Interest in self-custody and extra security via non-custodial wallet solutions has surged after the failures of many centralized crypto exchanges and lending protocols lately. Indeed, the risks of trusting custodial wallets to safeguard user crypto holdings came to light.
A custodial wallet refers to a type of cryptocurrency wallet where the private keys are held by a third-party service provider, known as a “custodian.” With this approach, the custodian is responsible for securing a crypto’s private keys and protecting them from theft or loss, meaning users of the wallet do not have direct control over their own private keys and must trust the custodian to manage their funds appropriately.
Users are withdrawing large amounts of cryptocurrency from custodial wallets at centralized exchanges and lending protocols amid heightened anxiety about digital asset security. As a result, non-custodial solutions, whereby users secure and store their own digital assets, have experienced a sharp uptick in new users.
To offer more friendly and intuitive wallet solutions to meet growing user demand and rising digital asset security concerns, non-custodial wallet provider ZenGo has integrated its wallet solution with Polygon (MATIC).
The fresh integration gives Polygon users the first seedless self-custody option for Ethereum (ETH-USD), Polygon, Bitcoin (BTC-USD), and other digital assets available within the ecosystem.
Through its wallet offering, ZenGo employs multiple security measures that reduce the complications of securely accessing a wallet and safely using it to transact, including ClearSign, which acts as a transaction firewall to help users safely navigate blockchain transactions. The decision to integrate with Polygon reflects the ecosystem’s strong growth, especially among Web2 brands like Nike (NYSE:NKE) and Starbucks (NASDAQ:SBUX) entering the Web3 universe of products and services like NFTs, the Metaverse, and other related offerings.
Not Your Keys, Not Your Crypto
The reason custodial wallets remain popular is that they remove many of the complicated activities that involve managing a crypto wallet. Private key management and recovery-seed phrases rank among the problematic elements that prevent mass market accessibility, making an exchange-based wallet a much simpler proposition for many crypto users.
Still, trusting third-party service providers like centralized exchanges with private keys to cryptos can result in their total loss. The phrase “not your keys, not your crypto” best describes the idea that whoever controls the private keys controls the crypto. Therefore, a custodian managing crypto access can also theoretically move the digital assets without user permission, like the case with FTX.
One of the main advantages of non-custodial wallets is that users exert full control over their own funds and take full responsibility for the security of their own private keys. However, this also means that users must be diligent in securing their private keys and protecting them from theft or loss, and there is also a vulnerability that arises from the seed phrase.
Seed phrases are a common feature designed to help users recover access to cryptocurrencies if they lose their private keys. Despite their usefulness, if an attacker can obtain a user’s seed phrase, they can use it to gain access to the user’s funds and steal their cryptocurrency. This vulnerability can occur if a user writes down their seed phrase and stores it in an insecure location or shares it with an untrusted third party.
To sidestep the seed phrase point of failure, ZenGo employs a seedless technique called multi-party computation (MPC) to secure wallet access and sign blockchain transactions. This approach to security splits the private key into two or more parts held in separate locations. In ZenGo’s case, half of the password is stored on a user’s device, with the other half stored on ZenGo’s servers.
When both halves of the passphrase are activated, the user can access the holdings contained in their wallets. The benefit is that no seed passphrase is involved, reducing security vulnerabilities while also assisting with any wallet recovery if a device is lost or compromised for any reason.
With the renewed spotlight on the safety and security of assets, ZenGo’s decision to integrate with Polygon reflects the crypto industry’s response to the risks of centralized service providers. As Web2 firms enter the crypto space to capitalize on its incentivization models, user-friendly and approachable wallet solutions will play a large role in establishing a more secure avenue to interact with Polygon’s growing ecosystem of products and services.