Background
When you deposit money to your bank account, the bank custodies your funds and uses it to make money by giving loans to other people or businesses.
A central entity is useful if you forget your password, but you don’t have full ownership of your funds — you share it with the bank. Despite this, it’s a convenient method for storing funds and generally safe in most stable countries.
Most people trust banks to keep their funds secure, but if a black swan event occurs — such as the Cyprus Bank Disaster in 2013 — your funds may be temporarily inaccessible or, worse, permanently compromised.
Differences Between Custodial and Non-custodial Wallets
When using blockchain technology, you have the option of storing your funds in a custodial wallet or non-custodial wallet. To understand the difference, it’s important to appreciate that blockchain wallets have what’s known as a public key and a private key.
Public Key vs. Private Key
A public key (often referred to as a ‘wallet address’) is like your account number that you share with others to receive funds. For example, an Ethereum wallet address looks like this: 0xb794f5ea0ba39494ce839613fffba74279579268.
A private key (or ‘seed phrase’) is your password to access the funds in a wallet. Anyone who knows your private key can access and use your funds, so you should never share this with anyone. It often appears as a string of 12 or 24 random common words and should be stored in a safe place, ideally offline with multiple backup copies.
Custodial vs. Non-custodial Wallets
Custodial wallets are similar to bank deposit accounts in that the platform (such as a cryptocurrency exchange) has access to your private key. This simplifies the onboarding process and means you can easily recover your account. However, you rely on the platform to safely store your funds and protect them from hackers.
Non-custodial wallets give you full control over your funds. Only you have access to the private key, which also comes with the additional duty of keeping it secure. Remember: with great non-custodial power comes great self-custody responsibility.
5 Key Benefits of a Non-custodial Wallet
1. Complete Control
When you set up a non-custodial wallet, your private key is generated and stored on your device. No other party can access the funds unless you share the private key with them, meaning only you can authorize any wallet activity.
2. Enhanced Security
Because your wallet is stored on your personal device (and not on a centralized server), the risk of losing funds due to hacking or data breaches is virtually nil, provided your private key or seed phrase are kept safe at all times.
3. Instant Transfers
Non-custodial wallets give you the freedom to make transactions on demand with no limitations. Unlike custodial wallets, there’s no waiting on approval from third parties when making deposits or withdrawals.
4. Lower Fees
Withdrawing funds from a custodial platform typically involves set fees based on the cryptocurrency being withdrawn that are in excess of the network fee (an incentive present in almost all cryptocurrencies for nodes to keep the network secure). Non-custodial wallets, on the other hand, have no withdrawal fees and allow you to set your own network fee.
5. No Account Restrictions
Custodial wallets are regulated more heavily and often have legal obligations, such as requiring you to pass an identity verification check and monitoring your transactions. If the platform detects unusual activity, they have the power to restrict your account and block your transactions. Because non-custodial wallets don’t rely on a centralized third party, your account can’t be restricted and your funds will never be frozen.
Why Dtravel Uses Non-custodial Wallets
Payments between hosts and guests on Dtravel are automated via smart contracts, which only work with non-custodial wallets. Recall from the Welcome Guide that smart contracts are simply programs coded on a blockchain that execute when predetermined conditions are met, i.e. “if X occurs, then Y happens.”
Booking payments are held in escrow within smart contracts, meaning Dtravel doesn’t have access to booking payments. Once the cancellation period ends and the guest has not cancelled, these funds are automatically released directly to hosts.
As part of the transaction, a small fee is sent to the Dtravel treasury to sustain the ecosystem. The funds in the community treasury are used for community initiatives to improve and expand the ecosystem, which are voted on by all TRVL token holders.
By using non-custodial wallets, all hosts benefit from an impartial and highly efficient self-executing program rather than relying on an intermediary. This allows you to be more certain of your payouts and have true ownership over your funds and your policies.
Register for a Non-custodial Wallet
MetaMask is a crypto wallet that allows you to buy, store, send and swap tokens across multiple blockchains. It’s trusted by over 21 million users worldwide and is available as a browser extension and a mobile app.
For useful guides on getting started with MetaMask, visit MetaMask Support.
⚠️ IMPORTANT
Make sure that you only download the MetaMask for Chrome extension on their site directly. Don’t search for it on the Chrome extension store, as there may be fake versions. |