Platon Wallet – what is a custodial wallet and how it works

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Summary

There are two basic types of digital wallets or wallets for digital currencies, non-custodial and custodial. With a non-custodial wallet, you have sole control of your private keys, thus also your cryptocurrency. On the other hand every mistake you make is up to you and there is no insurance and no help. With a custodial wallet, a third party controls your private keys. Most custodial wallets these days are web-based exchange wallets. Platon Wallet is a custodial wallet.

Custodial vs. non-custodial wallet

With a non-custodial wallet, you have sole control of your private keys, thus also your cryptocurrency. While there is no need to trust a third party when using a non-custodial wallet, this also means that you are solely responsible for not losing your keys, for every mistake you make and for securing your wallet and your funds on your own, without help.

With a custodial wallet, a third party controls your private keys. In other words, you’re trusting a third party to secure your funds for you. While a custodial wallet lessens personal responsibility, it requires trust in the custodian that holds your funds.

Custodial Crypto Wallets: Pro and Cons

Custodial wallets

Most web-based crypto wallets are custodial wallets, and it’s very likely that the first time you purchase crypto, it will end up in a custodial crypto wallet. In this case, your custodian holds your keys and is tasked with securely storing your funds.

While a custodial wallet may be considered less secure than a non-custodial wallet, many prefer them because they don’t require as much responsibility and are usually more convenient. Losing your password to a non-custodial wallet could be financially devastating if you do not take sufficient precautions. However, if you forget your account password you’ll likely be able to reset it.

Some custodial wallet solutions include other services, such as investing, staking, etc. They offer an option to invest in cryptocurrency that doesn’t require managing keys or transacting on the blockchain. They do, however, charge higher fees and only provide exposure to selected cryptocurrencies.

Non-Custodial Wallets

Non-custodial crypto wallets give you complete control of your keys and therefore your funds. Non-custodial wallets can be browser-based, they can come in the form of software installed on mobile devices or on desktops, or they can be hardware devices, among other options. Although they can take many forms, the most secure way to hold your cryptocurrency is using hardware wallets. These crypto wallets usually look like a USB storage device with a screen and analog buttons.

Turned off when not in use, these hardware, non-custodial crypto wallets must be connected to a computer or mobile device via USB ports or bluetooth to transact. Although they are technically connected to the internet during a transaction, the signing of the transaction by the private keys is done offline within the hardware wallet itself before being sent online to the blockchain to be confirmed. For this reason, even a malware-infected computer or phone can’t access your funds when you’re using a non-custodial hardware wallet.

While non-custodial wallets don’t require you to trust a third party, they require you to trust yourself to keep your keys and your wallet secure. If you were to lose your wallet, destroy your wallet, or forget your password, and you haven’t taken precautions to be able to regenerate your wallet, you could lose access to your funds. Any non-custodial wallet with significant funds should be password protected, and that password should be kept in written form in a location only you know.

Platon Wallet

Platon Wallet is a digital custodian wallet. Platon Life acts as a third party that holds assets on behalf of the users just like Binance or Coinbase. It is secured in co-operation with the top cyber security company, Broadcom (Symantec) and insured of amount up to 1 million EUR for loss of funds. It is much more than the usual bank account insurace of EUR 250 000. Our Platon Wallet also offers other services, such as staking and thus offers the security of a classical bank account with the convenience of funds insurance and help desk and also the opportunities of digital currencies, all available at your fingertips in one single application. 

Conclusion

Choosing between a custodial wallet and non-custodial wallet is a key decision when it comes to securing your cryptocurrency holdings. Some prefer a custodial account, while others prefer non-custodial wallets, and some end up using a combination of the two. You’ll also have to decide if you want a hot or cold wallet, and whether to spread your cryptocurrency holdings between various crypto wallets. Regardless of your choice, be sure to always follow best security practices.

Sources: Platon Life, Gemini.com

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