First of all, what does custody even mean? There’s so much information online about NFT wallets, crypto, and marketplaces that few people know how the custodianship of NFTs actually works.
Who’s the actual owner of the NFT after you purchase it from OpenSea? Is it OpenSea, or is it the original seller or the final buyer? Is it the artist who minted the NFT?
Custodial and non-custodial NFT marketplaces both have pros and cons, some offering more security and some offering more freedom.
Let’s find out the difference between a custodial & non-custodial NFT marketplace:
What is a crypto wallet?
An NFT is a digital token created on a blockchain, usually Ethereum, that cannot be replicated. If you want to learn more about NFTs, check out our insightful guide here.
A crypto wallet stores your private keys, which are the passwords that provide you with access to all your crypto and NFTs. Having an active crypto wallet, like MetaMask, allows you to receive Ethereum and most other cryptocurrencies safely. Crypto wallets could be hardware wallets or could be mobile apps.
Contrary to popular belief, the crypto wallets themselves don’t store the cryptocurrency. Your digital tokens exist on the Blockchain, and the crypto wallet holds your private keys to these holdings. If you lose them, you lose access to your crypto and NFTs.
How do crypto wallets work?
A public and private key pair is created after a cryptocurrency owner initiates their first transaction with a cryptocurrency. The keys are made up of a cryptographic code, a sequence of alphanumeric values that keep a crypto user’s NFTs and coins secure within the network. This is a protocol known as Public Key Infrastructure (PKI), used in Blockchain Technology to ensure the Blockchain’s integrity.
The wallets can be compatible with a specific network: Solana, Tezos, Ethereum, and many more. It identifies the location of the stored assets and accesses them through public and access keys.
A public key holds the cryptographic code that provides cryptocurrency users and owners with access to their money. The keys are the foundation of the crypto economy and its security, so they are essential to protect your NFTs.
What is custody?
What makes NFTs valuable is the offer of the promise of them being a unique asset in your hands, but do you really have control over the NFT?
Some custodianship options only provide the third party with ownership of the NFT. Others offer them partial ownership for them to take care of it on your behalf.
It’s thanks to crypto wallets that NFT owners can store cryptocurrencies.
What is a custodial NFT marketplace?
A custodial NFT marketplace owns your NFT wallet’s private key and holds your assets within custody. It doesn’t offer absolute control over the private keys directly to the wallet owners. A third party, like a custodial wallet service provider or NFT exchange, is charged with storing and managing your private keys and related assets.
It might seem terrifying to give access to such sensitive information to a third party owner, but the truth is that many mainstream NFT marketplaces operate in a custodial manner. We’ll examine some examples of these later.
Pros and cons of a custodial NFT marketplace
NFTs function as tokens on a blockchain network, meaning that an NFT trader will not have any problems storing them in crypto wallets, which raises the question:
Why would you opt for a custodial marketplace?
The custodial NFT wallet provides an easier account recovery, and most of them cost no money, making it more manageable if you’re just starting in crypto and NFTs. Because of their ease of use, custodial NFT marketplaces make it more convenient for you to focus on the NFTs in the market instead of figuring out how to use the wallet.
On the other hand, giving access to your private keys to a third party can possibly compromise the security of your crypto wallet. NFT marketplaces tend to be secure and professional, but that doesn’t mean they cannot be hacked. Even OpenSea, one of the largest marketplaces globally, has been hacked, and owners have lost NFTs from these cyber attacks.
On top of that, you need an internet connection to gain access to the wallet, which could be a downside if you don’t have an immediate connection to WiFi and need to do something quickly.
Custodial NFT marketplace examples
Here are some examples of mainstream custodial NFT marketplaces and how they work:
Nifty Gateway
Nifty Gateway is a web 3 marketplace with a custodial platform, enabling movement without having to process transactions with gas fees. It uses Nifty Gateway Omnibus wallet technology powered by Gemini, providing collectors with a significantly cheaper and easier way to move their NFTs. They also feature payment flexibility and account recovery.
Binance NFT marketplace
Binance is both a crypto exchange and a centralized, custodial NFT marketplace where you can browse, trade, and purchase virtual art. It’s an easy-to-understand marketplace with low fees, charging only a flat 1% trading fee due to its custodial nature.
What is a non-custodial NFT marketplace?
In a non-custodial marketplace, the creator of the NFT has absolute control over his NFTs, and they are the ones who choose whichever NFT transaction fees they want to apply. They can move NFTs between wallets whenever they please, even if the said marketplace is down.
Non-custodial crypto wallets are those that entrust control of the private keys to their asset holder. Non-custodial NFTs are introduced into the non-custodial wallet, which is a suitable option for those who want a better sense of control over their NFTs.
Non-custodial NFTs are purchased through decentralized exchanges, while custodial NFTs are purchased through marketplaces that manage your private keys.
In short, a non-custodial marketplace provides power and authority to the NFT owner.
Pros and cons of a non-custodial NFT marketplace
As a non-custodial NFT owner, you’re in charge of taking responsibility for your assets. You have to keep track of all your sensitive information to ensure the safety of your NFTs.
Account recovery form a non-custodial crypto wallet is almost impossible unless there is a backup wallet and you have written down the recovery seed phrase. Many people forget to take these steps beforehand, causing many unfortunate users to lose their NFTs and crypto by accident.
Finally, performing transactions in places with public WiFi can be very dangerous and could lead to cyber-attacks or your information being compromised. Considering crypto wallets hold your financial information on their own, a cyber attack directly to it could be devastating.
They do provide a degree of an optimized user experience to use for secure storage of the wallet’s private keys, but should you forget or lose any of this information; it might be challenging to get your valuable NFTs back.
Non-custodial NFT marketplaces
What are some good non-custodial marketplaces, and how do they exactly work?
First of all, we have AIRNFTs, a non-custodial marketplace built on BSC, Fantom, and Polygon. Its focus as an NFT marketplace is developing a satisfying user experience and ease of use to create NFTs to buy, sell and trade.
AIRNFTs
AIRNFTs use their native token, AIRT, set on the BEP-20 protocol. It has minted more than 110,00 NFTs, and artists on AIRNFTs have the option to generate extra income from their royalties from secondary sales, featuring NFTs such as sports, gaming, video, music, and art.
SuperRare transactions are decentralized peer-to-peer, featuring 30 nodes and a connection between any pair. No one has access to the NFTs or funds in SuperRare except for its traders.
OpenSea is one of the biggest NFT marketplaces out there. Your NFTs never leave your crypto wallet until they are sold, as the marketplace itself doesn’t perform transfers nor controls the Ethereum blockchain.
It’s possible to store NFT art in both wallets, as long as the wallet you’re using supports the type of NFT you’re keeping in it. This usually ties in with the Blockchain the NFT and the crypto wallet are both based on.
Final words
Both custodial and non-custodial wallets and NFT marketplaces have their pros and cons. Custodial NFT marketplaces will provide you with cheaper, easier-to-understand, and more accessible NFTs with less versatility and less freedom than non-custodial NFT marketplaces.
The latter will provide you with the peace of mind of being the permanent owner of the NFT no matter what, even if the site goes down tomorrow, though a non-custodial wallet will definitely be more expensive.
If you’re starting, we recommend custodial NFT marketplaces to learn the basics, though that doesn’t mean that non-custodial NFT marketplaces can’t be for beginners.
It all comes to how comfortable you feel with each option, and there’s always the possibility of using both.
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