Basics

What is a Self-Custodial Wallet? How Does It Work?

Author

Kayelee Rosales

Tags

Reading time

4 mins
Last update

Author

Kayelee Rosales

Tags

Category

Wallets / Crypto Basics

Reading time

4 mins
Last update

Author

Kayelee Rosales

Tags

Reading time

4 mins
Last update


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Key Takeaways

  • Take control of your crypto. Use a self-custodial wallet like the Bitcoin.com Wallet app to manage your cryptocurrency directly without needing permission from anyone.
  • Self-custodial wallets. Unlike traditional banks that hold your money, self-custodial wallets give you complete control over your crypto through private keys.
  • Identify your wallet type. Check if your wallet offers options to manage your private keys (a file or a recovery phrase). If not, it’s likely custodial. 

This secure, self-custodial wallet lets you manage many popular cryptocurrencies, including Bitcoin, Ether, and Bitcoin.com’s token, VERSE. Millions trust the Bitcoin.com Wallet app for its ease of use in sending, receiving, buying, selling, and trading crypto. Plus, it goes beyond simple storage – you can connect to thousands of decentralized applications (dApps) for a world of possibilities, from gaming to financial tools.

What’s a Self-Custodial Wallet?

Unlike custodial wallets or banks that hold your assets, self-custodial wallets empower you with complete control. You hold the private keys, ensuring only you can access and manage your crypto, providing a sense of security and control.

This two-part approach clarifies the benefits of the Bitcoin.com Wallet app and then defines the critical term “self-custodial wallet” to better explain it.

Custodial versus Self-Custodial Wallets

Traditional finance relies on custodians (like banks) holding your money. This means you need permission to access your funds, even in emergencies.

Cryptocurrency wallets offer a different approach: self-custody. With a self-custodial wallet (like the Bitcoin.com Wallet app), you control your crypto directly. There are no approvals or restrictions—just you and your assets. 

Think of it like this: a custodial wallet is like a bank account, and a self-custodial wallet is like carrying cash. The responsibility for security is entirely yours, so back up your wallet and keep passwords secure.

Difference Between Self-Custodial and Non-Custodial

Self-custodial and non-custodial wallets are essentially the same thing. They both refer to wallets where users hold private keys, giving them complete control over their cryptocurrency. The terms are often used interchangeably. 

Are All Cryptocurrency Wallets Self-Custodial?

Custodial wallets

These are like bank accounts for crypto. You don’t hold the private keys, so the exchange controls your assets. (Examples: Coinbase, Binance)

Self-custodial wallets

Also called non-custodial, you hold the private keys, giving you complete control over your crypto. (Example: Bitcoin.com Wallet app)

What are the Risks Associated with Custodial Wallets?

Less control, more risk. Unlike banks, custodial exchanges (Coinbase, Binance) might:

  • Go bankrupt: Recovering your crypto could be difficult or impossible.
  • Face regulations: You could lose access to your crypto due to changing rules.
  • Charge high fees: Withdrawing your crypto could be expensive and slow.
  • Get hacked: Losing access or recovering funds could be very challenging.

For control and security, consider a self-custodial wallet like the Bitcoin.com Wallet app. But remember, with great power comes great responsibility! You’ll be solely responsible for backing up your wallet and keeping it secure.

Advantages of Self-Custodial Crypto Wallets

  • Lower Transaction Fees: With custodial wallets, exchanges often set their own transaction fees. Self-custodial wallets like the Bitcoin.com Wallet app let you customize fees paid to miners, allowing you to prioritize speed or cost-effectiveness.
  • Interact with DeFi (Decentralized Finance): Self-custodial wallets grant direct access to blockchains, enabling you to interact with DeFi applications. This opens doors to innovative financial tools like earning interest on your crypto holdings or borrowing crypto using your assets as collateral.

Self-custodial wallets want you to take full advantage of the potential of cryptocurrency, not just hold it.

Do I hold the Private Keys in my Wallet?

Self-custodial wallets grant you the private keys to your crypto, like passwords for your funds. These might be a file on your device or a particular phrase (12-24 random words). If your wallet doesn’t offer options to manage your own private keys, it’s likely custodial, meaning a third party controls your assets. The Bitcoin.com Wallet app, for example, is self-custodial and lets you choose how to store your private keys.

Final Thoughts

The concept of self-custodial wallets offers advantages for cryptocurrency users. By taking control of your own private keys, you gain greater security, flexibility, and the ability to explore the full potential of DeFi applications.

The Bitcoin.com Wallet app stands out as a secure and user-friendly option for managing your cryptocurrencies in a self-custodial manner. Remember, with this power comes responsibility. Be sure to implement strong security practices, like backing up your wallet and keeping your passwords secure.

Ready to manage your crypto? Consider switching to a self-custodial wallet and unlocking the full potential of the cryptocurrency ecosystem.