Already the Templars, in a certain respect the first bankers, provided pilgrims with receipts for their deposited valuables (compare: Big Think: "Did the Knights Templar invent modern banking?"). This relates to Christian pilgrims in Jerusalem. The city had been captured by the first crusade in 1099 and pilgrims began to stream in, traveling thousands of miles across Europe.

Those pilgrims needed to somehow fund months of food and transport and accommodation, yet avoid carrying huge sums of cash around, because that would have made them a target for robbers. Pilgrims could leave their cash at Temple Church in London, and withdraw it in Jerusalem. Instead of carrying money, the pilgrim would carry a letter of credit. The Knights Templar were the Forex (FX) of the crusades.

Even up to nowadays; if a user stores assets with a third party – like a bank – then they legally own the assets through some form of contractual agreement, and on the bank’s books, their assets are their liabilities – which represent an obligation on their end to pay the user back. Custodians actually only ensure the safe custody of the assets deposited with them and their transfer.

Major banks have not remained inactive and have now adapted to the online world. But one thing has not changed for them: They still remain the owners of the users money. Non-Custodial (Crypto) Wallets assure that the user alone has control over their capital.

It is important to point out that Crypto wallets come in two forms – custodial solutions where third parties such as exchanges have control over (crypto)currencies; and non-custodial solutions where you have full control over your (crypto)currencies or digital assets. Let us have a closer look on the different solutions along some examples in the market.

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Non-Custodial Wallets (Decentralized)

While custodial wallets and exchange accounts hold your assets in their own accounts, non-custodial wallets give you full control over your funds.

  • Non-Custodial: Users can send and transfer assets knowing they are the only one who have access to those assets.
  • Key-based: All Non-Custodial wallets have a unique keypair. This is different from centralized wallets as users are responsible for the safekeeping of their private keys, often introduced through a 12-word seed phrase.
  • Compatibility: Virtually all Non-Custodial Wallets are accessible by connecting to a web3 wallet.

Pros

  • Custodian of Private Key: The user acts custodian - they act simply as "their own bank"
  • Transaction Type: The transaction is reflected (mostly) on the chain in real-time in Non-Custodial wallets.
  • Security: The user owns the information; which reduces data is being stolen by a data breach.
  • Offline Accessibility: Funding and corresponding details are available offline.

Cons

  • Unlike Custodial-Wallets which own the private keys, the user can not regain access by requesting the keys towards a third party. The user is the sole authority.

Examples for Non-Custodial Wallets

(Most Non-Custodial Wallets are interoperable with hardware wallet devices, like the Ledger Nano or the Trezor)

Monolith

The company behind Monolith is "Token". Token is the trading name of Token Group Limited (a company registered in England and Wales (11098384)). Their services are currently available in 31 different countries across Europe (EEA) and can be also accessed by e.g. a European IBAN number (or UK Sort Code). Monolith users can order a VISA debit card (optional) through Monolith—GBP and EUR for free. The company has neither a monthly fee, and users get two free ATM withdrawals per month, and a daily purchase limit of €7,600.

To use their services and card, the user needs to send crypto to the company’s fully decentralized, ERC-20-compliant smart contract wallet. The company has no access to the assets in the users wallet. The following crypto currencies are supported to top-up tokens to the Visa Debit Card: ETH, TKN, DAI, DGD, DGX, MKR, SAI, USDT.
Additionally the wallet itself supports: ABT, ANT, AOA, BAT, BIX; BNT, BTU, BZ, C20, CCCX, CENNZ, CRPT, DAI, DENT, DGD, DGTX, DGX… and way more.

Further services include:

  • Payment splitting: The user is able to divide the cost of an in-store purchase across several of their crypto holdings by using the associated app
  • Coin exchange: Market rates (best rate available) due to Monolith’s DEX aggregator. The service also works with UniSwap, Kyber, Bancor, 0x, Mesh, and EtherDelta so far.
  • Open-Source: The smart contracts for the tokencard are publicly available on Github.
  • Fee charges: Monolith charges a 1% fee for loading up the debit card with crypto and a 1% “community contribution” fee (or “License Fee” when using their app) for each transaction, as a contribution to the open-source project.
  • However, Monolith offers a way to waive either one of the two fees. The first one is by using DAI to top up the card, in which case the 1% deposit fee is waived (but you’ll still have to pay the community contribution fee). DAI is a liquid stablecoin which you can easily buy on several exchanges. The second way is to use their TKN token in which case you won’t pay the community contribution fee, but the 1% deposit fee will still apply.
  • Project Community Chest: The community contribution fee is automatically deposited into the project’s community chest, which can be found on this Ethereum address
  • further information in regards of the fees is available here: "Fee Information Document"

Plutus

Plutus is one of the longest running crypto card services, having pitched up in 2015. Their services are usable in almost 200 countries, the provided VISA debit card (KYC needed) can be topped up using GBP or EUR, with ETH and PLU the only supported cryptos at the current time. PLU is the startups own loyalty token which is awarded to users every time they use their debit card. A user can earn 3% crypto reward in PLU and up to 15% cash back at selected retailers (Nike, Vodafone, AirBnB, Skyscanner, etc.)

Once the user initiates a sell order on their decentralised exchange, the PlutusDEX, the order will be matched and the user will be prompted to send the funds to buyer using Metamask. This means that once you sell your cryptocurrency, the balance in GBP or EUR will be added to your account inside the app immediately. Of course, you also get the chance to confirm or deny the current market rate.

Plus offers three different plans that slightly differentiate when it comes to Limits and Fees.

Limits (as of 25th October, 2020)

Starter Premium Pro
£0.00/mo £4.99/mo £7.99/mo
Crypto Trading Limits (£6,000 per month) Crypto Trading Limits (£25,000 per month) Unlimited Trading
Card Spending Limits (£5,000 per month) Card Spending Limits (£15,500 per month) Card Spending Limits (£22,500 per month)
Current Account balance Unlimited Current Account balance Unlimited Current Account balance Unlimited
No PLU Rewards PLU Rewards (3%) PLU Rewards (3%)
No Cashback Cashback Cashback

Fees (as of 25th October, 2020)

Starter Premium Pro
1.75% Trading Fee, except PLU 0% Trading Fee 0% Trading Fee
£9.99 Card Order Free Card Order Free Card Order

Additional information can be found on their official website under Feeds & Limits.

Bitwala

Bitwala used to be one of the first platforms to offer both banking as well as a non-custodial crypto wallet and trading service. Bitwala’s investors include Earlybird, Sony Financial Ventures, coparion, Global Brain, High Tech Gründerfonds, ALSTIN Capital, and Digital Currency Group. The Berlin based company also offers a Mastercard debit card for in-store and online payments. Their offer is currently only available to EU residents and can be used to receive salary, bank transfers, standing orders, bank transfers to any bank within the EU. Therefore they secured up to €100.000 by German Deposit Guarantee Scheme.

Bitwala currently supports BTC and ETH and offers a "Bitwala Interest Account". The user can receive up to 5% interest on Bitcoin deposit. Their fees are actually low (e.g. EUR 0,00 for account opening & management, SEPA Transactions, Card payment in € in SEPA area, ATM withdrawals in SEPA area). In regards of their Crypto Services Buying and Selling Cryptos takes 1% of the transaction volume + a network fee. A detailed pricelist can be found at their official website (PDF).

Custodial Wallets

Custodial wallets are usually software wallets or wallets in digital exchanges where private keys are held by a third party. Meaning, the third party has a full control over your funds while the user has to give permission to send or receive payments. As a side-effect one disadvantage could be that the digital exchange or service provider gets hacked and the private keys are stolen, which leads to the possibility of losing 100% of the users' assets. To detail this out a bit more; a closer look at the pros and cons:

Pros

  • Free Transactions: Unlike regular wallets, custodial wallets do not demand a transaction fee. Which basically means customers can make transactions for free within the ecosystem.
  • No Major Effect of Lost Private Keys: Even if the user loses their private keys, it would be relatively easy to regain access into their wallet and stored assets.
  • Higher Backup Possibility: Another advantage of custodial wallets is that the central authority managing your wallet offers backup facilities. This makes it easier to undo any transaction or restore a previous version.

Cons

  • Custodian is in control of the asset: There is no autonomy for the user over their wallet. The third-party (custodian) has complete control over the assets and associated processes. As an example this could have limitations on the users' freedom including freezing the account or stored amount.
  • Need for KYC: Performing a KYC (Know Your Customer, ID Verification) is crucial for Custodial Wallets. The user cannot gain access to their assets or any of the related services without proving their identity. This necessity of identifying verification impede to the basic principles of anonymity.
  • No Offline Facility: An Internet connection is a must for logging into Custodial wallets or to perform any transaction.
  • Data Breach Threat: A huge amount of users’ funds is stored in cold and hot wallets. Even if the wallets itself might not be hacked, they are still vulnerable to security breaches.

Examples for Custodial Wallets

Since this article focuses on Non-Custodial solutions in the market we will briefly mention only a couple of companies that offer Custodial Wallets: Bankera, Blockcard, Coinbase Card, Crypto.com, Fold Card, Nexo Card, Wirex Card,

Final thoughts

Non-Custodial Wallets are able to avoid the regulatory burdens that centralized, custodial products must deal with (no matter if KYC, AML, MTL, etc.). There is furthermore no friction around government-issued IDs, SSNs, etc. Users can preserve much of their privacy and do not need to worry about their sensitive information being hacked, compromised, or leaked. At the end this gives them Absolute Control & Custody — users can become their own bank.


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