In the context of cryptocurrency, the term “non-custodial” refers to a type of wallet or exchange where the users maintain control of their private keys. In other words, a non-custodial setup is one where you, and only you, control access to your cryptocurrencies.
A fundamental principle of cryptocurrencies like Bitcoin is the ability to hold your own money, similar to cash, without needing a third-party institution like a bank to hold it for you. Your private keys provide access to your crypto assets on the blockchain, and whoever holds those keys effectively controls the assets.
In a non-custodial wallet or exchange:
- You are in control of your private keys and thus your funds.
- Even if the wallet provider or exchange is hacked, your funds should remain safe, as long as your private keys have not been exposed.
- The responsibility of safekeeping the private keys lies solely with you. If you lose access to them, it could lead to a permanent loss of your funds.
This is in contrast to a “custodial” service, where the service provider holds your private keys. This is similar to the way traditional banks operate, where they maintain custody of your money. Custodial services often provide user-friendly interfaces and additional services, but they also present a risk because if they’re hacked, the attacker could gain access to your private keys and thus your assets.
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