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Custodial wallet VS Non-Custodial Wallet: How To Keep Your Cryptocurrency Safe

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A recent analysis from the consumer awareness firm Comparitech shows that crypto thefts have already claimed $16.93 million so far after the first month of year 2024, which is over double the amount which was stolen throughout the whole month of January 2023 – $8.37m.

Not to say 2023 was by any means a slow year for crypto heists. In fact, 2023 saw a 42% surge in total reported incidents. However, at the same time, the total monetary value of those heists was halved compared to 2022, likely due to the decrease in value of decentralized finance (DeFi) throughout the year.

The fall in DeFi’s value may have deterred potential attackers, leading to a decrease in the overall financial impact of crypto thefts. However, earlier this year, US regulators approved a Bitcoin exchange-traded fund (ETFs), dragging crypto back into the mainstream. 

 

As the market continues to grow, so do the threats and stakes involved. In this article, we’ll try to demystify the rhetoric and terminology around crypto custody and explore why atato custody is a fantastic option for securing your crypto assets as Web3 SMEs, startups, and Web3 service providers poise themselves for a huge year 2024 in the crypto space.

What is a Web3 Company?

Web3 encapsulates the vision of a revamped internet, leveraging blockchains, cryptocurrencies, and NFTs to empower users through ownership. Characterized by decentralization, permissionless access, native payments using cryptocurrency, and trustlessness through economic mechanisms, Web3 envisions a user-centric and equitable digital landscape. Notably, it shifts ownership paradigms with non-fungible tokens (NFTs), providing unprecedented control over digital assets, ensuring users retain value and ownership even beyond platform boundaries.

Web3 addresses imbalances in power dynamics and censorship resistance prevalent in Web 2.0. Content creators on platforms like Twitch faced potential income loss due to abrupt policy changes. In Web3, data residing on the blockchain allows creators to retain reputation and seamlessly transition between platforms aligned with their values. Additionally, decentralized autonomous organizations (DAOs) in Web3 enable collective ownership, where token holders participate in decentralized decision-making, reshaping the future of digital communities.

So you now know that ownership is pretty central to the tangible ideas and philosophy around Web3. But, it doesn’t take much of a leap to presume that if you own something within a space within which you can navigate anonymously – you’re going to have bad actors. That’s why securing crypto-assets has to be a number one priority for Web3 companies

Understanding Crypto Wallets

What is a Crypto Vault?

A crypto vault serves as a secure storage solution for crypto-assets. It employs advanced security measures to safeguard digital assets from theft or unauthorized access.

What is a Crypto Wallet?

A crypto wallet, the gateway to managing digital assets, comes in various forms. Two main categories are custodial and non-custodial wallets. 

cuztodial wallet vault

Custodial Wallets Vs. Non-Custodial, differences

If you purchased cryptocurrency recently, the chances are high that you’ve used a custodial wallet. Most cryptocurrency exchanges like Coinbase and Gemini offer them, and typically, they are the easiest to use. But how do you differentiate a custodial wallet from a self-custody wallet?

Private Keys Custody

One of the critical differences between custodial and non-custodial wallets is the private key custody. For the custodial wallet, the private key belongs (or shared in case of Multi-Party Computation technology, like atato’s) to the third-party provider who manages and secures them. They relieve the user of the responsibility of securing their private keys.

With non-custodial wallets, users retain their private keys and take the responsibility of protecting them. They must hold their private keys securely since the loss of private keys could mean losing access to their wallet and their crypto assets forever.

Custodial Wallet Recovery

Custodial wallet users do not take part in managing and storing their private keys. Their data is held securely by the wallet service provider. Therefore, even if they lose their log-in details, they can always recover their wallet by requesting the assistance of a third-party provider.

For self-custody wallet users, recovering a lost wallet is much more complex and can even be impossible. Besides the private key, users must remember a series of 12-24 words known as the seed phrase. It’s also known as the recovery phrase, and they must keep track of it to be able to recover their wallet if they lose access. If they lose the private keys and the seed phrase, it becomes impossible to recover the wallet.

Custodial wallet security

Custodial wallet and crypto custodians in general must undergo a security audit and other security certifications like ISO and SOC 2 Type 2. As their number one priority is securitythey manage cryptocurrencies through complex cryptography softwares to make sure that the funds from their customers are safe.

With a non-custodial wallet, users are responsible for their own security. The basics requires the use of a hardware wallet and that their seed phrase is stored in a safe or a very secure non-digital location. Please refer to our article about safe vault crypto for more information.

Custody Wallet Types: Enterprise vs SME

Custodial wallets vary in scope, with enterprise-level custodians serving institutional clients and SME-focused custodians targeting small to medium-sized enterprises.

atato Custody offers flexibility through its unique “Bring Your Own Chain” and “Bring Your Own Token” solution. Users can secure and store any cryptocurrency on different blockchains, including Bitcoin, EVM blockchains, and non-EVM chains. This simplifies cross-chain operations, allowing firms to manage and secure digital assets through a unified and user-friendly interface.

This feature is particularly timely due to growing demand for users to integrate their own chains and tokens into their wallets, regardless of their scale or adoption. Through atato’s ‘Bring Your Own Chain’ feature, Web3 SMEs can effortlessly extend support and secure assets on any blockchain with a single click, a capability that was previously unattainable.

Comparatively, a custodial solution such as Cobo Custody offers a multi-chain settlement network called Loop, designed for crypto exchanges, miners, liquidity providers, financial institutions, and projects/fund desks. Loop facilitates fee-free transfers and instant confirmation of blockchain transactions, streamlining operations for various blockchain participants. At the time of writing, Cobo and Loop support exchanges like MEXC, Deribit, Bitmart, Pionex, and more.

By comparison, as mentioned earlier, atato also offers multi-chain support through its “Bring Your Own Chain” feature, which can significantly save companies valuable resources when it comes to custody. This feature eliminates the need for businesses to allocate developer time or hire third-party services for implementing support for smaller chains

Custodial vs Non-Custodial Wallets: Security Comparison

Comparing the security of custodial and non-custodial wallets reveals differences in private key custody, recovery processes, and overall responsibility for security.

Security and agility are central to atato Custody’s offerings. The WalletConnect feature empowers users to access various functionalities by connecting to dApps across all blockchains. In regards to security, atato’s platform employs cutting-edge Multiparty Computation Technology (MPC), which in combination with atato’s robust and resilient security program, provides a level of security that mitigates the risks of hacking. Additionally, atato takes charge of disaster recovery processes and technologies, setting it apart from self-custody frameworks.

By comparison, it could be argued that a platform like Copper Custody is specifically tailored to meet the needs of large enterprises. It leverages Multi-Party Computation (MPC) technology to offer enhanced security, efficiency, and customization. Here’s a detailed examination of its features:

As well as leveraging MPC, Copper Custody operates on a two-of-three signing quorum, providing a natural redundancy mechanism. It eliminates the need for parties to maintain copies of each other’s shards, contributing to the system’s overall security.

If you’re a SMEs or Web3 Startups, you should view your custody requirements through a lens of malleability and agency, offering you a higher degree of transparency and control if you’re operating in a smaller team with more limited resources – all while ensuring reliability. Companies should also carefully evaluate the added complexity of having to manage multiple separate products, each with their own security policies, different APIs, terminology and documentation.

What is a Crypto Custody Provider?

A crypto custody provider plays a vital role in securing digital assets for institutional clients. atato Custody App/Platform stands out as an innovative solution in this domain.

atato custody MPC wallet

atato Custody | An Overview

atato Custody is a digital asset custody wallet designed explicitly for crypto SMEs, providing a secure environment to manage and store digital assets on dApps. One of its key strengths lies in compliance and licensing, ensuring that businesses can engage in securing and storing their digital assets while adhering to the rigors of increasingly precise regulatory requirements. Offering licensed crypto custody services, atato’s compliance guarantee sets it apart from Fireblocks, which operates under a self-custody model.

Cost-effectiveness is another hallmark of atato Custody. Unlike Fireblocks’ transactions and withdrawal fee structure, atato offers unlimited wallet creations at a fixed price with no Assets Under Custody (AUC) fees. This affordability is particularly advantageous for Web3 SMEs seeking to scale their crypto operations without incurring hefty fees.

atato offers myriad wallet solutions through its various packages that provides agency with regards to the size and needs of your operation. One thing they provide across the board though is security and agility with their wallet functionality – atato’s WalletConnect feature enables users to use staking, DeFi, NFT, governance voting, or any other dApp. Moreover, the platform’s Multiparty Computation Technology (MPC), prevents the atato wallet itself from being hacked – this works by splitting the private key into several shards so no one knows the full code. Finally, as a custodian, atato is in charge of the disaster recovery processes and technologies. This sets it apart from self-custody frameworks like those seen with operations like Fireblocks, where security is taken care of by the custodian instead of the client who uses the solution.

Flexibility is a crucial aspect of atato Custody’s appeal. The platform’s patented Bring Your Own Chain and Bring Your Own Token solution allows users to secure and store over 1,800+ cryptocurrencies on Bitcoin, any EVM blockchain and several non-EVM chains as well, allowing Web3 SMEs to function cross-chain efficiently. Firms can control and secure their digital assets through one simple UX rather than using several custodians to keep up the rapidly evolving blockchain landscape.

For a secure and user-friendly crypto custody solution, explore atato Custody App/Platform. Safeguard your digital assets with cutting-edge technology. Visit atato Custody for a demo or more information.

As the crypto landscape evolves, ensuring the security of digital assets becomes imperative. Stay ahead in 2024 with the latest advancements in crypto custody offered by atato. 

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Frequently Asked Questions

A custodial wallet is a wallet from a crypto custodian, A qualified crypto custodian is an expert on security and will make sure every of your transactions go through a layer of approvers. 

A custodial wallet is a wallet from a crypto custodian, A qualified crypto custodian is an expert on security and will make sure every of your transactions go through a layer of approvers. 

Custodial wallets are a safer way to store and manage your digital assets, since the keys to access them are held by a third party, often a cryptocurrency custodian, or by several control devices in the case of mpc technology (multi Party Computing). The keys and seeds are not your responsibility, ensuring enhanced security for your cryptocurrencies. You can also recover your wallet more easily if you lose your credentials.

Atato custody, an all in one solution for your digital assets security

Add any token, add any chain, MPC security, Dapps integration

Atato custody, an all in one solution for your digital assets security

Add any token, add any chain, MPC security, Dapps integration