Are Custodial Wallets Better Than Non-custodial Solutions?
Feb 20, 2020 at 3:10 pm UTC by Julia Sakovich · 4 min read
Sometimes vulnerabilities of non-custodial apps make it possible to breach data without users having a chance at backing up their balances. But custodial wallets offer users the possibility of recovering access at any time.
Custodial, or centralized, wallets often come under criticism as being allegedly less reliable than their non-custodial counterparts. While this stance is common, does it really take into account all the nuances of how today’s wallets protect their customers? The below overview looks at how some custodial solutions have taken a step forward in security arrangements and have become preferable to many users.
Custodial vs Non-custodial Wallets
In terms of safety, people always seem to rate non-custodial wallets higher than their competitors. However, sometimes vulnerabilities of non-custodial apps make it possible to breach data without users having a chance at backing up their balances. Such was the case when the passwords of Gatehub wallet owners were compromised. Non-custodial wallets leave the safety of funds to the user’s care, so if a user loses those funds, there is often nothing that can be done. Unlike non-custodial apps, centralized, or custodial wallets offer users the possibility of recovering access at any time. Additionally, custodial wallets often make the technical process of using a cryptocurrency wallet much easier on the user.
Custodial wallet platforms often prioritize taking care of end-user comfort by improving features and instructing beginners on how to interact with the crypto market.
The list of security features varies for every wallet. First, let’s have a look under the hood of non-custodial wallets. As a rule, this kind of wallet lets you create a recovery phrase. Apart from the most typical types of protection that come in the form of 2FA, PIN, and multisign emails, some of these wallets let you use TOR as a proxy, have a master-seed, import paper wallets, and much more.
Despite all that, not all non-custodial wallets provide features like 2FA (for example, Exodus and Armory, with the former even forgoing PIN codes). Although this “lack” of features likely stems from a decision not to store user data on the company’s side, individual users may want stricter control over funds on their end.
That’s where custodial solutions come in. For example, the Lumi wallet enables Touch ID, Face ID, PIN code, as well as a 12-word backup phrase. Other helpful features include multi-signature transaction confirmation, customizable withdrawal limits and control overactive sessions and suspicious login attempts just like with Freewallet. This custodial crypto wallet has introduced alerts about login attempts from unfamiliar IP addresses, following the aforementioned data breach of 1.4 million users. If you receive such a warning, the best thing to do is to change all your passwords. This is on par with the security measures taken by BitMax and Binance for their wallets. Armed with such a toolkit, there is no reason you won’t succeed in protecting your funds.
More Tips for Securing Your Wallet
By logging into your accounts, hackers can access your contacts, payment details and even steal your identity.
If you are worried about your personal data winding up on compromised databases, here are some recommendations for you. First, check on this site whether your email is on the hacked list. Then, if you have been compromised, you can estimate how long your passwords have been exposed to black databases. Check out this article for more information.
There is even a special test that will help you determine what your security level is: Rookie, Enthusiast or Ninja! Figure out what it takes to reach the highest security level and protect your crypto account.
The above comparison shows that centralized service providers are not far behind their non-custodial brethren in terms of the ability to secure individual crypto accounts. The responsibility for users’ funds along with touch market competition is the main reason why centralized service providers are continuing to strengthen the security features they offer to wallet owners.
Having obtained a diploma in Intercultural Communication, Julia continued her studies taking a Master’s degree in Economics and Management. Becoming captured by innovative technologies, Julia turned passionate about exploring emerging techs believing in their ability to transform all spheres of our life.