Non-Custodial Wallets And Exchanges – What You Should Know

From the Beginning

The idea of blockchain is to build a thorough system whose records are immutable, making it impossible for any party—righteous in real life or not—to cheat the system.

Blockchain is all about trustlessness. To achieve these ideals, any blockchain-reliant project anchors on the three core pillars of decentralization, transparency, and immutability.

And you don’t have to look far.

Bitcoin, Litecoin, Ethereum, and basically the top-10 layer-1 projects are prime examples of community-driven, trustless, and permissionless blockchains.

They check all the boxes of decentralization, transparency, and immutability. It is so much that the U.S. SEC and most regulators think Bitcoin is by far the most decentralized without any single entity in control.

To actualize and promote blockchain solutions, infrastructure offering direct support and ensuring its reliability must therefore abide by these guiding principles.

There might be core developers and what not but at the center, any public chain, regardless of the financial war chest, must comply with these governing laws distinguishing blockchain solutions.

Wallets and Exchanges

Central to the blockchain and its operations are wallets.

These are technically permissionless gateways that allow users to interact with the ledger and its dApps.

Wallets are designed to hold and devolve control to end-users, away from intermediaries. For these reasons, wallets—regardless of type —must be safe with the user tasked with securing its private keys — that is, wallets ought to be non-custodial, at least when blockchain is the gospel and devolution is the keyword.

Digital assets like ETH or Blockster tokens held by wallets are agents that prime respective ecosystems.

They are vehicles that oil the blockchain and in some cases, its dApps. Since money is involved and makes the world go round, there must be some sort of an exchange, a bourse.

These ramps allow funds to move in and out of the digital world. By this massive role alone, exchanges are critical to the longevity of blockchain as they are the primary agents of liquidity.

Thus far, blockchain continues to evolve and be perfected. There are certain aspects that are being refined and still need to be improved.

For example, there are custodial wallets and exchanges like Exodus or Coinbase, for example, which, in the real sense blockchain, represent a foreign idea—and are an antithesis to the founding fathers’ ideas. The good news is, non-custodial wallets and exchanges are gaining pace, and beginning to carve market share.

Non-custodial wallets and exchanges, as the name implies, are “non-custodial” by design.

This means, there is no centralized entity or custodian tasked with either safeguarding private keys or order matching.

These are the bare bones of decentralization, representing the true picture of what blockchain ought to be.

An example of a non-custodial wallet is Ledger — and basically every other hard wallet—and MetaMask.

On the other hand, non-custodial exchanges are all new-age, Automated Market Maker (AMM) portals on public chains riding on the main chain or layer-2. Popular DEXes include Uniswap, PancakeSwap, SushiSwap, and others.

Non-Custodial Wallets and Exchanges: What You Should Know

Because non-custodial means decentralization, it is upon the token holder or trader to keep their private keys safe.

Remember, without private keys, the user cannot take control of assets held in the wallet and are therefore effectively locked out of the mainnet.

All non-custodial wallets and exchanges are the epitome of financial freedom as the end user can decide what to do with their funds without consulting any third party.

Even so, it should be emphasized that with great power comes great responsibility—a huge task that can sometimes be served by a custodian and not suitable for every user depending on their risk profile. This is especially true considering that DeFi products depend on smart contracts operating on an immutable base layer. Errors may lead to permanent loss of funds if one isn’t careful.

There have been episodes where users lost their private keys, forever dumping millions worth of coins in the digital ether, rendering them forever irretrievable.

This mandates the user to safely record and tuck away the controlling private keys.

If the base—access to the wallet — is secure, the next step is keeping safe in the risky waters of decentralized exchanges.

In exchange for control, the user is free to hop from one portal to another, enjoying other financial benefits such as yield farming. Attractive as they are, the trader should exercise caution lest they get bit by sharks lurking in the deep waters of DeFi.

Apart from disastrous hacks resulting in the loss of user funds; there are rug pulls and hacks that may turn off new traders.

Moreover, certain products may not be accessible to certain users depending on regulations applicable in their country. These present challenges to an otherwise exciting sphere full of opportunities.

Looking Ahead

Blockchain is without a doubt one of this century’s key inventions.

There are near infinite opportunities to explore.

Even so, as promising as DLT and its solutions are, mastering the basics will solidify the foundation significantly improving user experience as the trader’s/user’s mastery of the sphere increases.

This means learning the basics whether in wallets, exchanges, or every other blockchain field drawing a big following, before plowing deeper.

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