Non-custodial wallet

Want full control over your cryptocurrencies? Then you should know what a non-custodial wallet is and why it's the preferred solution for many users. Unlike traditional wallets where a provider stores the private keys, with a non-custodial wallet the responsibility lies entirely with you.

In our guide, you'll learn more about the meaning of non-custodial wallets, how they work and the different types available. We'll also explain how they differ from other wallets and what you should consider if you want to use a non-custodial wallet yourself.

• A non-custodial wallet, by definition, is a wallet where you store your private keys yourself, giving you control over your cryptocurrencies

• Non-custodial wallets operate without a central authority by enabling transactions directly via the blockchain

• There are different types of wallets such as hot wallets, software wallets or cold wallets – each with their own pros and cons

• Security and access depend entirely on how you manage the wallet – in particular, you should store the seed phrase offline and securely

Definition: what is a non-custodial wallet?

A non-custodial wallet, in English "wallet without third-party custody", is a digital wallet for cryptocurrencies where only the user has access to the private keys and therefore to the stored tokens or coins.

The key point of non-custodial wallets is personal responsibility. They offer a high level of independence but also require users to securely back up their access data – especially the seed phrase. If it's lost, access to the wallet and the cryptocurrencies it contains is permanently lost. It’s no surprise that "non-custodial wallet" essentially means: a wallet where you act as your own provider. You can store your digital money yourself – without a central authority in between. This type of wallet represents decentralised usage, high security standards and the principle that only the holder of the keys is also the holder of the tokens.

How does a non-custodial wallet work?

A non-custodial wallet works by processing transactions directly on the blockchain without a provider acting as a middleman.

The basic operation can be summarised in a few steps:

• Key pair creation: A public key for receiving and a private key for accessing cryptocurrencies like Bitcoin are created during setup

• Private key storage: The private key is stored locally on the user's device and never leaves it

• Seed phrase: Twelve or twenty-four recovery words serve as a backup for the private key

• Signing transactions: You use the private key to sign transactions, confirming that you're the holder of the coins or tokens

• Blockchain communication: The wallet interacts directly with the relevant blockchain to validate transactions

• No central authority: There's no entity that can grant or restrict access

• User responsibility: Security and access are entirely the user’s responsibility

You can find out more about public and private keys in our guide.

What types of non-custodial wallets are there?

There are various types of non-custodial wallets, mainly differing in their intended use and level of internet connectivity. The most important are non-custodial hot wallets for daily use and non-custodial cold wallets for long-term storage, though not all cold wallets – such as hardware wallets – are considered classic non-custodial wallets.

Common types include:

• Non-custodial hot wallet: Wallets with internet access that allow quick access to cryptocurrencies like Bitcoin – ideal for everyday use

• Non-custodial software wallet: Apps or programmes where you store your private keys yourself – commonly used on smartphones or desktops

• Mobile wallets: Hot wallets as smartphone apps, focused on ease of use and on-the-go access

• Desktop wallets: Software wallets on a computer, offering more security than mobile wallets but requiring more backup effort

• Browser-based wallets: Extensions that run directly in web browsers, especially suited for accessing decentralised applications (DApps)

• Non-custodial cold wallet: Wallets used offline, e.g. on a separate device or air-gapped computer

Note: Hardware wallets like Ledger are generally not seen as classic non-custodial wallets because they operate offline and are mainly intended for cold storage – for secure, long-term storage of your currency rather than for daily transactions.

Advantages and disadvantages of non-custodial wallets

Non-custodial wallets offer great benefits like independence, but they also come with drawbacks. Here's an overview:

Advantages:

• The user stores their keys themselves and always has access to their money

• No dependence on third-party providers or centralised platforms

• Higher protection against theft from hacked exchanges

• Particularly suited to experienced users and long-term storage of Bitcoin and other cryptocurrencies

Disadvantages:

• You're solely responsible for the security of your wallet

• Usage may be more complex for beginners compared to custodial solutions

• Mistakes during use, e.g. when handling DApps, can lead directly to losses

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Typical use cases for non-custodial wallets

Non-custodial wallets are suited to different applications depending on how they’re used:

• Decentralised finance (DeFi): Use non-custodial wallets to interact directly with decentralised applications like lending platforms, decentralised exchanges (DEXs) or liquidity pools – all without third-party involvement

• Staking: If you've staked tokens like Ethereum (ETH), you'll often need a wallet that connects directly to the relevant proof of stake consensus mechanism – non-custodial wallets enable exactly that

• Long-term storage: Non-custodial cold wallets used offline offer particularly high security for long-term cryptocurrency storage

The difference between a custodial and non-custodial wallet

The main difference lies in who holds the private keys: with a non-custodial wallet, you hold them yourself; with a custodial wallet, a provider does. This directly impacts access, security and oversight of your digital assets.

Here's a side-by-side summary of the key features of both wallet types:

Non-custodial wallet:

• Your wallet access doesn’t depend on a provider

• You need a seed phrase to restore your wallet in case of emergency

• You bear the full risk of loss or theft

Custodial wallet:

• You sign in via an account and usually have a simple user interface

• Access to your money may be restricted or delayed in critical situations

• Security gaps at the provider could endanger your Bitcoin or other cryptocurrencies

You can learn more about custodial wallets in our guide.

Are non-custodial wallets secure?

Non-custodial wallets are secure if used correctly. Since you store the private keys yourself, you're not dependent on providers – but you also don’t have any protection if mistakes are made.

The biggest risk is losing the recovery words. Without them, you can't access your money if your device is lost – this is especially true for a non-custodial software wallet.

Protection from phishing, malware and theft is also vital. Keep your software updated, use trusted sources and never share your keys. In the end, security depends entirely on how you handle the wallet.

What are the best non-custodial wallets?

Which non-custodial wallet is best depends on your individual needs. A few specific features are especially important:

• Supported currencies: Check if the wallet supports your preferred currency

• User interface: Look for a user-friendly interface, especially if you're new to wallets

• Platform choice: Consider whether you want to use the wallet on mobile, desktop or in a browser

• DApp access: Assess how important access to decentralised applications (DApps) is for you

• Backup security: Make sure you can securely store your recovery words

• Security features: Look out for encryption, biometrics or multi-signature support

• Hot or cold: Decide whether you need a hot wallet for everyday use or a cold wallet for long-term storage

• Backup and recovery: Find out about the backup and recovery options in case your device is lost

The best non-custodial wallet is the one that fits your usage style – whether you’re actively trading, storing long-term or only interacting with crypto occasionally.

More topics around cryptocurrency

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