In today’s fast-paced digital world, the need for secure and reliable digital identity and asset management has never been more crucial. In contrast to centralized exchanges and custodial wallets, non-custodial wallets give users the freedom and security they deserve. This game-changing technology empowers individuals to take control of their digital assets like never before.
But what exactly are non-custodial wallets and how do they work?
In this article, we will explore the ins and outs of non-custodial digital identity wallets, their advantages for both individuals and organizations, and how they can revolutionize the way people manage and safeguard their data.
What Is a Non-Custodial Wallet?
A non-custodial wallet is like a personal safe in the digital world where you can keep your digital assets and information secure. Only you hold the keys to open that safe. This digital ID wallet can hold Verifiable Credentials such as your driver’s license, professional license, identity documents, and educational degrees.
In the digital world, a "key" is a special kind of password that can unlock access to certain information. With a non-custodial wallet, this "key" is what gives you access to the contents of your wallet. Without this key, you can't open the wallet or use anything inside it.
What Does Non-Custodial Mean?
"Non-custodial" means that you, and only you, have control over your digital information. It's like having a safe in your home that only you know the combination to. No one else, including the company that provides the wallet, can access your information without your permission. This is very important for privacy and security because it means your personal data is not held or controlled by any third party.
When you use a custodial wallet, you usually rely on a service provider to securely store your information and manage your digital assets. This means that the service provider has access to your encryption keys, which are like the keys to your virtual safe. With this access, the service provider can help you manage your assets and assist with transactions. For example, if you want to present a digital certificate to an employer, the service provider can help facilitate the process on your behalf.
However, it's important to note that by giving the service provider access to your keys, you are trusting them to protect your information and assets. You never know if there are bad actors who could steal and use your keys to access personal information.
Risks of Using Custodial Wallets to Manage Digital Identity and Credentials
Custodial wallets are vulnerable to data breaches and hacking attempts, which can result in the loss of funds, fraud, or identity theft.
Lack of Control
When using a custodial wallet, users have to trust the wallet provider to safeguard their assets. They don’t have direct control over their private keys.
Dependence on Service Providers
Custodial wallets involve trusting a third-party service provider to handle and secure their digital information. If the provider encounters financial or operational difficulties, it could impact the user's ability to access or retrieve their assets.
Centralized Points of Failure
Custodial wallets create a single point of failure as the wallet provider's systems or infrastructure could experience technical issues, downtime, or even closure. This can result in a loss of access to people’s assets.
Custodial wallets usually require users to provide personal information, which can be susceptible to data breaches or misuse, which compromises user privacy.
Vulnerability to Social Engineering
Custodial wallets may be at risk of social engineering attacks where malicious actors manipulate individuals into revealing sensitive information, allowing unauthorized access to the wallet and potential loss of funds.
Are Non-Custodial Wallets Safe?
Here are a few key reasons why non-custodial wallets are considered safer than custodial wallets:
You're in Control
With a non-custodial wallet, you are in full control of your digital identity and how you manage your digital credentials. No one else has access unless you give them permission.
Less Vulnerable to Hacks
Since you're the only one with access to your wallet, there's no big company holding lots of people's data that can be targeted by hackers. It's like having a lock on your personal diary vs. a large diary storage facility that many people want to break into.
With a non-custodial wallet, your data isn't being shared or stored with a third party. This means there's less chance of your data being used without your knowledge.
No Third-Party Risk
With a custodial wallet, you're dependent on that company staying in business and acting responsibly. With a non-custodial wallet, you don't have to worry about the company going bankrupt or mishandling your data.
Of course, these benefits come with the responsibility of keeping your digital keys safe, just like you need to keep your home safe's key or your personal diary's key safe. If you lose your keys, you could lose access to your wallet and its contents.
Benefits of Non-Custodial Wallets for Organizations
Offering non-custodial digital identity wallets to customers can bring several benefits to organizations:
Improved Data Compliance
Non-custodial wallets give users full control over their personal data, which helps organizations with data compliance. This decentralization can help organizations comply with various data protection laws like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). Organizations don’t have to store or manage customer data, significantly reducing the risk of non-compliance and associated penalties.
When customers know they have control over their personal data and identities, they tend to trust the organization more. This could lead to increased customer loyalty and potentially attract more customers to the business.
Reduction in Data Management Costs
By offloading the responsibility of data storage and management to the user, organizations can significantly reduce their IT infrastructure costs. They don't need extensive databases and security measures to store customer data.
Non-custodial digital identity wallets often comply with decentralized identity standards, which make them interoperable across various platforms. This can allow users to manage and use their digital identities seamlessly across different services.
The risk of identity theft is reduced significantly with non-custodial wallets. The need for organizations to authenticate users based on their self-managed digital identity could lead to fewer cases of fraud and impersonation.
Dock’s Non-Custodial Wallet for Individuals
Dock Wallet Benefits
Full Control and Ownership Over Your Digital Identity
You're the only one with the keys to your wallet, meaning you're the only one who can access and control your digital assets.
Because you're not sharing control of your digital assets with a third party, you maintain more privacy. Only you decide when and with whom you want to share your information with.
Non-custodial wallets can be safer from large-scale data breaches because they decentralize data storage. Your information isn't stored in one big, potentially vulnerable, pool of data. It's encrypted and kept only in your digital wallet app.
No Third-Party Dependency
You're not relying on any company, including Dock, to manage your identity. This means you don't have to worry about third-party risks, such as a company going out of business, mismanaging your data, or becoming a target for hackers.
Benefits of Dock’s White Label Non-Custodial Wallet Solution for Organizations
Get to Market Faster Than Competitors
You don’t have to waste valuable resources and time building a non-custodial wallet from scratch for your customers. With the quicker implementation of Dock's white label wallet solution, you can swiftly launch your digital wallet faster than competitors.
Imagine hiring a whole team of developers, running through countless tests, and facing potential setbacks. With a ready-made white label non-custodial wallet solution, you bypass all these costs.
Using Dock's solution, you don't need to redirect your valuable resources towards building a digital identity wallet. Instead, your tech team can focus on what they do best, which is making your product even more amazing.
How Non-Custodial Wallets Work
When you first set up your wallet, it will generate a private key, which is the most critical piece of information in a non-custodial wallet. It’s crucial that you keep your private key secure and confidential because anyone with access to it can gain control over your digital assets. For example, they can transfer digital currencies or approve transactions on your behalf.
With your non-custodial wallet, you will also have a public key which is the address you use to receive credentials and other digital assets. When you want to send funds from your non-custodial wallet, you use your private key to sign the transaction digitally. This signature serves as proof of your ownership and authorization to transfer the assets. If a nursing school wanted to issue a nursing license, they would use the public key so you can receive the credential in your wallet.
How to Keep Your Non-Custodial Dock Wallet Secure
While non-custodial wallets offer enhanced security compared to custodial wallets, they still require proper security measures to ensure the safety of your digital assets.
Protect Your Seed Phrase
When you set up your Dock Wallet for the first time, it will provide you with a list of 12 random words (these sets of words are called a seed phrase). A seed phrase is like a secret code, but instead of random numbers and letters, it's made up of 12 to 24 common, everyday words. For example, it might be something like "apple banana cat dog elephant frog..." and so on.
If you ever lose access to your digital wallet for any reason such as your phone got stolen or it broke, you can use this seed phrase to access all of your digital assets. It's like a master key that can unlock your digital safe, no matter what happens.
Remember, it's really important that you never ever share this phrase with anyone because if anyone else gets it, they could access your wallet and take all your assets. And if you lose it and then get locked out of your wallet, you'd have no way of getting back in.
Backup Your Dock Wallet
You can backup your wallet by simply creating a password. You will get a document that allows you to import your wallet to a new device.
By following these security best practices, you can minimize the risk of unauthorized access or loss of your digital assets.
Custodial vs. Non-Custodial Wallet Summary
A third party has control of private keys and access to digital assets
Only users have total control over their private keys and digital assets
Risk of security breaches if the custodian uses centralized and online storage
Digital assets are only kept on users’ local devices
Recovery is possible if the user loses the password to their wallet
User loses access to their digital assets if they lose their private keys or seed phrase
Non-custodial wallets have tremendous benefits for both individuals and organizations. They have emerged as a powerful solution for individuals looking for greater control, security, and privacy over their digital assets. With the ability to be the sole custodian of your private keys, you can enjoy a new level of independence and freedom in the digital world.
Meanwhile, organizations offering non-custodial wallets to their customers can enhance compliance with data regulations, improve trust among customers, reduce data management costs, and reduce fraud. Organizations can provide a digital identity wallet to their customers faster by using Dock’s white label non-custodial wallet solution.
Dock’s Verifiable Credential platform makes any data fraud-proof and instantly verifiable. It comprises the Certs API, the Certs no-code web app, an ID wallet and a dedicated blockchain. Using Dock, organizations reduce data verification costs while increasing the operational efficiency of verifying and issuing digital credentials. Individuals can fully control their data to access products and services more conveniently in a privacy-preserving way. Dock has been a leader in decentralized digital identity technology since 2017 and trusted by organizations in diverse sectors, including healthcare, finance, and education.
Dock’s Verifiable Credentials Platform makes your data fraud‑proof and allows your stakeholders to verify its authenticity in seconds - making expensive, time‑consuming, and manual verification processes disappear.