We are adding custody wallets. What is changing at Bitwala?

Bitwala is integrating a custody wallet alongside our non-custody wallet solution. We wanted to take the time to explain what is changing, why and how it will affect our customers.

What is changing

  • All users will get a custody wallet for bitcoin and ethereum as part of their Bitwala account.
  • Users will be able to use the custody wallets to trade, deposit and send, and use the Bitcoin Interest Account.
  • Trading will be cheaper and faster from the custody wallet as there is no on-chain transaction.
  • In the future, new functionality such as spending your bitcoin directly from your card will be available for custody wallets.

What is not changing?

  • Users will continue to be able to use their non-custodial wallets in the same way as before e.g. trading, deposit and sending.
  • Existing users will not be obliged to use the custody wallet.
  • New users can set up a non-custodial wallet from within the Bitwala account.

I want to emphasize in the strongest possible terms that we will continue to support our existing non-custodial wallets and have no plans to deprecate them.

Custody vs. non-custody: What’s the big deal?

For others, managing your own private keys is too complex and they would prefer to delegate this to a custodian. Many don’t understand the difference and think that bitcoin is bitcoin, regardless of how it’s stored.

Broadly speaking, the argument comes down to a question of security vs. convenience. When you hold your own private keys, you are effectively acting as your own bank. This is extremely powerful, but also places a burden on the user.

Benefits of a custodial wallet

  • Easier to create and use a wallet, especially for those new to crypto
  • Free and instant transactions & trades as no on-chain transaction is required
  • Users cannot lose their own private keys

Benefits of a non-custodial wallet

  • You cannot lose your funds if an exchange gets hacked
  • Your crypto cannot be confiscated or frozen by a government
  • You are using bitcoin in the way originally intended by its creator
This trade off is often too much for first time users.

Why now? The story of wallets at Bitwala

Our first product was purely an off-ramp solution (allowing customers to sell bitcoin, but not buy). When we launched Bitwala 2.0 we expected customers to use us in the same way as the first product: a quick and convenient way to turn bitcoin and ethereum into EUR.

What we saw was quite different. As the product grew, our buy-sell ratio increased; more customers were buying bitcoin than those who were selling it! For us, this was a fantastic achievement as we want to get as many new people into crypto as possible.

For those of you who’ve tried onboarding your friends to crypto, you know that there are often some teething problems. It was not the easiest experience explaining to my parents what a seed phrase is and where to store one. The reality is that the needs and experience of customers who’ve never used crypto before are different from those who’ve been in the space quite some years.

A custodial wallet is better for first time users

A custodial wallet enables us to automatically create a wallet for users on sign up and remove the need for a seed phrase. It also removes the rougher edges of the blockchain such as transaction fees and block confirmation times.

Custody unlocks features that our customers want

With non-custodial wallets, only you can move funds. With custodial wallets, we will be able to move funds on your behalf which means we can perform transfers asynchronously for example. This will unlock features like paying with bitcoin directly when you use the debit card.

With custody, transactions do not occur on-chain meaning you don’t pay a fee. This makes smaller transactions feasible and unlocks features like crypto roundups (buy a small amount of crypto when you make a purchase) or selling automatically at a certain time or price.

Custody makes trades cheaper and faster

Is this betraying Satoshi’s decentralised vision?

Personally, I don’t think so. Bitcoin and blockchain have evolved beyond what Satoshi initially envisioned in many ways. Custody wallets might be incompatible with ‘peer-to-peer’, but the way people are using bitcoin is different to ‘electronic cash.’ Today, most people buy and hold bitcoin, treating it more of an asset than the currency is was imagined to become.

Fundamentally, what I think is so special about crypto is not that users must hold their private keys, rather that this option is available to us.

A custodial wallet is the best way to get users to use a non-custodial wallet

Custodial or non-custodial, the choice is yours. Sign up to Bitwala and start trading bitcoin today.

Startup advisor | Co-Founder & CEO/CTO @Nuri