Custodial or Non-Custodial Wallets: Which is the safer option?
Where do most people keep their money? In banks. Do they have full control over that money, or do they have full custody of their money? The answer would be a disappointing no. Banks are custodial of the funds kept in their accounts and they can, at times, deny access to these funds to their legal customers (and it has happened in the past).
What is the alternative to this? Keeping one’s money in his/her own custody, at home, or at some other safe location where it might be safe from problems like theft and robbery as well. Why do most people avoid this alternative? Because it puts more responsibilities on them and requires a lot more effort and care compared to opening a bank account.
The story is somewhat similar in the case of cryptocurrencies. A crypto wallet is where a cryptocurrency is kept. And just like a bank account managed by a bank or a safe locker at home managed by the customer herself, there are two different types of wallets in crypto.
