Always know the difference 1

[ZeroVinsonN]

Earlier today I mentioned how custodial and self custodial wallets were different and not the same thing in this thread so I decided that it would be good for everyone to know the difference between custodial wallet, non custodial wallet and self custodial wallet.

1. Custodial wallet
With a custodial wallet, a company or third party holds and controls the private keys for you, for example, when you keep your bitcoin on Binance, you have a Binance account showing your bitcoin balance, but you don't personally hold the private key to that exchange wallet. Binance controls the keys and processes withdrawals for you, this is similar to keeping money in a bank, you have access to your money, but the bank controls the account, for example, you deposit 1 bitcoin in an exchange, the exchange holds the coins and controls the keys, you can request a withdrawal, but you don't control the private key.
The main risk here is that if the exchange freezes your account, gets hacked, goes bankrupt, or restricts withdrawals, you may temporarily or permanently lose access to your coins.

2.Non Custodial wallet
A non custodial wallet means there is no third party holding your bitcoin on your behalf, the wallet allows you to interact directly with the blockchain, they does not have custody of your funds like an exchange, for example, you can install a Bitcoin wallet, create an account, and receive bitcoin without having an exchange hold the coins for you.
The wallet software provides the tools you need to manage your wallet and interact with the bitcoin network, so if you receive 1 bitcoin, the bitcoin is controlled through the wallet's keys rather than being held by an exchange.
The main risk for this one is that if you lose your recovery information and have no backup then recovering your coin might become impossible.

3. Self Custodial wallet
A self custodial wallet means you personally control the private keys or seed phrase, let's say you create a bitcoin wallet and receive a 12 or 24 word seed phrase, you keep that seed phrase securely, and nobody else has access to it, so youu are therefore responsible for protecting your Bitcoin, if for any reason you lose the seed phrase, there is no wallet company that can simply reset your password and give you access to your bitcoin again. The benefit here is that you don't have to depend on an exchange or other company to access your bitcoin but that also means that you have responsibility to protect your seed phrase or private keys, if someone else gets them, they may be able to take your bitcoin.

So for all our sakes, let's always keep this in mind;
Custodial means a company controls the keys.
Non custodial means there is no third party holding your crypto for you.
Self custodial means you personally control the keys.

Edit:
While reading through self custodial and non custodial you will see that I was explaining what the terms mean on their own, I did not state that they were different wallets, if a wallet is self custodial then it's non custodial because no third party is holding your bitcoin for you.

[Y3shot]

Is there any difference between non-custodial and self-custodial wallets? I think the primary meaning of these two wallets is that you control your private keys. For me, I consider them to be the same thing.

It is very important for beginners to understand the various kinds of wallets. The challenges for most beginners are always with wallets; security ignorance often leads to the loss of bitcoin. This is an important aspect of bitcoin that can't be neglected, and there are consequences for being ignorant about it.

[ZeroVinsonN]

Is there any difference between non-custodial and self-custodial wallets? I think the primary meaning of these two wallets is that you control your private keys. For me, I consider them to be the same thing.

It is very important for beginners to understand the various kinds of wallets. The challenges for most beginners are always with wallets; security ignorance often leads to the loss of bitcoin. This is an important aspect of bitcoin that can't be neglected, and there are consequences for being ignorant about it.

They are basically the same type but the terms mean different things on their own so that's why I separated them into two.
Knowing the different kinds of wallet is a knowledge that everyone should have, the last thing anybody wants it to get kicked out of their own wallet and end up losing all of their assets inside that wallet in the process, to avoid this they should make sure to keep their coins in self custodial wallets where they are in charge rather than in custodial wallets where the owner of the coin depends on the mood of the company that owns the wallet or exchange.

[Frankolala]

OP, you are confusing yourself and might mislead newbies with this your post. Who told you that noncustodial wallet is different from self custody. They're the same thing but have different words. If you're in full control of your private keys when using a self custody wallet, who is in control of your private keys in a noncustodial wallet. Noncustodial wallet don't have account because it's not an exchange but a self custody wallet. It's also good to use open source noncustodial wallet.

[Gozie51]

The major characteristics of custodial wallet and non custodial wallet is ownership. A custodial wallet is that which exchanges use to hodl your coins while non custodial is that whose ownership is only limited to the person who has the passphrase and seed just like decentralized wallet like trust wallet, Trezor, MetaMask, Exodus etc. Therefore, non custodial wallet is same as self wallet because they have same characteristics of ownership, control and direct access by the hodler.

From your post, you didn't identify the difference you were making between non custodial wallet and the self custodial wallet. So they are the same.

Non custodial wallet and custodial wallet has a broader difference of ownership/control.

[Fiatless]

Binance controls the keys and processes withdrawals for you, this is similar to keeping money in a bank, you have access to your money, but the bank controls the account, for example, you deposit 1 bitcoin in an exchange, the exchange holds the coins and controls the keys, you can request a withdrawal, but you don't control the private key.
The main risk here is that if the exchange freezes your account, gets hacked, goes bankrupt, or restricts withdrawals, you may temporarily or permanently lose access to your coins.

The categorisation of banks and exchanges is correct since they are all centralised and users could lose money or be denied access to their funds.

But I want to highlight that the process or outcomes of recovering funds from exchanges and banks if they go bankrupt might be different. Crypto exchanges don't guarantee that users will recover their deposits if something bad happens. But in commercial banks, deposits are insured by public corporations. This organisation is called the Nigeria Deposit Insurance Corporation in Nigeria, the Federal Deposit Insurance Corporation (FDIC) in the US, and the Financial Services Compensation Scheme (FSCS) in the UK. Depositors will always get back their money in fiat banks in cases of bankruptcy.

Technically, it would be safer to keep money in insured banks than in exchanges that don't guarantee refunds.

[New Judgement]

Is there any difference between non-custodial and self-custodial wallets? I think the primary meaning of these two wallets is that you control your private keys. For me, I consider them to be the same thing.

I'm equally a bit confused here, what I know about wallets is that we have custodial and non custodial wallets. This one I’m hearing self custodial is different from non custodial wallet is new to me. It is either custodial or non custodial. I don’t know where they are generating this their teachings from. The two are the same thing.

[Shadiq]

At first I thought I was going to learn something new, but after reading the post I was just confused. You tried to show simple things in a complicated way.

You can call a custodial wallet a CEX or a centralized exchange which is controlled by a third party. A centralized exchange is like a bank or a banking app.
I am still confused about a non-custodial wallet, are you trying to explain a DEX or decentralized exchange? Or something else?

I had no difficulty understanding a self-custodial wallet, maybe it will not be complicated even for a newbie. But I still do not understand the difference between non-custodial and self-custodial. Can you name some non-custodial wallets?

[CryptopreneurBrainboss]

Edit:
While reading through self custodial and non custodial you will see that I was explaining what the terms mean on their own, I did not state that they were different wallets, if a wallet is self custodial then it's non custodial because no third party is holding your bitcoin for you.

Don't complicate thongs that are meant to be simple, we have lots of newbies here that meant get confuse easily so lets always be careful when creating threads. We have two types of wallets, Custodial and Non custodial l. Is either you're in control or not in control, is either decentralized or centralized etc. just know this and have peace, people might what to call it whatever way they want like, Self custody instead of Non Custodial but just know what they mean is that you're in control in this type of wallet especially when their code are open source and not closed/ not available to the public for verification because some wallets might've trucks up their sleeves, claiming to be non custodial when they have secrets code pre-existing to prevent you from having complete control of your coins. Bottom line: Only make use of open source wallets if you want to enjoy the full non custodial feature's from your wallet.

[IjawMan]

Self custodial and non custodial wallets are the same and they come with private keys which the wallet owner must keep safely in a private position where only him or her can access it. It is custodial wallet that is different from self/non custodial wallets.

And we have both hot and cold versions of self/non custodial wallets. The hot wallets are connected to online while cold wallets are airgap _ meaning that they are not connected to the internet.

Read more.
What are best Bitcoin wallets?
How to back up a seed phrase?

[Freeveto]

Don't complicate thongs that are meant to be simple, we have lots of newbies here that meant get confuse easily so lets always be careful when creating threads. We have two types of wallets, Custodial and Non custodial l. Is either you're in control or not in control, is either decentralized or centralized etc. just know this and have peace, people might what to call it whatever way they want like, Self custody instead of Non Custodial but just know what they mean is that you're in control in this type of wallet especially when their code are open source and not closed/ not available to the public for verification because some wallets might've trucks up their sleeves, claiming to be non custodial when they have secrets code pre-existing to prevent you from having complete control of your coins. Bottom line: Only make use of open source wallets if you want to enjoy the full non custodial feature's from your wallet.

This is the simple explanation that will be easy to understand by anyone including the beginners, but bring non custodial and self custody will be confusing, since they are the same as you have explained, it should just be non-custodial and a custodial wallet which can means centralized and decentralized.

What I expect more is to differentiate or enlighten us more about the non-custodial wallets being an open source or closed source wallets; the difference should be discussed because some closed-source wallets are more or less like custodial wallets because they can control your coins since it is not an open source; therefore, an open-source wallet is better to hold our BTC, and we should make reference to the wallets that have reputations like Electrum and so on.