NFT ownership is No More Tricky — Get it right with Custodial Vs. Non-custodial NFTs
The trend of various financial institutions going buzz about crypto custody is on a surge. Although there is a lot of information about NFTs, none discusses ownership once they are issued or sold. Your NFT may not be as controllable as you think it to be. Why is that? Well, we will answer that and a lot more. However, let’s review some fundamentals before we begin.
A brief overview of NFTs & Crypto wallets
A Non-Fungible Token is a digital token created on a blockchain. For more information on NFTs, check out this in-depth blog post. The majority of NFTs correspond to digital artwork, which can be owned and stored in digital wallets denoting ownership of digital assets. So, NFTs are purely digital assets.
Content creators and artists can now maximize their earning potential by utilizing NFTs, the next big thing in the DeFi space. Moreover, NFTs can be created online using decentralized applications. These NFTs can be sold without using a middleman to the massive audience in online marketplaces by using smart contracts. But how do you own it?
You can create NFTs on a blockchain or buy them from an NFT marketplace. But you need a digital wallet first to own an NFT.
What are those wallets? Crypto Wallets.
What are Crypto Wallets?
Blockchains and cryptocurrencies are interconnected through crypto wallets. Crypto wallets are an essential mode for making payments and using decentralized applications (DApps). Public keys and private keys are the two main components of a wallet.
Crypto wallets come in many varieties. Public keys are used to generate addresses to which you or others can send crypto. Private keys, which should be treated as confidential passwords, enable transactions and control funds. These keys can be printed out, used with desktop wallet software, or stored on a hardware wallet.
The purpose of cryptocurrency wallets is not just to store cryptocurrencies. Many crypto wallets are also capable of storing and transferring NFTs. Perhaps you have sent or received digital assets like Bitcoins (BTC), Ethers (ETH), or stablecoins with a crypto wallet. You can now store NFTs depending on your wallet configuration.
Which wallets can store NFTs?
Now this question brings into the classification of NFTs and wallets. Portfolio management in the blockchain is described using the terms custodial and non-custodial.
A blockchain exchange can either be custodial or non-custodial. By custodial, we mean access to a user’s wallet, private keys, and assets to safeguard them. Nevertheless, custodial services are a third party that facilitates a connection between users, buyers, and sellers.
If a user’s account is non-custodial, only the user can access and manage their wallet, private keys, and assets. In the non-custodial model, security is more robust since only the user can access the portfolio.
In a nutshell, NFTs remain the same; it is all about whom you land your portfolio management into. Now let’s apply them to NFT wallets more precisely. There are two kinds of NFT wallets: custodial and non-custodial. Now let’s explore the differences between them.
A custodial NFT Wallet provides users with secure storage of their sensitive data, including their private keys. Hence, a third party provides your assets with safekeeping, so all you can do is login and send or receive payments. E.g., Blockchain.com, Binance, Coinbase, Cointelegraph, etc.
The wallet owner has full access to a non-custodial wallet. A user’s private key is stored by the owner themselves and not accessible by anyone else. Thus making it fully decentralized. Like Nano, Trezor, Exodus, Ledger, Metamask, and mobile wallets like Mycelium and Coinomi (for crypto and Bitcoin), etc.
Now that we have understood the custodial and non-custodial NFT wallets, which one should you use? We are answering that next.
Which wallets are NFT friendly?
It is possible to store crypto art and other NFTs in both custodial and non-custodial wallets. Nonetheless, be sure the wallet supports the type of NFT you wish to keep. There are different NFT standards on different blockchains and differ from the standard that exists on an individual blockchain.
Tokens are created and used in different ways depending on the characteristics and rules of each standard. This narrows down the usage of custodial and non-custodial wallets into three categories. The NFT-friendly wallets fall under these three buckets:
Exchange — When categorizing NFTs based on custodial or non-custodial, you must consider their compatibility with centralized or decentralized exchanges.
- A centralized platform requires users to register and verify their identities and supply proof of identity.
- Registration is not required for decentralized NFT exchanges. In addition to dealing directly with trade parties, decentralized platforms also serve as intermediaries for NFT buyers and sellers.
Wallet — Few wallets give full control access to users while others withhold the keys. So, the type of wallet also depends on the standards used and the freedom of its centralized or decentralized nature. Since the keys lead to your digital assets directly. How comfortable are you if someone accesses your digital assets with your private keys?
NFT Marketplaces — An NFT marketplace is an online trade center for NFTs. Artwork can be showcased, put up for auction, sold, and bought by users. NFTs can also be minted by some marketplaces. There are custodial and non-custodial marketplaces.
Custodial marketplaces function as security for sales. In these marketplaces, a platform holds the user’s funds until assets are exchanged, e.g., Nifty Gateway. As an intermediary, the third party provides the marketplace and facilitates the interaction between users.
Non-custodial marketplaces maintain privacy and confidentiality while facilitating direct connections between users. Platforms like this allow you to become your own bank. It allows users to exchange assets without middlemen in a decentralized network. For instance, SuperRare and OpenSea allow you to do this.
Finally, there are advantages to both custodial and non-custodial wallets, depending on what you’re looking for. People who value autonomy and security should consider a non-custodial NFT wallet. It makes more sense for beginners to use a custodial NFT wallet and marketplace because they allow you to spend more time interacting rather than figuring out how to use a wallet.
In either case, you always need to be watchful of your NFTs and digital assets. With loopholes and criminals hovering around, there is a lot of scope for wash trading, digital art forgery, and valuation fraud. But worry not; with bitsCrunch by your side, choose the wallet and marketplace that works for you. We’ll solve bottlenecks and security issues.
Hope the article helped in learning about NFT wallets in detail. Test your retention skills with this little quiz below!