Crypto Wallets: Custodial vs Non-Custodial Wallets

BantuPay Wallet
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The wallet maintains a list of private and public keys that it can resolve by either watching a local copy of the blockchain or communicating with a copy belonging to another full node user, the wallet simply builds a balance from the transactions it can control.
A wallet does not store any coins, but it can reference any transaction on the blockchain that it can resolve with the stored private keys.
Cryptocurrencies are stored on the Blockchain system, only thing you saved on your wallet is your PRIVATE KEY. Wallets are abstract you Use to claim ownership of your cryptocurrencies. Cryptocurrencies are being sent to your wallet through your public key ( address). For you to claim the cryptocurrency sent to your wallet you need PRIVATE KEY… Basically, you’re reaching out to blockchain that public address XYZ belongs to me But you need A PRIVATE KEY to unlock and claim ownership of that address…
For each cryptocurrency, numerous types of wallet exist that can work on desktops, mobiles, and tablets. Some of these wallets connect to the blockchain remotely, while others maintain a complete blockchain locally ( known as a full node).

What is a non-custodial and custodial wallet?

A non-custodial wallet is a decentralized type of wallet, where the customer owns its private keys. The user gets a file with private keys and needs to write down a mnemonic phrase with which they will be able to restore their funds. Having private keys means that you have full control over the funds. Sounds good, doesn’t it? Yes, but keep in mind, full control of your money also means that you are the only one responsible for your funds… E.g. BantuPay wallet is non-custodian wallet.
While a custodial wallet is a type of digital wallet which keeps a customer’s private keys and provides backup and security for your assets. Custodials keep users’ private keys on their side.

Advantages of Non-Custodial wallet includes;

  1. User’s gain control over their funds
    The main reason why DeFi wallet development is gaining tremendous traction is that they enable users to access their own funds without the involvement of any third party.
  2. Safety in Funding
    Since all the details of users’ crypto wallets are with the users, there is a much lower risk of a data breach.
  3. Instant Withdrawals
    As DeFi wallets do not require third party approval for any transaction to be performed, so it makes the instant withdrawals.
    These advantages also comes with responsibility. As user, you must always upgrade your app/wallet to the latest updates or version of the app, keeping up with news around the wallet.

Custodian or Hosted wallets

The most popular and easy-to-set-up crypto wallet is a hosted wallet. When you buy crypto using an app like Coinbase, luno, etc.your crypto is automatically held in a hosted wallet. It’s called hosted because a third party keeps your crypto for you, similar to how a bank keeps your money in a checking or savings account. You may have heard of people “losing their keys” or “losing their USB wallet” but with a hosted wallet you don’t have to worry about any of that.
The main benefit of keeping your crypto in a hosted wallet is if you forget your password, you won’t lose your crypto. A drawback to a hosted wallet is you can’t access everything crypto has to offer. However, that may change as hosted wallets start to support more features.

A self-custody or Non-custodian wallet, like Bantu Pay wallet, etc. puts you in complete control of your crypto. Non-custodial wallets don’t rely on a third party — or a “custodian” — to keep your crypto safe. While they provide the software necessary to store your crypto, the responsibility of remembering and safeguarding your password falls entirely on you. If you lose or forget your password — often referred to as a “private key” or “seed phrase” “secret keys”— there’s no way to access your crypto.
If someone else discovers your private key, they’ll get full access to your assets.
Why have a non-custodial wallet? In addition to being in full control of the security of your crypto, you can also access more advanced crypto activities like yield farming, staking, lending, borrowing, and more.

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Gained a new knowledge today. This info is good. Both custodian and non-custodian wallet have their positives and negatives. While non-custodian wallet sounds more good and secure, custodian wallet give much more hope of recovery in terms of lost.

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@olutaiwo Thank you for your regular dose of crypto knowledge. It’s highly appreciated.

@olutaiwo , if I lose my device on which I have my crypto assets in a wallet, can I easily still get back my crypto assets when I get another device and download the crypto wallet app?

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@Hanyi Yes, ONLY if you backed up your wallet SECRET KEY. A secret key is also referred to as a mnemonic phrase, mnemonic seed, mnemonic recovery phrase, seed key, or seed words refers to a group of words generated when creating a new wallet to store cryptocurrencies. When creating a new crypto wallet, that’s why in BantuPay wallet, you’ll be required to write down a 56 long words generated Secret keys or seed words on a paper and keep it in a safe place.
N.B:> Generation of a new key for an already existing account is not possible. Keys are tied to an account which are generated when creating a new account and cannot be changed.
Mnemonic phrase constitutes all the necessary information required to recover your wallets and cryptocurrencies if your device is stolen or gets damaged. In such instances, you can recover your wallets and all your funds by keying in the mnemonic phrase words on the same wallet software in the same sequence they were generated.

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@brownish19 Irrespective of the wallet type, the utmost responsibility of any crypto holder, investor, or trader is to keep their coins safe. Of course, cryptocurrency is decentralized, meaning that nobody controls your money; thus, you’re solely responsible for your digital assets security.

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BantuPay wallet is user friendly wallet for non technical users. This is about 100% simplicity… Nobody should be using complex codes any more.
The essence of Bantu Blockchain Infrastructure is to simplify payment and fintech services so that even our parents or children can use it without any instructions. Our wallet is non-custodial… that’s why you had to backup that key and that’s the only time you will see that madness of complex blockchain keys so there’s nothing to hack unless you kidnap everyone and force them to give you their keys. Everything happens on your device… You will be able to send to usernames, emails, phone numbers, etc no need to use crazy crypto accounts and wallets addresses.

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Thank you for the explanation @olutaiwo

I also would like to ask why there isn’t a “next of kin” field in crypto wallets or exchanges since crypto assets are gradually likened to financial assets as they hold value.

In the event, a holder of crypto assets in a wallet or exchange dies or becomes incapacitated unexpectedly, what then happens?

In furtherance to this, is there a way the blockchain can solve insurance issues and claims? @olutaiwo

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Excellent question @Hanyi . With regards to the next of kin, the Bantu Blockchain Foundation will consider this and many more as we progress together on this unending journey.

With regards to solutions that can be built on the Bantu Blockchain, kindly note that Bantu Blockchain as an infrastructure can solve every real life issue that a Blockchain infrastructure can be used to address including insurance issues. We invite all developers and project owners to come exploit the potential of Bantu Blockchain and build their solutions.

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@Hanyi I’d say the industry is still growing and many of these traditional features will eventually be included.

Another perspective is the case anonymity around the assets, and it would be a burden for an entity to introduce such features as it increases the exposure surface of such exchange…it is an endless link of regulatory burden.

There are ways to solve the issue of next of kin or transfer of funds when owner is unavailable. One good way is multisig wallets that ensures you need a certain amounts of key collection to carry out any transaction in a Wallet. Because it gives the next of kin some right sort of If your next of kin is gready or change his behavior he could take your asset while you still alive Or even kill you to take your asset If your asset is worth it for him.
Also,law firms and crypto custodial platforms and Crypto vaults have this feature in place right from onset, so for an exchange, it is somewhat far fetching cos an exchange is just a market place and not a storage system.
As for the blockchain solving insurance issues and claims. There are insurance solution on DeFi
There are many possibilities that can be implemented on Bantu blockchain infrastructure.

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@Hanyi If the deceased holder was storing his private keys on a hardware device that is password protected and he/she did not share the access, then the crypto is locked up and not accessible. If the holder was using an exchange that holds the private keys, or just holds the equivalent value of the crypto holding, then, through a legal process a survivor can likely recover the crypto.

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Thank you @epaepa @olutaiwo for your contributions. I don’t think Google would have explained this as simple as you did. :man_teacher:t5::man_student:t5:

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@olutaiwo could share the use cases of the insurance solution on Defi. Would like to read more. Thanks

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@abosede Top Insurance Coins by Market Capitalization - CoinGecko

These are credible examples you can read on

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Why have a non-custodial wallet? In addition to being in full control of the security of your crypto, you can also access more advanced crypto activities like yield farming, Staking https://stake.bantupay.org/ lending, borrowing, and more.