What is a Crypto wallet?

As the name suggests, a crypto wallet (just like a physical wallet) is used to hold your crypto currencies and allows you to send and receive crypto currencies.

There are different kinds of crypto wallets out there but broadly, the divisions are as follows

    • Custodial wallet
    • Non custodial wallet
Custodial wallet

A scenario where a centralized exchange such as Binance or Coinbase provide you a mechanism to store your crypto purchases. These wallets are centralized and hence the access is through a login either with your email/mobile or any other social login. A crypto investor need not worry about the remembering the keys to access the wallet. Most such wallets also obfuscate the need to understand crypto movement across chains.

The biggest disadvantage of a custodial wallet is what is often terms as "not your keys, not your crypto". In essence this means that the private keys are held by the custodian/third party here. This essentially puts your crypto in the hands of a custodian, and if they get hacked/compromised, it easily leads to your crypto getting stolen.

Another issue with a custodian wallet is that transaction meta data stays opaque and on the ledger of the custodian.

The benefits of a custodial wallet is clearly the fact that trades/swaps are mostly free, and that one need not remember their private key. Essentially these lead to better UX when it comes to trading using crypto.

Non custodial wallet

Popular non custodial wallets such as MetaMask, Coinbase Wallet, etc. are essentially wallets built on-chain and provide users a mechanism to store crypto directly on the blockchain. The user in this case has full control to the crypto stored as they have an access to their private key. This offers higher security and puts the onus on the customer to remember their private keys (often users have lost their crypto as they forget their keys)

A distinct advantage of non custodial wallets is as mentioned above, the user is in full control of their funds at all points in time. And even if a user transacts, tools such as etherscan provide them a window into their transaction almost real time. Also, in the case of a non custodial crypto wallet, it allows the users to access their crypto in an offline fashion (Trezor for example).

For a regular trader though, this also means trading on-chain and hence a good amount of gas fees to be paid. Also transactions on chain are not necessarily real time (they often take a few seconds to complete) which might not be a good choice for trading with a higher frequency.

Descrypt is a leading portfolio tracker that allows its users to track their assets across custodial and non custodial wallets. We are in the read-only path; we never look for keys which might enable a transfer to happen thereby being secure than any other portfolio tracker out there. To top it, we are accurate across exchanges and chains. Do give Descrypt, your one stop solution for tracking and taxation needs, a spin and provide feedback at support@descrypt.com