What is Non-Custodial?
You may have heard the terms "custodial" and "non-custodial" in relation to crypto and decentralized finance, but what does it really mean?
Cryptocurrency and decentralized finance are becoming increasingly popular, and many are interested in and exploring these new investment opportunities. When considering investing in decentralized financial products or cryptocurrencies, it is important to understand the difference between a custodial solution and a non-custodial one.
A custodial service is a solution where the service providers store assets on behalf of the users. Traditional banks, crypto exchanges, and cryptocurrency exchanges are all examples of custodial services, storing the assets of customers. When someone uses a custodial service, it requires the user to have such high trust in the service provider that they have no problem giving them full access to their assets. This has many times proven to be a bad idea, as a large number of people have lost all their digital assets as a result of having others store them. There have been several different reasons why the money was lost: the exchange they used went bankrupt, got hacked, their assets were stored in an irresponsible way, or the exchange was shut down for regulatory reasons. An important difference to note between a traditional bank and a crypto exchange is that crypto exchanges are not covered by the banks' safety fund, which means that the assets are far less secured on a crypto exchange than in a traditional bank.
A non-custodial service, like Kryptofi, on the other hand, is a service where the user themselves is the only one who has access to their assets. Such services are characterized by the fact that the service provider does not have access to the keys securing the users' assets. This is a new type of service that was not possible before blockchain technology came along. The non-custodial principle is one of the cornerstones of crypto and decentralized finance, and it is based on the idea that one should not have to surrender control of one's assets to others, but rather retain full control oneself.
But, how do non-custodial solutions work?
What characterizes a non-custodial service, as mentioned, is that the user stores their own keys. There may be various technologies behind this, but we will explain the technology behind Kryptofi. We have tried to simplify it, but it is still somewhat advanced.
When you create a user on Kryptofi, a separate wallet Safe wallet will be created "under the surface" for you. Only you have access to this wallet through your signing key. A signing key is a key used to sign and perform transactions. We do not have access to this signing key as it is generated and stored through a "multi-party computation" (MPC) network. In an MPC network, no one in the network has the complete key, because the key is split up and secured by a network of computers.
At Kryptofi, users can add several types of signing keys, and users can choose how to store the signing keys. In addition, users can choose how many signing keys are required to perform a transaction. With this, Kryptofi gives users the opportunity to customize their security setup in the way that best suits them.
The advantage of a non-custodial solution, like Kryptofi, is that you have full autonomy and freedom to handle your investments yourself. You are the only one who has access to the money, and you can invest it as you wish without having to worry about where you store your investments.
Non-custodial solutions have previously been very advanced to use, and they have required significant technical competence from the user. This has led many to end up storing their assets on crypto exchanges and other services that fall under custodial. Crypto experts, however, who are aware of the risk of letting others store their funds, store their assets in advanced non-custodial wallets. We at Kryptofi have made it possible to use a non-custodial solution in a simple way, without high demands for technical competence from the user! We want to give ordinary people the same opportunity for secure storage as experts have, by offering a service that is at least as secure as a crypto wallet, and at least as easy to use as the centralized crypto exchanges.