Custodial vs Non-Custodial Wallets: What's Better for Crypto Gambling?
Convenience, security, privacy… All these encapsulate the essence of crypto gambling. But choosing the right crypto wallet can make all the difference.
The two main options are custodial and non-custodial wallets. Each of them has unique aspects and trade-offs. Below, the Crypto Gamba team elaborates on both with the purpose of helping you make a strategic decision.
What Are Custodial Wallets?
Custodial wallets are crypto wallets managed by third parties. They hold and control your private keys, using them on your behalf. Think of them as a bank account, where the service provider handles all complex security measures. You access your wallet through the platform to carry out transactions, which resembles online banking. The most popular custodial wallets are Kraken and Coinbase.
Pros & Cons of Custodial Wallets
Take a look at our main reasons for using and not using a custodial wallet for crypto gambling.
Pros
- Very easy to use
- Easier account recovery
- No personal effort needed
Cons
- Lacks full control of crypto
- Subject to KYC/AML checks
- Vulnerable to malicious intents (hacking)
What Are Non-Custodial Wallets?
Fully non-custodial wallets allow you to maintain complete control of your cryptocurrency. They are not as frequently used as custodial wallets due to their complexity. At the same time, non-custodial wallets are essential for interacting with dApps and decentralised platforms. Here, the transactions happen directly from your wallet via smart contracts. dApps and decentralised platforms can access your crypto only when you grant them the permissions.
Pros & Cons of Custodial Wallets
We highlighted the most important advantages and disadvantages of using a non-custodial wallet today:
Pros
- You maintain full control
- Higher privacy
- Resistant to centralised failure
Cons
- High responsibility
- Reduced convenience
- Not widely available
Security Risks in the Context of Gambling
Your funds' security online is paramount and should never be compromised. Unlike traditional payments, the crypto transactions are irreversible. If you lose your funds or they get stolen, there is no recourse that a bank or payment processor could offer. For this reason, it is crucial to make an informed decision when choosing between custodial and non-custodial wallets. Below, we highlight the main risks associated with each option.
Custodial Wallet Risks
With this option, the service provider holds your deposited funds through a centralised wallet. This is very convenient for online gambling, but we find two main risks:
- Centralised target for hackers: Custodial wallets are a single pool of funds. As such, any cybercriminal knows the centralised wallet is an attractive target. A successful breach can result in the loss of users’ digital assets.
- System failure: If the service stops functioning for any reason, you won’t be able to access your funds.
Non-Custodial Wallet Risks:
With a non-custodial wallet, you get complete control of your private keys, and smart contracts handle all transactions. However, they put on a greater responsibility for the user:
- User error: Losing the private keys, phishing attacks, and mis-signed transactions are all potential ways to lose your digital assets.
- Technical complexity: The interface of non-custodial wallets is more complex and can be daunting for those inexperienced with cryptocurrency technology. This can, in fact, increase the chances of mistakes and user errors.
Better for Security: Non-custodial wallets are more secure in theory, but riskier in practice for inexperienced users. In reality, you will have the highest levels of protection and minimal risks if you make transactions with secure and trusted websites.
Accessibility and User Experience
Your crypto gambling experience can be affected by the type of crypto wallet you use. Here's all you need to know about the differences in UX for both types of wallets.
Custodial Wallets
Custodial wallet platforms are designed with ease as their primary focus. Most often, their setup is simple, and all you need to do is issue a cryptocurrency transaction with one click. They usually have instant transactions. Many platforms with custodial wallets offer 24/7 customer support to address any issues that may arise.
Non-Custodial Wallets
Compared to custodial wallet sites, non-custodial ones have a considerably steeper learning curve. Players need to manage their own wallets and connect them securely to the platform at their own responsibility. They also need to manually approve transactions. Each of these actions requires interacting with a smart contract, which adds steps and increases the time required. Players may also need to exchange funds with other compatible networks and currencies, as not all tokens and blockchains are supported.
Better for Accessibility: Custodial wallets offer a smoother and more beginner-friendly experience.
Privacy and Anonymity
Privacy is one of the main reasons to consider crypto gambling. Below, we highlight the differences in data exposure when using the two wallets.
Custodial Wallets
Custodial wallets, by nature, clash with the essence of crypto casinos. They have reduced privacy because KYC and AML practices apply to all platforms using them. There is monitoring and oversight involved that significantly reduces anonymity.
Non-Custodial Wallets
Non-custodial wallets work in the opposite way. The platforms using them require no KYC due to the decentralized access. This makes them a great option for players seeking privacy and wanting to maintain a low profile.
Better for Privacy: Non-custodial wallets provide higher levels of privacy. They are not as closely monitored, and they don’t require verification.
Which Wallet to Use for Crypto Gambling?
Ultimately, both types of crypto wallets are reliable. The safer option depends on the user’s technical competence and the levels of personal responsibility they are willing to take on. Beginners will find custodial wallets straightforward, and if anything goes wrong, they’ll have access to customer support. Tech-savvy crypto gamblers and those prioritising privacy will find non-custodial wallets to be a better choice due to the presence of full control and lack of KYCs.
A practical middle ground is to use a hybrid strategy. We recommend keeping the majority of your assets in a non-custodial wallet for maximum security and storing the private keys safely. Then, to establish a good balance of security and control, you can transfer an intended amount for gambling to a custodial crypto online casino.
Bonnie Gjurovska
Crypto Expert
Bonnie Gjurovska has been a gambling enthusiast since 2017. Her crypto journey began in 2019 when she first read a Twitter post. She then purchased Verge and Bitcoin as her first cryptos and developed a deep interest in blockchain, DeFi, NFTs, altcoins and protocols, scouring forums and communities for sharing knowledge. She is a strong believer in decentralization and digital economy, which stems naturally from her legal educational background.