Why You Should Keep Crypto in Non-custodial Wallets
Coinbase, the United States’ largest cryptocurrency exchange, announced a $430 million quarterly loss and a 19% plunge in monthly users in its first-quarter financial report.
The new rules set by SEC, the US Securities and Exchange Commission came as a surprise to millions of Coinbase users and gave rise to concerns about using the Coinbase platform.
In its earnings report on Tuesday (May 03, 2022), Coinbase disclosed that it held $256 billion in both fiat currency and cryptocurrency on behalf of its clients. However, the exchange warned that the crypto assets kept in custody on behalf of their clients could be subject to bankruptcy proceedings if it ever declared bankruptcy. Coinbase users would be deemed “generic unsecured creditors,” with no legal standing to demand any specific property from the exchange.
Coinbase warned that if the crypto exchange went bankrupt, clients could lose every cryptocurrency saved in their accounts.
Sounds scary right, but let’s hope that this won’t happen.
One of the key selling points emphasized by blockchain advocates worldwide is that an individual’s ownership of cryptocurrency is meant to be immutable and absolute.
However, when users create a Coinbase account, they often store their cryptocurrency in a Coinbase-controlled wallet or a custodial wallet, implying that users give away some control over their funds.
Access to a crypto wallet is controlled by a private key, which is a long string of characters that serves as a password. The cryptocurrency in the wallet can’t be accessed without the key. Coinbase holds the private key and provides clients with a more conventional password to access the funds in the wallet. The setup makes it easier for users to access their accounts by remembering a simpler password. However, in the end, Coinbase ultimately decides whether a customer has access to those assets.
Coinbase CEO and founder Brian Armstrong stated on Twitter that the exchange faced “no risk of bankruptcy” and that the disclosure was required according to new regulations set by the U.S. Securities and Exchange Commission regarding public companies that hold digital assets on behalf of others.
Armstrong tweeted that “This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically,” adding that it was possible, though unlikely, that a court would consider customer assets as part of the corporation in bankruptcy proceedings, even if it harmed customers.
Accordingly, storing your digital assets in a non-custodial wallet seems to be the best option, as in this case, you retain complete control over your private keys and all your funds. However, having control over your cryptocurrency also means you are solely responsible for safeguarding your keys and maintaining asset security.
Read on to learn more about a non-custodial wallet and why you should store your digital assets in a non-custodial wallet to avoid losing control over your crypto assets.
Let’s get started!
What Is a Non-Custodial Wallet
A non-custodial crypto wallet is a wallet where only the holder has access and control over the private keys. Non-custodial wallets are the ideal alternative for individuals who want full control over their funds. You can trade crypto directly from your wallets because there are no middlemen. It’s an excellent choice for seasoned traders and investors who know how to manage and safeguard their private keys and seed phrases.
When using a decentralized exchange (DEX) or a decentralized application (DApp), you’ll need a non-custodial wallet. Popular decentralized exchanges that require a non-custodial wallet include PancakeSwap, Uniswap, QuickSwap, and SushiSwap.
Non-custodial wallet service providers include CoinStats, MetaMask, ZenGo, Trust Wallet, etc. However, remember that you are solely responsible for the security of your seed phrase and private keys when using these wallets.
Why You Should Transfer Your Money to a Non-custodial Wallet
Here are some of the benefits of storing cryptocurrency in a non-custodial wallet:
There is minimal to no risk of a remote hack because all data related to a user’s crypto wallet and its funds are under the user’s control. Many individuals are gradually turning away from custodial options for cryptocurrency trading and towards decentralized exchanges (DEXs) that accept non-custodial wallets due to their inherent security.
Your Coins, Your Keys
Non-custodial wallets have exploded in popularity because they give users high level of autonomy and self-sovereignty. Users don’t need authorization from a third party to manage assets or conduct transactions. Users have total control over their private keys, which makes sending and receiving crypto considerably easy.
Non-custodial wallet transactions are faster, since they don’t require the authorization of any middlemen or centralized authority.
Most decentralized finance platforms and permissionless blockchain protocols require non-custodial wallets for interacting with them. The number of DeFi applications, like DEXs, lending platforms, and DAOs, has increased dramatically in recent years.
Hardware and Software Wallets
Non-custodial wallets are further classified into two types: hardware wallets and software wallets.
Non-Custodial Hardware Wallets
Non-custodial hardware wallets, commonly known as cold wallets, are simple devices that look like external drives and securely store private keys offline. To access assets stored in non-custodial hardware wallets, users must plug the devices into computers and manually confirm transactions via the device.
Computer viruses and hacks are no threats to hardware wallets, however, to reduce the risk of theft, users must keep private keys safe. A non-custodial hardware wallet is the most secure alternative for crypto users with large amounts of digital assets in their portfolios, as well as those interested in long-term investment. Trezor and Ledger are the two most popular non-custodial hardware wallets.
Non-Custodial Software Wallets
Web browser wallets or applications that users download on PCs or mobile devices are examples of non-custodial software wallets. Non-custodial software wallets have direct access to most public blockchains and require the user to provide their private keys or passwords in order to access stored assets. Private keys, unlike with cold wallets, are accessible online. CoinStats, Metamask, and AtomicDEX are some examples of non-custodial software wallets.
A non-custodial wallet is the best option for users with a substantial portfolio or planning to ride out a bad market to securely store their funds. Users can choose their preferred non-custodial wallet (hardware or software) based on their investment preferences.
Try CoinStats Wallet
CoinStats Wallet is a non-custodial wallet that supports over 8000 cryptocurrencies and various blockchain networks such as Bitcoin, Ethereum Mainnet, Polygon, Binance Smart Chain, and Avalanche. Note: Those are the currently available networks, more coming in due course!
It enables you to export your private keys securely, giving you absolute control over your crypto and DeFi portfolio.
With CoinStats Wallet, you can manage all your DeFi and crypto assets from one wallet, buy crypto with your credit card, swap as much as you want with small CoinStats swap fees.
You can keep your assets on cryptocurrency exchanges throughout the trading day if you wish to trade on them actively. However, once the day is over, you might consider transferring your coins to a non-custodial wallet, such as CoinStats Wallet, to ensure their safety.
The Bottom Line
The best non-custodial wallets link you to a blockchain or a non-custodial exchange. They give you total control over your keys, with very little intervention from external parties. In addition to being more secure and eliminating third-party risk, non-custodial wallets provide you with access to more cryptocurrencies and let you buy cryptocurrency directly and trade anonymously.
You can also visit our CoinStats blog to learn more about wallets, cryptocurrency exchanges, portfolio trackers, tokens, etc., and explore our in-depth buying guides on buying various cryptocurrencies, such as How to Buy Defi Pulse Index, What Is DeFi, How to Buy Cryptocurrency, etc.
Investment Advice Disclaimer: The information contained on this website is provided to you solely for informational purposes and does not constitute a recommendation by CoinStats to buy, sell, or hold any securities, financial product, or instrument mentioned in the content, nor does it constitute investment advice, financial advice, trading advice, or any other type of advice. Our information is based on independent research and may differ from what you see from a financial institution or service provider.
Investments are subject to market risk, including the possible loss of principal. Cryptocurrency is a highly volatile market and sensitive to secondary activity, do your independent research, obtain your own advice, and be sure never to invest more money than you can afford to lose. There are significant risks involved in trading CFDs, stocks, and cryptocurrencies. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider your circumstances and obtain your advice before making any investment. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant regulators’ websites before making any decision.