A non-custodial wallet is a tool that allows users to hold a private key to digital assets in a secure way.

If crypto investing is like rock climbing, then holding assets in a non-custodial wallet is like having a rope, a harness, and a belayer. Meanwhile, holding crypto assets on a centralized exchange (where some other company or organization holds the private key) is the equivalent of climbing free solo — or climbing without any safety equipment.

A good non-custodial wallet should be a building block of the new crypto-based financial system. It is one of the key elements that makes a financial system based on financial security and freedom possible.

One of the main reasons that crypto users don’t transfer their assets to a non-custodial wallet is that it involves extra steps and requires that users document and safely store their private key (also known as a seed phrase) which is commonly a list of between 16 and 24 words.

But following the collapse of several high profile centralized exchanges (and the wipeout of billions of user funds) in 2022, crypto users of all kinds are waking up to the reality that it is well worth the extra steps of setting up and securing a non-custodial wallet.

There are a number of good options available from web-based wallets to even more secure offline hardware wallets. Deciding on what kind of non-custodial wallet to use should be based on the kinds of assets you plan on holding, and the kinds of financial products you want to access with those assets.

Another trend that is encouraging the shift toward non-custodial wallets is the interest in DeFi. DeFi, or decentralized finance, makes managing money — from savings and lending to investing and predictive markets — more accessible to everyone. DeFi is accessible to everyone and allows users to mix and match apps and products to develop their own suite of customized services.

A versatile and easy-to-use non-custodial wallet is a key building block of DeFi systems, which will, over time, increase the number of options and features available to users — hopefully driving an overall better user experience.