Custodial vs Non-custodial
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What is a non-custodial service?
In short, a non-custodial dApp (decentralized application) is an interface and a set of smart contracts that you can interact with through your non-custodial wallet. Holyheld is a non-custodial service. Let’s explore this concept a bit deeper.
Difference between a Coinbase account and a Coinbase Wallet
A Coinbase account is a custodial wallet. Therefore, Coinbase holds your crypto on your behalf and gives you access to your wallet. The Coinbase wallet app is a non-custodial wallet. It means that only you have access to it. There are many non-custodial wallets, and most of them are compatible with Holyheld.
There are pros and cons for both, but one important note to keep in mind:
- ☝ With a non-custodial wallet, your security depends only on you. You MUST keep your secret phrase and keys safe. It’s not a password that you can reset if compromised. It’s serious, so please keep the keys safe.
- If you use your Coinbase account to hold most of your crypto, you may not have used dApps before. dApps can be accessed with a non-custodial wallet.
How do dApps work?
Think about dApps on a blockchain as you think about apps on your smartphone. Apps use your phone to interact with companies and services in the world. dApps use your crypto wallet to interact with protocols and services on the blockchain. A dApp is like a linking bridge between your wallet and a tool, service, or a smart contract running on-chain.
What are the risks of non-custodial services?
There are a few. Although smart contracts can only do what the code says, it isn’t always easy for us, non-techies, to spot the risks. So here are the key factors to look into:
- Check contract addresses on-chain to see if the code is verified. If the code is not verified – it doesn’t automatically mean it is malicious, but it creates more room for that. Open and verified code increases the chance that someone may spot a bug or a problem.
- Look at the “Write” contract tab, and check available methods. If you spot something weird (e.g., the name or input parameters) - raise questions.
- Check contract activity. What other wallets have been interacting with the smart contract, and how heavy is it used.