To illustrate the difference between custodial and non-custodial wallets, just think about the limitations of a traditional bank account. You own the money stored inside a financial institution’s coffers. But you don’t control it, because your cash is governed according to rules and regulations set by politicians or financial institutions.
Want to withdraw it? You’ll have to jump through hoops and obey limits on the amount you can take out at one time, not to mention going through onerous security checks.
Some cryptocurrency wallets have similar constraints, requiring users to obey their rules and follow strict procedures. Others, like Zumo, are different.
Many of the world’s top wallets are custodial and therefore impose limitations on their customers. Users of these wallets surrender control for security (or so they think).
A custodial wallet sets rules on how its users can access funds. They may have to prove their identity, which strips them of the relative anonymity offered by crypto. Wallets can also impose arbitrary fees or freeze users’ accounts.
Custodial wallet solutions will usually step in to save the day when users’ lose the private keys which control access to their accounts. This may sound like an advantage, but the sense of security granted by a wallet administrator’s ability to recall this information is fleeting at best.
When a wallet company stores vast numbers of its users’ private keys, the database is an obvious target for hackers. If attackers manage to gain access to many people’s crypto wallet private keys, they can escape with stratospheric sums of money.
Zumo is different. Our wallet is non-custodial, which means that we have no way of interfering with users’ funds. Neither do we store data which would allow us or anyone else access to wallets.
If you want to take all your crypto out in the middle of the night, that’s no problem. The responsibility is yours and yours alone. Try that with a traditional bank and you’ll probably have the fraud prevention team on the phone asking why’ve you suddenly emptied the account – if you’re even able to do so due to withdrawal limits.
The Zumo wallet is protected by a seed phrase, also known as a backup phrase or private key. We do not keep records of seed phrases, which means that the onus is on users to make sure they don’t forget them.
Seed phrases are randomly generated sequences of words which must be stored carefully because they cannot be reset like an email password. They can be stored on a smartphone or other device, but some people opt to physically write them down and keep them in a safe place.
With a non-custodial wallet like Zumo, the risk of a data breach is reduced dramatically because hackers may be able to find one person’s private key, but it’s highly unlikely they will manage to breach anyone else’s wallet. When responsibility for security is handed over to users, their funds are more secure.
As well as security, non-custodial wallets offer control. When stored in a Zumo wallet, our users can do whatever they want with their funds without asking us. The responsibility is on the owner of a wallet to govern their finances – not us. With custodial wallets, users must prove their identity and follow third party rules, all the while knowing that their funds could be frozen at any time at the controlling custodian’s discretion. As a non-custodial wallet, this method of verification is required for Zumo users too.
When your crypto is stored in a non-custodial wallet, it can only be controlled by the owner of the wallet – or anyone else that has the private key. That’s why it’s so important to keep this information safe. With great power comes great responsibility. As Thomas Jefferson said: “The price of freedom is eternal vigilance.”
Non-custodial wallets give you the power to control your finances and step out from underneath the strictures of faceless financial institutions. Free your money and you free yourself.
Find out what to do if you lose access to your Zumo crypto wallet.