Cryptocurrency Trading Fundamentals
Course overview
3. Self-custody versus custodial wallets
Self-custody, where investors maintain direct control over their digital assets, is a central point of discussion in the cryptocurrency space. This involves securely managing their private keys or seed phrases using a dedicated wallet. These wallets come in various forms, including software wallets like MetaMask, hardware wallets such as Ledger, and even paper wallets, which are simply printed or memorised private keys.
For newcomers, crypto wallets initially seem complex. Non-custodial wallets offer maximum control but require users to learn and implement robust security practices. Custodial wallets, provided by trusted third-party platforms like the Axi Trading Platform, offer a more user-friendly approach by handling security.
Top 5 advantages and disadvantages of self-custody
| Advantages | Disadvantages |
|---|---|
| Direct ownership provides complete control over assets. | Individual responsibility for the security of private keys or seed phrases. |
| No third-party access to funds or transaction history (privacy) | A degree of technical knowledge is required to set up and use. |
| Eliminates the risk of third-party custodians being hacked. | Risk of losing your wallet. |
| There are often no fees associated with self-custody wallets. | Potential for permanent loss due to human error. |
| Aligns with the principle of decentralisation. (Not your keys, not your coins) | No diversification |
Quiz
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