Centralised Wallets | Decentralised Wallets | |
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Control | Centralised entities have an immense amount of control over a user's account and could perform an action such as locking access to it. Importantly, you do not own your private keys (more on private keys and seed phrases later). | With self-custody comes the complete control over your funds and ownership of your private keys. |
Security | Vulnerable to hacks and as we see more money flow into this space, there will be greater motivation for malicious actors to focus on vulnerable points of entry to gain access to users’ funds. Although the risk remains, security procedures are continually evolving and the most trusted exchanges strive to be ahead of the security curve. | Exploits typically occur by gaining access to your password or seed phrase by hacking your computer or through social engineering.Never give anyone your password or seed phrase, and store them offline (preferred) or through a trusted password keeper. To enhance security, use a hardware wallet in conjunction with your software wallet (I’ll explain this further). |
Convenience | Should you forget your password, the entity can help you recover it via some form of authentication. | Should you forget your password and misplace your seed phrase, your funds are unrecoverable. |
Features | Most users will use a crypto exchange to store their funds (fiat and blockchain assets) which opens up the features we are accustomed to from exchanges such as trading - in the spot and margin markets - across order types. Depending on the exchange, additional features like lending, staking and prediction pools may also be available. | Does not hold fiat but stores blockchain assets which include stablecoins. Although there is constant innovation, the main feature is their ability to connect to dApps, which opens up the true power of DeFi. |
Regulations | Entities are becoming increasingly regulated and new laws/regulations will continue to impact their operations and therefore, their users. | There is mention of regulation which is largely focused on the dApps, however, no noteworthy news has been released which would impact users to date on decentralised wallets. |
KYC (Know your customer) | Must follow KYC procedures (typically proof of identity and address) to ensure compliance in the jurisdictions they have operations in. | No KYC required. |
Examples | Centralised Exchanges: Coinbase, Binance, Bitsamp, Luno | Software wallets Browser Extension: Metamask, Trust Wallet, Liquality App Download: Metamask, Edge, Eidoo, Argent Hardware wallets: Trezor, Ledger, D’CENT |
by Sheetsu.com