Non-Custodial

Non-Custodial Wallet Definition

A non-custodial wallet is a cryptocurrency wallet where you, and only you, control the private keys. Unlike custodial wallets managed by an exchange or third party, non-custodial wallets put you in direct control of your assets. This reflects the principle: “Not your keys, not your coins.”

With advancements in technology, solutions like non-custodial MPC wallets take this concept further. In an MPC wallet, your private key is split into multiple secure parts. This innovation enhances security by reducing the risk of theft or loss, while keeping you in complete control of your crypto.

How Non-Custodial Wallets Work

Unlike custodial wallets, where an exchange or third party controls the private key, non-custodial wallets ensure that you retain control over your cryptocurrency. Ulys takes this further with Multi-Party Computation (MPC): instead of storing a single private key, the key is split into multiple cryptographic shares. No one, not even Ulys, ever sees or holds the full key at once.

• Stronger security model: Even if one share is compromised, it’s useless by itself. An attacker would need to obtain all shares simultaneously to gain access.
  

• Recovery built in: If a device is lost, recovery is possible using remaining shares combined with biometrics and 2FA. This removes the need for vulnerable seed phrases.

For more on how MPC works, see our Multi-Party Computation glossary page.

The Evolution of Non-Custodial Solutions

The world of digital assets has made remarkable progress, moving beyond early challenges like complex key management and reliance on centralized exchanges. Non custodial solutions have evolved dramatically, offering greater security and simplicity for users. Here’s a timeline of key milestones in this evolution:

• 2009: Bitcoin introduces the idea of non-custodial ownership, giving individuals direct control over their assets.

• 2014: Hardware wallets enter the scene, providing offline storage options to enhance asset security.

• 2018: Non-custodial exchanges gain popularity, empowering users to trade while minimizing counterparty risk.

• 2023: Multi-Party Computation (MPC) wallets revolutionize key management, merging advanced security with an intuitive user experience.

These advancements highlight how far non custodial solutions have come, paving the way for secure, streamlined management of digital assets.

Technical Foundations of Non-Custodial Systems

• Public-Private Key Cryptography: Ensures only you can access your digital assets.

• Distributed Ledger Technology: Transparent, tamper-proof records across the network.

• Smart Contracts: Enable automated, trustless interactions.

• Multi-Party Computation (MPC): Reduces the need for traditional seed phrases without compromising security.
  

Why Choose Non-Custodial?

• Full Control: Nobody else can freeze or restrict your assets.

• Enhanced Security: MPC adds resilience by splitting keys.

• Greater Privacy: Minimal personal info required; reduced KYC.

Non-Custodial vs Custodial Wallets

Non-Custodial Applications Across Industries

• DeFi: Lending, borrowing, yield opportunities without intermediaries.

• Digital Identity: Self-sovereign identity verification.

• Supply Chain Management: Transparent tracking from producer to consumer.

• Voting Systems: Secure, verifiable electronic voting.

• Content Creation: Direct monetization without middlemen.
  

Examples of Non-Custodial Solutions

• Non-Custodial Wallets: MetaMask, Trust Wallet, MPC wallets like Ulys.

• Decentralized Exchanges (DEXs): Uniswap, PancakeSwap.

Challenges of Non-Custodial Systems

• Responsible Ownership: You must safeguard credentials.

• Learning Curve: Managing keys/phrases requires knowledge.

• Recovery Limitations: Traditional wallets lack options. Ulys addresses this with passkeys, biometrics, and gasless recovery.
  

How to Use Non-Custodial Systems Safely

• Secure Your Key Shares: Avoid storing on internet-connected devices.

• Backup Regularly: Keep multiple, secure backups.

• Stay Educated: Keep software updated and follow best practices.

Security Best Practices

1. Enable multi-factor authentication.

2. Use cold storage for large holdings.

3. Diversify storage across wallets.

4. Continue learning about new threats.
   

The Future of Non-Custodial Technology

• Quantum-Resistant Cryptography

• Improved Interoperability

• Simplified Interfaces

• Integration with Traditional Finance

• Regulatory Adaptation

At Ulys, we’re not just imagining the future of non-custodial technology. We’re building it.

How Ulys Improves Non-Custodial UX

Ulys combines the security benefits of non-custodial wallets with ease of use by:

• Replacing seed phrases with passkeys & biometric login.

• Utilizing MPC to split key control for added resilience.

• Offering gas sponsorship, removing the need to hold ETH for fees.

This keeps users in full control while eliminating friction.

Limitations and Considerations

While non-custodial wallets with MPC offer stronger protection, there are a few trade-offs to keep in mind:

• Device access: You’ll need access to supported devices and recovery methods. If all recovery options are lost, your assets may become inaccessible.

• Trust in cryptography: Security depends on the MPC protocol being correctly implemented.

• User experience: Combining key shares can add a small amount of latency compared to a traditional hot wallet.

For context on wallet options, see our guides on Hot Wallets and Cold Wallets.

Non-Custodial Wallet FAQs

Q: Are non-custodial wallets completely safe?

A: No wallet is entirely safe. They eliminate exchange hacks but require strong personal security practices.

Q: What happens if I lose my seed phrase or device?

A: Without backups or recovery, funds may be lost. Ulys mitigates this with Multi-factor authentication (MFA), including Two-Factor Authentication (2FA), to help shield against unauthorized access to your account by adding an extra layer of security beyond your password. Additionally, when using the Ulys wallet, biometrics (like your fingerprint or facial recognition) are required to sign transactions.

Q: Can I recover my wallet on a new device?

A: Yes. Recovery options, such as wallet restoration in conjunction with 2FA and biometrics, allow for safe access on new devices.

Q: Do non-custodial wallets support all cryptocurrencies?

A: Support varies by wallet. Always check compatibility before transferring assets.

Q: What happens if I lose my device?

A. If your device is lost or broken, you won’t immediately lose access. Non-custodial solutions like MPC often split key material into multiple “shares.” You can recover access using an alternative device and backup methods (e.g., encrypted cloud backup or recovery file) without exposing the full key. (See also our “MPC vs Traditional Key Management” comparison.)

Q: Is non-custodial always safer?

A. Not necessarily. “Non-custodial” means you hold the keys, which gives you control but also full responsibility. If you mishandle backups or use weak security, say, storing keys unencrypted, it can still present potential risks. The right architecture (e.g, MPC) helps reduce risk, but non-custodial models still require diligence.

Q: How is recovery handled without seed phrases?

A. In MPC-based non-custodial setups, recovery uses key-share regeneration rather than traditional seed phrases. Lost or unavailable shares are rebuilt cryptographically using the remaining shares, plus backup authorization (such as a device and cloud combination). This approach avoids giving users a vulnerable 12- or 24-word seed.

Q: Can I switch from custodial to non-custodial?

A. Yes. Typically, by exporting your assets (tokens, NFTs) from the custodial service into a wallet you control. Then you can import them into a non-custodial setup (e.g, via MPC wallet). You’ll have to manage your new key infrastructure and backups, but the move is feasible.

Q: How does MPC improve non-custodial security?

A. MPC (multi-party computation) splits key control into multiple encrypted parts. No single share ever holds the full private key, so even if one share is compromised, an attacker can’t reconstruct your wallet. It reduces single points of failure, eliminates reliance on seed phrases, and enables more flexible recovery schemes.