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Understanding Solana Non-Custodial Wallet Concepts And Benefits

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Understanding Solana Non-Custodial Wallet Concepts And Benefits

Learn what makes non-custodial wallets different from custodial wallets

5/15/2022

Non-Custodial Wallet

Solana

What Does Non-Custodial Wallet Mean?

A non-custodial wallet is a type of crypto wallet that enables you to hold your funds without any third-party approvals required. Non-custodial wallets are also called self-custody wallets because you maintain full custody of your account.

The Solana blockchain operates similar to other blockchains such as Bitcoin and Ethereum in the sense that each account is comprised of a public address and a secret key. An account's public address is similar to a Twitter username - it is an identifier unique to an account, and people can send messages to the username. The secret key is like the Twitter account password. Anyone who knows the password can access the private account information, and send messages on behalf of the account. For more detailed information on Solana accounts, refer to Avana Wallet Documentation and Solana Cookbook.

Non-custodial accounts enable you to be the only one who knows your password. As long as you keep your password safe and secret, then nobody else can access your account. Nobody can ever take your crypto or authorize transactions on your behalf. Non-custodial wallets give you the most independence and control over your funds when you use Solana.

What Is A Crypto Wallet?

Crypto wallets enable you to store your digital Solana accounts using software like Avana Wallet, or a Solana hardware wallet such as Ledger. Wallets are tools that help you interact with the blockchains.

Crypto account public addresses and secret keys are very long and complex, which makes them nearly impossible to remember. Crypto wallets help you store your information by encrypting your account information and making it available only when you need it.

In addition to storing your account information, crypto wallets enable you to interact with Solana Web3 applications such as decentralized apps ("dapps") and NFT marketplaces. When you want to authorize a transaction, your wallet assists you in creating a cryptographic signature using your account's private key to create cryptographic proof that you authorized the transaction. The wallet protects your account secret during the entire process so no third parties can access the secret information. Learn more about how Avana Wallet helps you interact with Solana Web3 dapps.

Not all Solana wallets are designed the same. Some wallets are easier to use than others. Also, some wallets have better security than others. Avana Wallet is designed to provide top-grade security and a rich user experience. We want to help you enjoy the ever-changing world of Web3 and Solana blockchain.

Solana account public addresses are typically 43 to 44 characters long, and are comprised of a mix of numbers and letters. A sample Solana public address is 3fzMfUZa4pLwvuMsdokVyJBTvniUux2djF511Zj4rTC4, which is derived from the seed phrase move never key front food banana weapon tail exile misery boy reason. Seed phrases are used to generate the secret key, which is 32 bytes long. Learn more about how secret keys word in Avana Wallet Documentation.

What Are The Differences Between Solana Custodial & Non-Custodial Wallets?

Custodial wallets involve centralized third-parties who have access to your account's private keys. These third-parties can authorize transactions without your permission. Non-custodial wallets never have access to your private keys and they cannot authorize transactions without your permission.

Custodial wallets act similar to a traditional bank. A bank holds your funds for you, and you a bank card to make purchases. The bank always retains the power to approve or deny your transactions and confiscate your funds.

Non-custodial wallets act similar to holding physical currency. For example, if you kept your money in your physical possession then no third-party would have the ability to approve or deny your transactions.

Prior to blockchain technology, it was difficult to send global payments using non-custodial accounts. Blockchain enables people around the world to send digital payments instantly without the involvement of custodial third-parties. This new technology helps lower payment processing fees and barriers that historically have created many roadblocks for small businesses and emerging markets.

Famous examples of third-party custodians getting hacked include Mt Gox, Crypto.com, Binance, and Bithumb. In several instances the custodians reimbursed their clients for the financial losses - they were able to reimburse clients because the total amount lost was relatively small. Larger losses, such as Mt Gox, resulted in total loss for the clients.

Mt Gox bitcoin hack

Are Solana Non-Custodial Wallets Better?

Non-custodial wallets are often preferred over custodial wallets because it gives the end user more control. Newer crypto users sometimes find non-custodial wallets confusing, so they start with custodial wallets and eventually move to non-custodial wallets.

Non-custodial wallets protect your account and funds better than custodial wallets because fewer parties have access to the secret keys. For instance, if the third-party custodian is ever hacked or compromised then all crypto custodial accounts could become compromised too.

Self-custody wallets allow you to move your funds freely from one account to another without extra fees. Custodial wallets often impose elevated fees and barriers when you move your funds. For example, some custodians charge a 3-8% fee to transfer your assets.

In addition, custodial wallets have the power to reverse transactions. For instance, several crypto owners were surprised to find out that Crypto.com reversed very profitable trades after the Terra Luna fiasco. Crypto.com reserves the legal right to reverse and cancel transactions at its own discretion. There are many other instances of custodians acting against the financial interest of their client's accounts.

Non-custodial wallets never have the ability to cancel or change transactions after they have been recorded on the Solana blockchain. In this sense, non-custodial wallets are the purest form of interaction with the blockchain network because there is very little gap between you and the code that powers Solana. No businesses or persons can have final say over the future of your account.

Elon Musk Is A Strong Believer In The Future Of Non-Custodial Wallets

Elon Musk wrote in tweet during early 2021 that any crypto wallet that does not give your private keys should be avoided. Following that tweet he continued to echo similar statements supporting his favorable view of self-custody crypto wallets.

Elon Musk tweet noting that users should have self-custody crypto wallets

"If you own crypto in an exchange and the exchange does not give you your private keys, it is not clear that you own anything. If that exchange breaks or is hacked or is subject to seizure by the government then your crypto is gone. So in order to have properly decentralized finance (defi) then you have to own your private keys.

"You should be the only one who has your private keys. If you are the only one that has your private keys, then you own it. If someone else has your private keys effectively they own it too, and the security of your crypto is then dependent upon them, or any entity that can affect them."

- Elon Musk on the merits of non-custodial crypto wallets

Are Non-Custodial Wallets More Complicated?

Crypto newcomers might find custodial wallets easier to manage. Custodial accounts do not show the technical details regarding the account secret key to the user, so it seems simpler.

After a users gain experience, they often realize that non-custodial accounts provide more freedom and are not more complicated. Also, they find that non-custodial wallets often cost less to use over a longer-horizon as a result of lower fees. When you use Avana Wallet and Solana, your fees to send and receive crypto and tokens is almost zero.

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