Difference Between Custodial and Non-Custodial – Bitcoin Solutions
The revolution of simplifying traditional digital currency transfer protocols is the remarkable idea that led to Bitcoin. Majority of the cryptocurrency space is still fostered around the idea that Bitcoin was built on.
All new developments in blockchain technology streamlines the process of transparent peer-to-peer (P2P) digital currency distribution. The fundamental simplicity behind each new cryptocurrency development is what makes it an ever-growing industry.
Theoretically, it is a great idea to cut intermediaries out of financial transactions. In reality, it seems information security issues are growing just as fast as the cryptocurrency adoption rate.
Traders can purchase cryptocurrency on two different platforms; Custodial and Non-Custodial Exchanges (trading platform and an on-and-off ramp).
Bitcoin Solutions would be an example of a Non-Custodial way to buy or sell Bitcoin and Cryptocurrency. Bitcoin ATMs allow users to purchase Bitcoin directly from the machine’s Hot Wallet , as opposed to traditional ATMs where the user would withdraw from an account that already exists (like a bank account.) The moment the ATM receives the money the transaction is locked in, almost functioning like a vending machine. Most of the Bitcoin ATMs are bidirectional, which means they allow both the purchase and sale of Bitcoins.
A great advantage of Bitcoin ATMs that function on an on-and-off ramp is speed and safety: it is the fastest way to buy cryptocurrency, which also makes it one of the safest. Compared to online cryptocurrency exchanges, which are famous for their slow transactions and complicated trading interface, with Bitcoin ATMs, it can be as quick as 60 seconds to conduct a transaction, and all you have to do is follow the instructions on the ATM. This is a great option for users who do not own a bank account or do not wish to be associated with a certain bank. The process is simple enough for even a brand new trader to complete a transaction within minutes.
Overall a Non-Custodial Exchange is perfect for people who just want to finalise a quick trade. It’s also good for traders who are hesitant to commit to an exchange and entrust them with their personal information. This on-and-off ramp allows for a higher degree of privacy and security.
Custodial Exchanges hold users’ funds on a platform. They are called custodial because they are the ones who are essentially in possession of your cryptocurrency; the custodians of your private keys. Trading is done off-chain, which means that trading is tracked on their own balance sheet instead of being verified by the blockchain. This allows transactions to be done affordably and quickly but leads to a lack of transparency. Account registration and ID verification are a staple for these kinds of exchanges. This not only slows the trading process but also forces you to trust the exchange with sensitive information such as your SIN. The upside to using a custodial exchange is that it is slow (bear with me here), it takes time for transaction to go through but this doesn’t necessarily need to be a bad thing. Exchanges like Bitmex do withdrawls only once a day, which means that in the case of a hack, you have roughly 24 hours to notice and stop the transaction.
In our opinion, using Bitcoin ATMs is the quickest and safest way to buy or sell cryptocurrency. As the number of Bitcoin ATMs in Canada is growing steadily, it is sure going to be interesting to track its progress in complying with government regulations while keeping true to the principles of privacy and decentralization.
The prospective future paved by cryptocurrency and blockchain technology rely upon its usability and adoption. How do we facilitate this growth? Digital assets are heavily dependent upon people’s ability to easily and freely trade these assets. Advancements are being made to facilitate this growth, as new exchanges and improvements continue to happen, we encourage you to explore them while staying educated.
Published at Thu, 13 Feb 2020 17:28:09 +0000
